Don’t let the numbers fool you, @WSJ, @jeaneaglesham, and davidamichaels.

A recent study conducted by the Wall Street Journal has found a significant reduction in the amount of penalties assessed by financial regulators for the first six months of 2017 as compared to the first six months of 2016 (Regulators’ Penalties Against Wall Street Are Down Sharply in 2017).  Citing a combination of change of regulatory emphasis, changes in personnel at the regulatory agencies, and the completion of large cases initiated during the financial crisis prior to the start of 2017, the study found that fines imposed collectively by the Securities and Exchange Commission, the Commodity Futures Trading Commission, and FINRA, for the first half of 2017 totaled $489 million, compared with the $1.4 billion imposed during the first half of 2016.  But no one should believe this means the regulatory environment is easing up.

The number of enforcement actions commenced has remained relatively constant, including during the first half of 2017.  Meanwhile, the amount of the fines being imposed in individual cases continues to be significantly higher than fines imposed for the same conduct just two to three years ago.  Perhaps resources freed up by the resolution of financial crisis cases have been re-purposed, as we continue to experience earlier involvement by enforcement staff – sometimes even working side-by-side regulatory examination staff.  This leaves firms battling two departments of the same regulator, simultaneously responding to exam deficiency letters and enforcement subpoenas.

Finally, at least part of the apparent decrease in the total fines can be traced to more aggressive termination of advisors by large firms – some still stinging from those historically large fines driving the statistics.   Missteps that resulted in a disciplinary letter tucked away in a personnel file five years ago now gets the employee fired.   Firms continue to exhibit their decreased tolerance, dedicating resources to sniff out compliance issues, terminate potentially problematic personnel as early as possible, arguably demonstrating a more proactive compliance oriented culture before the regulators knock on their doors.  While the pure numbers may be down, our experience demonstrates that regulatory enforcement is not easing.

Hamburger Law Firm continues to work with financial advisors facing investigation, administrative leave, potential termination, and the regulatory inquiries that typically continue to follow, in spite of the cited statistics.

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