Investigations and enforcement actions conducted by state securities regulators jumped by 23% and 33%, respectively, between 2018 and 2019, according to the North American Securities Administrators Association’s annual enforcement report. The survey also found that the enforcements led to $623 million in restitution ordered for investors, as well as $80 million in fines.
Between 2018 and 2019, investigations jumped from 5,320 to 6,525, while enforcement actions increased from 2,067 to 2,755, according to the report. In all, state securities regulators brought enforcement actions against 1,218 registered parties, which included 200 broker/dealer firms, 391 broker/dealer agents, and 193 investment advisors and 434 investment advisor representatives, according to the report.
Additionally, state securities regulators across the country reported a 15% increase in actions against unregistered brokers, advisors and others, including cases against 57 finders or solicitors, 51 financial planners, 66 insurance firms and agents, and 14 foreign actors.
“State securities regulators are on the front lines in the fight against financial exploitation and investment fraud,” said Lisa Hopkins, NASAA president and West Virginia senior deputy securities commissioner. “This report reflects the responsive and effective actions taken by NASAA members against a wide variety of actors who seek to do harm to Main Street investors.”
The report also touted the success of the NASAA Model Act to Protect Vulnerable Adults from Financial Exploitation, which was adopted in January 2016 for states to use as a guide to enacting their own rules or legislation, which mandated that certain financial services professionals must report their “reasonable belief” that someone has tried to financially exploit a senior investor or vulnerable adult. NASAA found that 28 jurisdictions had enacted rules or legislation based on the model act, with states fielding 709 reports, opening 233 investigations and bringing 15 enforcement actions relating to the model act.
The report comes one day after NASAA released a study examining broker/dealer and investment advisor conduct in the first quarter of this year in order to provide a benchmark to measure the effectiveness of Regulation Best Interest’s implementation and impact on the industry. In the months leading up to Reg BI, the report found investment advisors tended to take conservative investment approaches overall, avoiding higher cost and riskier products and engaging in more due diligence, disclosure and conflict management practices than their b/d counterparts (though the report found that broker/dealers offered more diverse product offerings than investment advisors).
“Both broker-dealers and investment advisors have a significant opportunity to improve under Regulation Best Interest in order to better serve the interests of their retail clients,” said Andrea Seidt, Ohio securities commissioner and chair of NASAA’s Regulation Best Interest Implementation Committee. “We are closely watching the industry’s early implementation of the SEC’s Regulation Best Interest with an eye toward determining whether the rule benefits investors as intended."
