Financial Industry Regulatory Authority (FINRA) An Overview

Introduction

The Financial Industry Regulatory Authority (FINRA) is a private, not-for-profit organization that acts as a self-regulatory body for the securities industry in the United States. It is responsible for regulating and overseeing the activities of all securities firms and brokers operating in the country. This article will provide an overview of FINRA, its history, structure, functions, and role in the securities industry.

Table of Contents

The securities industry plays a vital role in the economy of the United States. It provides individuals and businesses with the opportunity to invest their money in various financial instruments such as stocks, bonds, and mutual funds. However, to ensure the integrity and fairness of the securities markets, there is a need for regulation and oversight. This is where FINRA comes in.

History of FINRA

FINRA was created in 2007, as a result of the consolidation of two regulatory bodies, the National Association of Securities Dealers (NASD) and the enforcement arm of the New York Stock Exchange (NYSE). The consolidation was done to streamline the regulatory process and reduce costs.

Structure of FINRA

FINRA is governed by a Board of Governors, which is made up of both public and industry representatives. The board is responsible for setting policies, overseeing the organization's operations, and ensuring compliance with federal laws and regulations.

The National Adjudicatory Council (NAC) is the primary hearing body for disciplinary actions brought by FINRA. The NAC is composed of both industry and public members, and its decisions are final unless appealed to the Securities and Exchange Commission (SEC).

FINRA also has regional committees that assist in the organization's regulatory and enforcement activities. These committees are composed of industry representatives from different regions of the country.

Functions of FINRA

Registration and Licensing of Securities Firms and Brokers

One of FINRA's primary functions is to register and license securities firms and brokers operating in the United States. This involves conducting background checks, administering exams, and ensuring that these firms and brokers meet the required standards of knowledge and competence.

Enforcement of Rules and Regulations

FINRA is responsible for enforcing the rules and regulations that govern the securities industry. These rules and regulations cover a wide range of activities, including sales practices, advertising, disclosure, and record-keeping. FINRA has the power to investigate and discipline firms and individuals who violate these rules.

Arbitration and Mediation of Disputes

FINRA provides a forum for the resolution of disputes between securities firms, brokers, and customers. This is done through arbitration and mediation, which are less formal and less expensive than going to court. FINRA has a large pool of arbitrators and mediators who are trained to handle these types of disputes.

Education and Training

FINRA provides education and training programs for securities firms and brokers. These programs cover a wide range of topics, including regulatory compliance, sales practices, and ethics. The goal is to ensure that securities professionals are knowledgeable and competent in their respective fields.

FINRA's Role in the Securities Industry

FINRA plays a critical role in maintaining the integrity and fairness of the securities industry in the United States. It helps to protect investors by enforcing rules and regulations that promote transparency and fairness. By providing registration and licensing requirements, FINRA ensures that only qualified and competent individuals and firms are able to operate in the securities industry.

FINRA's role in regulating the securities industry is especially important in times of market volatility or financial crisis. During such times, the organization can quickly take action to protect investors and maintain the stability of the securities markets.

Conclusion

In conclusion, FINRA plays a critical role in regulating the securities industry in the United States. By enforcing rules and regulations, registering and licensing securities firms and brokers, providing a forum for dispute resolution, and offering education and training programs, FINRA helps to promote fairness and integrity in the securities markets.