FINRA Budget Examined

Michael Volpe

After spending a decade in finance, Michael Volpe has been a freelance investigative journalist since 2009. His work has been published locally in the Chicago Reader, Chicago Crusader, Chicago Heights Patch, and New City. Nationally, Volpe's work has appeared in a wide variety of publications including the Washington Examiner, the Daily Caller, Crime Magazine, the Southern Christian Leadership Conference Newsletter, and Counter Punch. Volpe has been recognized by whistleblowers as leading the charge in getting their stories out. His first book Prosecutors Gone Wild was published in October 2012, his second book The Definitive Dossier of PTSD in Whistleblowers was published in February 2013 and his third book Bullied to Death was published in August 2015.

FINRA

FINRA Budget Examined

April 24, 2019

FINRA, the Financial Industry Regulatory Authority, is expected to have a budget deficit in 2019, but that is not necessarily bad.

In the latest episode of Unscripted, FINRA’s podcast, the guest was Chief Financial and Administrative Officer Todd Diganci.

Diganci took a detailed look at the 2019 FINRA budget. He said that he expects the budget shortfall to be $185 million in the upcoming year, but he noted that FINRA will tap its reserves which currently stand at approximately $1.6 billion.

Diganci Todd
Diganci Todd

Diganci noted that a shortfall was better than the alternative. “It’s consistent with our guiding principles that we will rely on our reserves before we take price increases,” he said. “More importantly, I’m not worried about the draw down this year on reserves because we continue to look at ways to operate the place more effectively and efficiently.”

Diganci noted further that FINRA has not increased its prices for fees for member firms in six years but stated further that this is not sustainable.

“I’m not sure many businesses can survive in the long term without taking price increases.” Diganci said. “I think that price increases will be on the horizon.”

However, he noted that the brokerage industry is stagnating.

“The number of firms are decreasing not increasing,” he said. “We are also very sensitive to just increasing prices to the industry since the industry is not growing by leaps and bounds.” He said. Diganci also said that the budget shortfall will not be a reason to hunt for fines from member firms. That’s because fines are not included in the annual budget. “We do not use fine money to run the business, fund compensation expenses, or whatever those expenses may be. We have strict parameters over the use of fine monies.” He said.

Diganci also said that FINRA issues the “fine usage report” to the industry to be transparent about exactly how the fines are spent. He also said the budget shortfall comes from a basic problem: increasing costs.

Since 2015, the budget increased by 1.6% until 2019 when it increased by 3.7% from 2018. He said that the increase in costs is largely due to increasing compensation for FINRA employees. He also said training of employees would increase in 2019.

Diganci said that FINRA gets its revenues largely from the industry. He said it comes in multiple forms: regulatory assessments, user fees, and contracts. Assessments are annual fees charged to each member firms. User fees include things like registration disclosures or the use of FINRA for arbitration.

Regarding contract fees Diganci said, “We provide regulatory service agreements for exchanges and other SROs (self-regulatory organizations)”

FINRA is a self-regulatory organization; it was formed in 2007 when the regulatory arms of the NYSE and the NASDAQ merged.

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