The Financial Industry Regulatory Authority (FINRA) plays a consequential role in the U.S. securities industry. As a self-regulatory organization, FINRA oversees broker-dealers and their registered representatives to better ensure that investors are protected and that financial markets operate fairly and efficiently.
For firms and individuals involved in securities, FINRA matters because it enforces rules that maintain investor confidence, establishes standards of professional conduct and provides a dispute resolution forum that often serves as the primary venue for securities-related conflicts.
Oversight and regulation
FINRA’s primary function is to regulate brokerage firms and the individuals who sell securities to the public. It operates under the supervision of the Securities and Exchange Commission (SEC) but carries out its regulatory duties independently. These duties include:
- Registering and licensing firms and brokers
- Writing and enforcing rules governing broker behavior
- Conducting examinations and audits
- Monitoring trading activity
- Investigating potential misconduct
When FINRA detects violations, it has the authority to impose sanctions ranging from fines and suspensions to permanent bans from the industry. For firms, these actions can significantly affect business operations and reputation. For individual brokers, the consequences can be career-ending.
FINRA also operates BrokerCheck, a publicly accessible database that provides background information on registered brokers and firms. This transparency allows investors to make informed decisions about who they trust with their money.
Finally, when disputes arise between investors and brokers or between industry professionals, FINRA provides a forum for arbitration and mediation. Arbitration through FINRA is typically mandatory for broker-dealer disputes, offering a more streamlined alternative to court litigation.
For securities firms, FINRA’s regulations affect nearly every aspect of operations. From compliance and disclosure requirements to supervisory procedures and customer dispute resolution, staying on the right side of FINRA rules is not optional. It’s essential for survival in the securities industry.
