The Financial Industry Regulatory Authority expects to see a 5% drop in its operating revenues in 2022 from the previous year, according to the organization’s annual budget summary released this week.
According to FINRA, 2022’s operating revenues were projected to total about $1.095 billion, compared with about $1.155 billion from the prior year. FINRA said the expected decline was due to fewer corporate filings and lower trading volumes. FINRA said the declines would be mitigated by previously announced fee increases going into effect this year.
The agency also projected an increase in operating expenses over the next year as it “resumes more normal activities,” including more travel, compensation costs to backfill vacancies from the pandemic and hiring new staff, according to an introductory letter to the budget summary penned by Chairperson Eileen Murray and President and CEO Robert Cook.
The fee increase is expected to take place in three phases from 2022 to 2024; FINRA first announced its plans to raise member firm fees in October 2020 in a notice to member firms, with Murray and Cook writing that while FINRA’s regulatory obligations had “expanded significantly” in the past decade, it had not raised fees since 2013. While the agency had been successful in deferring increases by reducing its reserves and managing expenses, those options alone no longer sufficed, according to Cook and Murray.
The budget summary also detailed the board’s approval of $120.5 million in capital initiatives, with the money going toward an “intensified focus on regulatory operational improvements, regulatory oversight initiatives, other new strategic opportunities,” and to address tech enhancements and cybersecurity necessities.
The board also approved $62 million for one-time projects, including building out systems supporting firm filing and reporting requirements and tech enhancements in enforcement, which are all expected to be completed over the next several years.
FINRA’s operating expenses will primarily be dedicated to compensation and technology (which includes costs for employees, security, hardware, cloud hosting and software) at 64% and 26% of total expenses, respectively. FINRA’s 2022 budgeted employee head count is expected to significantly rise to an estimate of 3,977.5 from 2,732.5 last year.
FINRA’s head count has consistently grown since 2019, which the budget summary attributed to a need to support regulatory operations and ensure FINRA has enough staff to “respond to the demands of an evolving marketplace.”
Overall, FINRA said it expected to have an operating loss in 2022, potentially drawing on about $164 million of its reserves (though it noted its actual net income or loss would include fines, investment returns and other adjustments not factored into its midyear projections).
“This potential loss is in line with our multiyear strategic planning for financial sustainability, as described in prior communications,” Murray and Cook wrote in the letter included in the summary.