Two SROs--NASD for the securities industry and NFA for the futures industry--are associations that regulate registered securities and futures firms as well as oversee individuals employed in the securities and futures industries. Changes in NASD and NFA Fine Imposition Practices Resulted in Improved Collection Rates

Fine collection rates improved at both NASD and NFA primarily because of changes they made to their fine imposition practices. Compared with its rates for the 1992 through 1996 period, NASD has recently been more successful in collecting the fines it levied. SEC and CFTC Continue to Review Individual SRO Fines but Have Also Taken Steps to Improve Their Industrywide Oversight

In conducting their oversight of securities and futures SROs disciplinary programs, SEC and CFTC review individual fines imposed by SROs to assess the reasonableness of the sanctions applied. SEC and CFTC Process Weaknesses Hamper FMS Efforts to Collect Their Fines

As required by the DCIA, SEC and CFTC refer delinquent fines to Treasury’s FMS, which conducts collections on behalf of federal agencies (see app. SEC officials acknowledged that there had been delays in responding to FMS. FMS and SEC officials told us they have been working together to reduce the delays in approving compromise offers. Conclusions

On the basis of the data we obtained, collection rates at SEC, CFTC, and the nine securities and futures SROs were generally comparable to, or higher than, their rates from our previous review. Also, SEC has not yet adopted the regulations it needs to again submit its fines to TOP to benefit from the associated collection opportunities. Finally, although CFTC has only recently begun submitting fines to FMS for collection, already concerns about the timeliness of these submissions exist. The agency’s Inspector General staff have recommended steps to ensure that CFTC fines are submitted more timely to FMS, but these steps have yet to be implemented. Weaknesses in procedures for ensuring that CFTC submits all needed information to FMS to collect its unpaid fines also appear to have further delayed FMS’ collection efforts. We also recommend that the Acting Chairman, CFTC,   periodically assess the pattern of readmission applications to ensure that the changes in NFA’s fine imposition practices do not result in any unintended consequences, such as inappropriate readmissions; and take steps to ensure that delinquent fines are promptly referred to FMS, including creating formal procedures that address both sending debts to FMS within the required time frames and requiring all of the necessary information from the Division of Enforcement on these debts. We have included this information in this report. In most cases, including both the Security and Exchange Commission and Commodity Futures Trading Commission, fees are added to the original debt amount so that the debtor pays.
Why GAO Did This Study

Fines are one way for regulators to sanction those who violate securities and futures industry rules. However, for fines to be effective, regulators must collect them. This report reviews fine collection by the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), and nine exchanges and industry associations that act as self-regulatory organizations (SRO) in the securities and futures industries. GAO (1) compares how the securities and futures regulators' current collection rates have changed since GAO's November 1998 report 1998 and assesses the changes they made in their fine imposition practices; (2) discusses the steps taken by SEC and CFTC to oversee the SROs' fine imposition activities, including the actions they have recently taken to improve this oversight; and (3) assesses the effectiveness of actions taken by SEC and CFTC to refer unpaid fines to the Financial Management Services (FMS).

What GAO Found

GAO found that collection rates at SEC, CFTC, and the SROs were generally comparable to, or higher than, their rates at the time of GAO's earlier report. Among the SROs, the National Association of Securities Dealers (NASD) and the National Futures Association (NFA) had the lowest collection rates between 1992 and 1996. However, fine collection rates for both organizations improved after they changed their fine imposition practices. SEC has begun to collect data that would allow it to analyze securities sanctions throughout the industry. Similarly, CFTC has begun to document the results of its review of industrywide futures sanctions. Both SEC and CFTC have reviewed the extent to which their respective SROs maintain automated fine collection records. FMS' efforts to collect SEC's fines have been hampered by SEC's delays in approving compromise offers, delays by SEC's Commissioners in responding to FMS' requests for more timely action, and by SEC's failure thus far to adopt the regulations it needs to again submit its fines to the Treasury Offset Program to benefit from the associated collection opportunities. Although CFTC has only recently begun submitting fines to FMS for collection, concerns about the timeliness of these submissions already exist. The agency's Inspector General staff has recommended steps to ensure that CFTC fines are submitted more timely to FMS, but these steps have yet to be implemented. Weaknesses in procedures for ensuring that CFTC submits all needed information to FMS to collect its unpaid fines also appear to have caused further delays in FMS' collection efforts.