Financial Industry Regulatory Authority (FINRA)

Definition

FINRA is a self-regulatory organization that oversees brokerage firms and exchange markets in the United States, ensuring that they operate fairly and honestly. Its primary mission is to protect investors by maintaining the integrity of the securities industry through regulation and enforcement. FINRA enforces rules that govern trading practices, promotes transparency, and helps to resolve disputes between investors and brokerage firms.

5 Must Know Facts For Your Next Test

1. FINRA was created in 2007 when the National Association of Securities Dealers (NASD) merged with the member regulation functions of the New York Stock Exchange.
2. FINRA oversees nearly 4,000 brokerage firms and their approximately 630,000 registered representatives.
3. The organization conducts regular examinations of member firms to ensure compliance with its regulations and to protect investor interests.
4. FINRA offers an online tool called BrokerCheck, which allows investors to research the backgrounds and disciplinary history of brokerage firms and individual brokers.
5. Through its enforcement actions, FINRA imposes penalties and sanctions against firms or individuals that violate securities rules, helping to maintain market integrity.

Review Questions

• How does FINRA's role as a self-regulatory organization contribute to investor protection in the financial markets?
  • FINRA plays a crucial role in investor protection by enforcing regulations that promote fair trading practices among brokerage firms. By conducting regular audits and examinations, FINRA ensures that these firms comply with established standards, thereby reducing the risk of fraud or malpractice. Additionally, initiatives like BrokerCheck provide transparency, allowing investors to make informed decisions based on brokers' backgrounds and disciplinary records.
• In what ways does FINRA interact with the SEC and other regulatory bodies in overseeing the financial industry?
  • FINRA collaborates with the SEC by providing critical oversight of broker-dealers while the SEC focuses on broader market regulations. This partnership helps create a comprehensive regulatory environment that protects investors and maintains market integrity. Additionally, both organizations share information regarding compliance issues and enforcement actions, enhancing their effectiveness in overseeing the financial industry.
• Evaluate the effectiveness of FINRA's measures in promoting ethical conduct among investment professionals in light of recent industry challenges.
  • The effectiveness of FINRA's measures can be assessed through its proactive enforcement actions and educational initiatives aimed at promoting ethical behavior among investment professionals. Despite facing challenges such as increasing complexity in financial products and emerging technologies, FINRA has adapted by enhancing its regulatory framework and implementing advanced surveillance tools. However, ongoing scrutiny from both investors and regulators highlights the need for continuous improvement in oversight practices to maintain public trust in the financial markets.

Related terms

Securities and Exchange Commission (SEC): The SEC is a federal agency responsible for enforcing federal securities laws, regulating the securities industry, and protecting investors in the U.S. financial markets.

Broker-Dealer: A broker-dealer is a person or firm in the business of buying and selling securities on behalf of customers (broker) or for its own account (dealer).

Arbitration: Arbitration is a method of resolving disputes outside of court, often used by FINRA to settle conflicts between investors and brokers in a more efficient manner.