Wednesday, January 16, 2013

FSA and FINRA Competing on Fines?

Has this become  a contest to see who can inflict the most pain on an industry? FT Adviser has an article today titled "FSA Fines Put US in the Shade" which compares fines levied by the UK's FSA and the US' FINRA, pointing out that the FSA has issued $500 million in fines in 2012 compared to $68 million by FINRA.

No one needs to be encouraging FINRA to increase its fines, and with so many egos at play in the organization, these comparisons might just do that. And this misinformation coming from an industry publication does additional harm in that it sends a message to the public that the US regulatory system is not doing an effective job.

But lets look at reality. You can't compare the FSA, a government entity with sole responsibility for regulating the UK's financial markets, with FINRA, a self-regulatory, private entity, which regulates part of the US financial industry.

The better comparison, if such a comparison is useful, is the FSA with the combined FINRA/SEC/CFTC/NFA. (why we have four regulatory agencies to do the work of one in the UK is another question that needs to be addressed, but not here).

Incredibly, despite the headline, the article does mention that the difference in the numbers in part because the FSA fined firms over the Libor Scandal, and in the US the fines came from the SEC. The article doesn't do the math, but add in the SEC Libor fines, and the numbers are UK $500 million, US, $420 million (assuming the articles numbers are correct).

But that is still not an accurate comparison because it overlooks the fact that the SEC obtained over $2.2 BILLION in monetary relief in 2012. That is BILLION, compared to the FSA's 300 MILLION.

Let's keep this all in perspective. We haven't added in the state  regulators, nor have we added in the various exchange regulators. But the point is the US regulators are doing just fine in the fine wars. They don't need any encouragement.

As pointed out in the article:
“It is clear by the heightened level of financial penalties currently being issued against offenders globally that regulators have upped their game.”
Firms and brokers also need to up their own compliance efforts, or face extinction from an overzealous regulator looking up its game.

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