The Financial Industry Regulatory Authority says it will maintain member fees for now, but that decision may have to be revisited in the near future.
In its newly released budget summary for 2019, the self-regulatory organization says it will not seek to increase member fees this year – the sixth consecutive year without a fee increase – and instead will close any shortfall with the use of its reserves.
“FINRA’s long-term financial plan, as reflected in our Financial Guiding Principles, assumes we will increase member fees only after evaluating other sources of funding, including drawing down on excess reserves, and that we will also rely on reserves from time to time as we increase capital and initiative spending to meet our regulatory responsibilities,” Chairman William Heyman and CEO Robert Cook wrote in a letter accompanying the budget document.
FINRA notes, however, that ongoing reliance on excess reserves in lieu of fee increases will eventually result in several years of net losses. “Those will be reported in our Annual Financial Report as they occur, until the level of reserves approaches our annual expenditures, at which point fee increases will become necessary,” Heyman and Cook state.
Based on the organization’s assumptions, the difference between its projected 2019 revenues and expenses could result in a draw on reserves of $185.8 million. According to the 2019 budget estimates, operating revenue of $846.9 million is projected to be flat compared to 2018. Revenue from regulatory fees – including fees that are primarily assessed according to firms’ gross revenue and trading volume, and firms’ total number of registered representatives – are projected to increase.
FINRA notes, however, that user fees – which comprise nearly a third of operating revenue – are expected to decrease, driven by lower registration fees, changes in transparency services’ trade volume in the over-the counter market and declining testing exam volume.
On the other side of the ledger, operating expenses are projected to increase 3.7% in 2019, due primarily to increases in compensation- and technology-related expenses. FINRA notes that since 2015 increases in overall operating expenses have stayed largely in line with inflation, at an annual rate of about 1.6%.
The organization also anticipates capital initiative spending of $97.3 million in 2019. Among the projects underway are:
- a multi-year transformation of its external-facing digital platform in an effort to facilitate compliance by member firms;
- a redesign of its workforce training and development programs; and
- an upgrade to the platform that supports FINRA’s trade reporting facilities to better handle current market requirements at reduced costs.
In the organization’s 2019 Risk Monitoring and Examination Priorities Letter released Jan. 22, FINRA notes that investment suitability will remain one of its top examination priorities, but it will also target broker-dealers’ use of online distribution platforms, due diligence compliance and risk disclosure obligations as part of its expanded areas of focus.
