Citing the rising costs of regulation, the Financial Industry Regulatory Authority Inc. (FINRA) is hiking fees on broker-dealers.
The U.S. industry self-regulatory organization (SRO) is planning a fee increase, which will be phased in between 2025 and 2029, that is projected to hike fees at a compound annualized growth rate of 5.3%.
The fee hike comes as the non-profit SRO’s expenditures are projected to outpace revenues in the years ahead, amid rising labour costs and escalating technology demands.
Additionally, FINRA’s regulatory turf has expanded.
“New investment products, services, and trading venues continue to emerge, and trading volumes and participation in the markets remain at historic highs,” the SRO said. “These developments — while reflecting positively on the innovation and vibrancy of our capital markets — have added to the scope of FINRA’s responsibilities, even as its other long-standing and important regulatory obligations remain undiminished.”
While FINRA has drawn on its strategic reserve to avoid fee increases in recent years — more than US$400 million between 2013 and 2023 — it’s now projecting that these reserves will not be enough to bridge the forecast gap between revenues and expenses in the years ahead.
“With the planned fee increase, the reserves are expected to be at their targeted level in 2029 and our anticipated operating budget will be evenly balanced, with expected revenues approximating expected expenditures,” the SRO said.
For big firms (with at least 500 reps), the median increase in annual fees by 2029 would be US$415,000 by 2029, FINRA estimated.
For mid-sized firms (between 150 and 500 reps), fees will be rising by $82,500; for smaller firms (10 to 150 reps), the increase would be $4,135; and for firms with fewer than 10 reps, the annual increase would be US$625.
The SRO noted that the actual increase in fees paid by firms may be lower — between 3% and 4% — given that many firms pass along some of their FINRA fees to their reps and/or clients.
After the increase is fully phased in, FINRA projected that its fees as a percentage of firms’ total revenues will be approximately 0.31%, which is generally in line with the historical average.