Two days after Christmas, a prominent Wall Street regulator updated a database with news of interest to the industry: A $1.4 trillion brokerage had been slapped with one of the year's biggest fines for allegedly losing track of almost a million trades.
But there was no press release when the Financial Industry Regulatory Authority hit LPL Financial Holdings Inc. with the $6 million penalty. Nor did Finra seek attention for its multimillion-dollar sanctions of Goldman Sachs Group Inc. and Barclays Plc months earlier.
The quiet end to those probes capped a year in which the number of enforcement actions brought by the brokerage industry's self-funded regulator slid to the lowest level in its history.
Total fines picked up last year but are down by about half since a peak in 2016. Meanwhile, FINRA's headcount and budget have expanded.
The declines are raising concerns that the watchdog isn't policing firms with the same aggressive posture it adopted after the 2008 financial crisis and multibillion-dollar Ponzi scams by brokerage operators Bernie Madoff and Allen Stanford, both of which went undetected for years.
FINRA rejects the idea that it has pulled back on enforcement. But some are raising the question: Will the regulator catch the industry's next big fraud?
"Right now, there's no big crisis going on," said Brad Bennett, FINRA's enforcement director from 2011 to 2017. "The tide is in, but as sure as the sun rises in the east, the tide will go out. And people will be wondering: Where the hell was FINRA?"
The changes at FINRA have frustrated some enforcement staff, who have pushed the regulator to more aggressively pursue and promote cases, according to people familiar with the matter.
In multiple instances in recent years, employees drafted press releases to promote cases, only for managers to spike their publication, the people said.
Last year, the regulator issued press releases on just 10 of 426 enforcement actions, compared with 63 in 2015. Finding details on cases like LPL's can require digging into a cumbersome FINRA database.
FINRA says it hasn't strayed from its mission.
"There is an important reason why there are fewer enforcement actions: Finra has reduced the number of bad actor firms and individuals over time," Ray Pellecchia, a spokesperson for the regulator, wrote in a reply to Bloomberg's questions. "Any suggestion that we have let up on our regulatory focus is just dead wrong.
FINRA said it has improved rules that keep bad actors from being brokers, leading many to operate in industries that it doesn't regulate — like insurance. It prioritizes cases that involve repeat offenders and customer harm.
And the regulator said it tries to address multiple matters in one enforcement action when appropriate, which tends to decrease the total number of actions.
On press releases, Pellecchia said issuing too many of them would dilute the impact of enforcement actions it wants to emphasize. FINRA also publishes them in a monthly newsletter and two databases, he said.
A spokesperson for the SEC, which oversees FINRA, declined to comment. The SEC's enforcement numbers stayed relatively steady even as FINRA's fell.
Gary Carleton, a former senior counsel at FINRA, said he has no reason to believe that there has been decline in financial crime, including in areas that FINRA regulates.
"To the contrary, with the growth of so many more financial platforms, the use of social media and direct messaging, there is far more opportunity for abuse that is harder to detect," he said in an interview.
When asked about the drop-off in enforcement, Senator Elizabeth Warren said she planned to investigate.
"FINRA's job is to protect investors and hold big financial services firms like Goldman and Barclays publicly accountable when they don't follow the rules — but they can't do that if they take the cop off the brokerage beat," Warren, a Massachusetts Democrat, said in an emailed statement to Bloomberg.
FINRA's Roots
FINRA was created in 2007 through a merger of self-regulatory organizations. It serves as a beat cop for brokerages and exchanges, helping to track stock and option trades in U.S. markets. Each year, it feeds reams of tips on suspicious trades to the SEC.
The watchdog emerged as an influential force in the U.S. effort to toughen regulation after the 2008 financial crisis. In addition to regularly fining major banks for misconduct, it played roles in probes of Wall Street spoofing and aided in the SEC investigation into hedge fund titan Steve Cohen.
