CORRECTED-FINRA crackdown in U.S. generates $68 million in brokerage fines

Tue Jan 8, 2013 5:12pm EST

(Corrects paragraph two to show the figure was less than $71.9 mln instead of $5 mln)

By Suzanne Barlyn

Jan 8 (Reuters) - A crackdown on complex products and conflicts of interests led to greater scrutiny of large brokerages in 2012, the head of Wall Street's industry-funded watchdog said on Tuesday.

The Financial Industry Regulatory Authority levied a total of $68 million in civil fines during 2012, according to statistics released by FINRA on Tuesday. The figure was slightly less than the $71.9 million imposed by FINRA in 2011, and included a string of high-profile enforcement cases against large brokerages. Those cases accounted for about one-third of total fines in 2012.

FINRA also ordered brokerages to repay harmed investors a record $34 million.

Small brokerage owners often accuse FINRA for targeting them compared with large brokerages in enforcement cases. Keeping up with FINRA's regulatory initiatives also demands more resources from smaller brokerages than their larger counterparts, they say.

The regulator oversees about 4,290 brokerages and 630,000 brokers.

Many of FINRA's cases against Wall Street's largest brokerages in 2012, including Morgan Stanley, Merrill Lynch and units of UBS AG and Wells Fargo Corp stem from FINRA's increased interest in potential conflicts of interest and complex products, such as certain types of exchange-traded funds, said Richard Ketchum, FINRA's chairman and chief executive, in an interview with Reuters.

Those priorities "will result in more cases against large firms because they're the ones engineering those products and the ones that have many of the conflicts because of their complexity," Ketchum said. For example, brokerage units that underwrite offerings of certain risky products stand to profit when retail brokers in the same firm boost sales of those products by pushing them to investors, even though they may not be suitable.

FINRA's year-end tally marks a substantial increase from 2010 when the regulator levied a total of $42.5 million in fines and ordered that about $6 million in funds be returned to harmed investors. An increase in FINRA's overall enforcement activity, beginning in 2011, coincided with a change in leadership at FINRA's enforcement division during the same year. (Reporting By Suzanne Barlyn; Editing by Kenneth Barry)

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