Courtesy Photo.

The Financial Industry Regulatory Authority released its 2018 Regulatory and Examination Priorities Letter this week, which included both new and ongoing areas of focus for the regulator.

Among the topics identified in the letter as areas of focus in 2018 are fraud, high-risk firms and brokers, operational and financial risks—including technology governance and cybersecurity—and market regulation. One of those priority areas, technology governance, may help explain why Citigroup Global Markets Inc. was hit with $11.5 million in sanctions on Dec. 28 for errors attributable to an electronic glitch.

FINRA said because of errors in the electronic feed of CGMI's ratings data over a five-year period, the firm displayed the wrong rating for some covered securities, for example, showing a “buy” instead of a “sell.” It also displayed ratings for other securities that CGMI did not cover, or failed to display ratings for securities that CGMI, in fact, rated.

While consenting to the findings, CGMI neither admitted nor denied the charges. And it had self-reported the problem. A Citigroup representative for institutional business declined to comment.

FINRA said that from February 2011 through December 2015, CGMI displayed to its brokers, retail customers and supervisors inaccurate research ratings for more than 1,800 equity securities—more than 38 percent of those covered by the firm. The regulator fined CGMI $5.5 million, and required it to pay at least $6 million in compensation to retail customers.

FINRA said in a statement that the firm “failed to timely correct the inaccurately displayed ratings, despite numerous red flags alerting the firm to ratings inaccuracies. … The firm also failed to conduct testing reasonably designed to verify the accuracy of research ratings data.”

The FINRA sanction was closely followed on Jan. 8 by a $70 million civil penalty against another Citigroup entity, Citibank, by the Office of the Comptroller of the Currency for an unrelated legal issue.

The OCC accused Citibank of failing to comply with the agency's 2012 consent order to correct anti-money laundering deficiencies. Citibank neither admitted nor denied the charges.

William Black, an associate professor of economics and law at the University of Missouri/Kansas City, was not surprised by the size of the two penalties for the Citigroup entities, nor by the outcome. Black is a former litigation director of the Federal Home Loan Bank Board, former general counsel of the Federal Home Loan Bank of San Francisco, and former senior deputy chief counsel at the Office of Thrift Supervision.

“Citi has a long, very bad supervisory history on many fronts,” Black said. He cited “a track record of long-term prior violations,” and noted that both the OCC and FINRA investigations found new and repeated violations.

“Citi's violations in both areas were very large in scope and importance and continued despite ample warning signs to Citi managers of the widespread violations,” he added.

Black, a longtime critic of big banks, said Citi is huge and can consider such fines a cost of doing business.

He concluded, “I find both sanctions to be characteristic of the general problem: endemic, repeated, and long-term violations by the largest banks followed by useless orders in which the bank or bankers admit no wrongdoing, and sanctions that are pinpricks and are ignored by Citi's top managers.”