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Financial Industry Regulatory Authority (FINRA)

File Photo: Financial Industry Regulatory Authority (FINRA)
File Photo: Financial Industry Regulatory Authority (FINRA) File Photo: Financial Industry Regulatory Authority (FINRA)

What is FINRA (Financial Industry Regulatory Authority)?

The independent, nonprofit Financial Industry Regulatory Authority (FINRA) establishes and enforces regulations for US-licensed brokers and broker-dealer businesses.

Its goal is “to safeguard the investing public against fraud and bad practices.” Known as a self-regulatory organization.

In 2007, the National Association of Securities Dealers (NASD) and the New York Stock Exchange (NYSE) member regulatory, enforcement, and arbitration divisions merged to become FINRA. Consolidation was supposed to eliminate excessive regulation and lower compliance costs and complexity.

Understanding FINRA


The Financial Industry Regulatory Authority (FINRA) is the largest independent US securities regulator. Over 3,400 brokerage companies, 152,000 branch offices, and 617,550 licensed securities agents will be under its control in 2020. About 3,600 people work at FINRA’s 19 US locations.

FINRA oversees trading in stocks, corporate bonds, securities futures, and options. Congress allowed it to safeguard investors.

FINRA oversees securities businesses and brokers and provides the qualifying tests for securities professionals to sell or supervise. Examples include the Series 7 General Securities Representative Qualification Exam and the Series 3 National Commodities Futures Examination.

Rules Enforcement

FINRA can discipline registered people or businesses that breach its regulations.

It took 808 disciplinary procedures, a fine of $57 million, and an order for $25.2 million in investor compensation in 2020. It also expelled two member businesses, suspended two, barred 246 securities industry professionals, and suspended 375.

In 2020, it reported 970 fraud and insider trading cases to the SEC and other regulatory authorities for prosecution.

FINRA offers BrokerCheck, a searchable database of brokers, investment advisors, and financial advisors, for investors seeking brokers or checking their present ones. BrokerCheck covers credentials, education, and enforcement.FINRA’s Central Registration Depository (CRD) database provides information on persons and businesses in the US securities industry.

FINRA can punish or prohibit brokers and brokerage companies that break its regulations.

FINRA benefits

Investors gain the most from FINRA’s protection from financial sector abuses and unethical behavior. Investors can use FINRA services like BrokerCheck to verify a broker’s membership.

FINRA prevents numerous financial crimes by barring brokers who break its regulations.

By merging the NASD and NYSE’s regulating activities, FINRA demonstrated its commitment to and accountability for these tasks.

These two organizations merged in July 2007 with SEC approval. FINRA announced its formation with a broad mandate that included “rule writing, firm examination, enforcement, arbitration, and mediation functions, along with all functions that were previously overseen solely by NASD, including market regulation under contract for Nasdaq, the American Stock Exchange, the International Securities Exchange, and the Chicago Climate Exchange.”

In 2008, the NYSE bought the American Stock Exchange. After five years, ICE bought the NYSE. There was a market for greenhouse gas pollution permits in Chicago called the Chicago Climate Exchange. It closed when ICE bought Climate Exchange plc in 2010.

The SEC approved FINRA’s 2007 formation as a private, nonprofit regulating agency.

Criticism of FINRA

FINRA receives the same criticism as other self-regulatory organizations. Senator Warren of Massachusetts and Senator Cotton of Arkansas both criticize FINRA for not doing enough to protect investors.

An academic investigation by Egan, Matvos, and Seru found recurrent offenders problematic. Financial advisors with a history of wrongdoing were three times more likely to commit crimes. The Financial Regulatory Authority may have been too restrictive.

FINRA and other self-regulatory bodies are criticized for doing just enough to retain public faith. This theory suggests that self-regulatory institutions have inherent conflicts of interest.

Members want to maintain public faith, but only so much. Members must identify the worst offenders without drawing attention to themselves.

It may be feasible to rank all members’ integrity. However, that would make half of the members below average. As expected, self-regulatory organizations seldom rate their members.

What’s FINRA?

The Independent Financial Industry Regulatory Association (FINRA) sets and enforces U.S. broker-dealer rules. It started in 2007.

FINRA Disciplines Offenders: How?

Discipline can be official or casual. Formal actions might include fines, restitution orders, suspension, or industry banishment. Informal measures include warning letters and problem-fixing directives.

Does FINRA serve investors?

Yes. Beyond regulatory services, FINRA’s Investor Education Foundation offers investors personal financial and investing information, courses, research, and tools like BrokerCheck and Fund Analyzer. These can assist investors in understanding how finance and investment affect them.

Key Takeaways

  • The Financial Industry Regulatory Authority (FINRA) establishes and enforces US broker-dealer rules.
  • FINRA is in charge of administering the securities professional qualification tests.
  • BrokerCheck is a FINRA investor protection tool.
  • FINRA, like all self-regulatory bodies, is criticized for doing just enough to retain public faith.
  • FINRA’s monthly report reports only official disciplinary proceedings, not warning letters to businesses or individuals.



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