Review of Enforcement Actions
Enforcement actions are a useful way for companies to see trends in how regulatory agencies are enforcing existing rules. Enforcement orders cite a violation and depending on that, will have an associated penalty, which could be monetary or non-monetary. An example of a non-monetary penalty would be X. There is also a reputational cost. For example, if you saw your personal bank listed in the headlines for not following, let’s say, consumer privacy rules, it could reduce or diminish your trust with them and you could justifiably look for a new bank to use.
At Compliance.ai, we publish a weekly Enforcement Action Report that summarizes the week’s enforcement activity across all financial agencies, with the violation and penalty already extracted for you. Allowing you to more easily identify which enforcements are relevant to you or require further review.
In this article, we are providing an analysis of enforcement activity between December 2018 thru February 2019 using the Compliance.ai Enforcement Action Tracker.
At a glance, it is clear that the Securities and Exchange Commission (SEC) has issued the most enforcement actions. In addition to evaluating the volume of enforcement documents by agency, it is, of course, important to assess the violations and penalties in order to see how the enforcement activity could apply to you.
SEC (Dec 2018 to Feb 2019) 218 enforcement documents | $525,648,061.88 in civil money penalties
Top violations cited: Falsifying accounting books, unregistered brokers falsely posing as retail investors, misleading statements regarding risk, and the issuing of false account statements to defraud investors.
There were also 12 instances where firms filed periodic reports, such as, the Form 10-Q, incorrectly. In general, the SEC cited many violations involving false and misleading representations and omissions regarding asset values, including providing artificially inflated values on securities. In contrast, from June to September 2018 the SEC issued 440 enforcement action and imposed $510,645,562 in civil money penalties for similar types of violations. The numbers indicated that they issued fewer enforcement actions compared to June through August, but the penalty amount is still over $500 million showing a trend that the SEC is imposing higher fees for similar violations.
The second most active agency during this period is Financial Industry Regulatory Authority (FINRA), who primarily focuses on the broker-dealer and financial advisor industry.
FINRA (Dec 2018 to Feb 2019) 121 enforcement documents | $25,455,536.83 in civil money penalties
Top violations cited: Exercising discretion without authorization or written consent; collecting commissions on those unauthorized transactions; falsifying data and accounting records, wire fraud, check-kiting; and elderly financial exploitation by trading for an incapacitated person without their authorization and collecting commissions.
There were repeated violations from 6 months earlier also citing unauthorized transactions in customer accounts and elder financial exploitation. In comparison to the previous period, FINRA issued 137 enforcement actions with approximately $17 million in fines. Similar to the SEC, we see a trend that during this period, there were a fewer number of enforcement actions, but a higher amount in civil money penalties.
FDIC (Dec 2018 to Feb 2019) 78 enforcement documents | $50,816 in civil money penalties
Top violations cited: Unsafe unsound banking practices such as inadequate liquidity, deficient capital levels, inadequate earnings, elevated sensitivity to market risk, ineffective board and management oversight, poor strategic planning, inadequate Bank Secrecy Act programs, inadequate IT programs, inadequate compliance programs, insufficient internal controls, failure to comply with the Flood Insurance regulation requirements.
FTC (Dec 2018 to Feb 2019) 25 enforcement documents | $28,427,810.00 in civil money penalties
Top violations cited: A paid delayed release of a generic drug, tech support scams, fake job opportunity and resume repair scams, robocalls scam involving interest rate reduction and e-commerce schemes.
These actions are significantly different from the citations from June to September 2018 which involved charity scams and deceptive advertising. These trend changes could indicate that the FTC is adjusting the priorities and focusing on different problems.
OCC (Dec 2018 to Feb 2019) 19 enforcement documents | $0 in civil money penalties
Top violations cited: Violating consent orders, unsafe or unsound practices relating to enterprise governance, and concentration of credit and credit risk management. Other citations noted deficiencies in the compliance management system and IT.
The OCC issued no enforcement actions from June 01, 2018 thru August 31st, 2018. The fact that both banking regulatory agencies have picked back up enforcement action activity should send a clear picture to the banks they regulate. There have been many changes to banking regulations recently, and those agencies were addressing their examination procedures. Now that they have solid examination procedures they are back to enforcing those rules and holding the financial institution accountable.
CFPB (Dec 2018 to Feb 2019) 7 enforcement documents | $16,128,870 in civil money penalties
Top violations cited: Regulation E and failing to honor stop payment requests of pre-authorized ETFs and failing to initiate and complete reasonable error resolution investigations, Truth in Lending and Gramm-Leach-Bliley Act (privacy).
The CFPB during this period was under the interim supervision of Mick Mulvaney, and in December a new director Kathy Kraninger was appointed. The agency is in a transitional period which might mean once the agency gets direction from management these numbers could increase. In June to September 2018 the CFPB issued 4 enforcement actions for $373,022,298. These violations also cited the Truth in Lending Act which indicates that this regulation is a hot button area of review for the CFPB.
FRS (Dec 2018 to Feb 2019) 7 enforcement documents | $0.00 in civil money penalties
Top violations cited: Embezzlement, forgery, wire fraud, securities fraud, deficient risk management and compliance with anti-money laundering regulations.
NYSE (Dec 2018 to Feb 2019) 18 enforcement documents | $435,000 in civil money penalties
Top violations cited: Lack of internal controls and adequate supervisory procedures.
FinCEN (Dec 2018 to Feb 2019) 1 enforcement document | $0 in civil money penalties
Top violations cited: Failure to implement an adequate Bank Secrecy Act Program.
Previously in June through September of 2018 FINCen had not published any formal actions.