What is the Financial Industry Regulatory Authority (FINRA)?
The Financial Industry Regulatory Authority (FINRA) is an independent, nongovernmental organization focused on writing and enforcing the rules that govern registered brokers and broker-dealer firms across the United States.
FINRA’s mission is to safeguard the investing public against fraud and bad practices, establishing itself as a prominent self-regulatory organization in the financial industry.
FINRA was incepted in 2007 through the merger of the National Association of Securities Dealers (NASD) and the regulatory functions, enforcement, and arbitration operations of the New York Stock Exchange (NYSE). This consolidation aimed to eliminate redundant regulation, reducing compliance costs and complexities for regulated entities.
Key Highlights
- FINRA oversees rules governing registered brokers and broker-dealer firms in the U.S.
- It administers qualifying exams for securities professionals.
- Provides investor protection resources, such as BrokerCheck.
- Faces criticism for possibly doing the minimum required to maintain public trust.
- Offers both formal and informal disciplinary actions on rule violators.
Embodying Oversight through FINRA
The Controlling Body
FINRA operates as the largest independent regulatory body for securities firms in the United States, monitoring thousands of brokerage firms, numerous branches, and a vast pool of registered securities representatives.
It exercises control over trading equities, corporate bonds, securities futures, and options – stretching across almost every financial market. Commissioned by Congress, FINRA spearheads investor protections across various spheres.
Beyond regulation, FINRA oversees the qualification exams essential for someone to engage in securities professions, such as the Series 7 General Securities Representative Qualification and Series 3 National Commodities Futures examinations.
Rules Implementation and Enforcement
FINRA exercises its enforcement capability by imposing disciplinary actions against individuals or firms that propagate rule violations. For example, in 2020, FINRA incited 808 disciplinary actions, with fines totaling $57 million and $25.2 million in ordered restitution to investors. Besides, FINRA expelled two and suspended another two member firms while barring and suspending hundreds of individuals.
For potential investors seeking broker verification or scrutiny, FINRA maintains BrokerCheck, a searchable portal of brokers and financial advisors, containing necessary certifications, education records, and enforcement histories. It derives its data from the Central Registration Depository (CRD) database, encapsulating the professional records of individuals and firms in the U.S. financial market.
Benefits Echoing through FINRA
The principal advantage of FINRA lies in its protection against unethical conduct and potential abuses in the financial industry. Resources such as BrokerCheck reassure investors of their brokers’ and financial advisors’ credibility and standing.
Different regulations set by FINRA prevent various financial crimes by sanctioning and barring brokers who infringe upon its rules of conduct.
Upon its formation, FINRA vowed to embark on a broad mandate encompassing rule-writing, firm examination, enforcement, arbitration, mediation, and market regulation - signifying a unified regulatory frontier with combined oversight operations previously handled independently by NASD and NYSE. Even after undergoing ownership changes, such as the acquisition of the American Stock Exchange and transformation phases in the Chicago Climate Exchange, FINRA continues to affirm its regulatory firmament.
Perspectives through Criticism
Quite akin to several self-regulatory bodies, FINRA encounters scrutiny concerning whether it extends adequate protection to investors. Scholars and political figures flag concerns about repeat offenders within the realm, suggesting potential leniency in disciplinary actions. Dominant criticisms revolve around the notion that self-regulatory bodies might perform just enough to sustain public trust, inadvertently hosting movements balancing member integrity and public scrutiny.
Should such critiques over integrity ranking be actualized, self-regulatory entities may inadvertently cast some of their members in a negative light, potentially underpinning an inherent conflict of interest when obliged scrutinize interconnected players within their network.
Common Enquiries Answered
What is FINRA?
FINRA stands for the Financial Industry Regulatory Authority, an independent body responsible for creating and enforcing rules that govern registered brokers and broker-dealers in the U.S., established in 2007.
How Does FINRA Discipline Offenders?
FINRA’s disciplinary measures can range from informal to formal. Formal actions might include, fines, suspensions, or industry expulsions. Informal actions often take the form of cautionary letters and corrective orders.
Does FINRA Offer Services to Investors?
Absolutely! Beyond regulatory supervision, FINRA’s Investor Education Foundation bestows investors with educational courses, financial tools, research platforms, and investment information resources such as BrokerCheck and Fund Analyzer, to help better understand and navigate the finance and investment landscape.
Related Terms: Securities and Exchange Commission (SEC), BrokerCheck, self-regulatory organization, National Association of Securities Dealers (NASD), New York Stock Exchange (NYSE).
References
- FINRA. “About FINRA”.
- FINRA. “Five Steps to Protecting Market Integrity”.
- U.S. Securities and Exchange Commission. “SEC Gives Regulatory Approval for NASD and NYSE Consolidation”.
- FINRA. “Statistics”.
- FINRA. “Locations”.
- FINRA. “About FINRA”.
- FINRA. “Qualification Exams”.
- FINRA. “BrokerCheck”.
- FINRA. “Central Registration Depository (CRD)”.
- FINRA. “NASD and NYSE Member Regulation Combine to Form the Financial Industry Regulatory Authority - FINRA”.
- GHG Management Institute. “The Chicago Climate Exchange Closure, A Vote For Robust GHG MRV?”
- New York Stock Exchange. “The History of NYSE”.
- WarrenSenate.gov. “Letter to Richard G. Ketchum, Chairman and Chief Executive Officer, FINRA, May 11, 2016”.
- National Bureau of Economic Research. “The Market for Financial Adviser Misconduct: Abstract”.
- FINRA. “Behind the Process: How an Enforcement Action Becomes an Enforcement Action”.
- FINRA. “For Investors”.
