Financial Industry Regulatory Authority (FINRA)

Definition

The Financial Industry Regulatory Authority (FINRA) is a non-governmental organization that regulates member brokerage firms and exchange markets in the United States. Established in 2007, it plays a vital role in overseeing the activities of brokerage firms and their employees, ensuring compliance with federal securities laws and maintaining market integrity.

5 Must Know Facts For Your Next Test

1. FINRA was created from the merger of the National Association of Securities Dealers (NASD) and the regulatory functions of the New York Stock Exchange (NYSE).
2. The organization operates as a self-regulatory organization (SRO), which means it is responsible for overseeing its own members while still being subject to oversight from the SEC.
3. FINRA administers qualification examinations for registered representatives, ensuring that individuals working in the securities industry have met necessary education and experience requirements.
4. The authority also enforces rules related to trading practices, advertising, and customer protection to foster fair and honest market practices.
5. FINRA's role includes conducting regular audits and investigations of member firms to ensure compliance with regulations and taking disciplinary action when violations occur.

Review Questions

• How does FINRA ensure that brokerage firms comply with federal securities laws?
  • FINRA ensures compliance by setting rules and regulations that member firms must follow, conducting regular audits, and monitoring trading activities. They also provide guidance through educational resources and administer qualification exams for individuals working in the industry. When violations are detected, FINRA has the authority to impose disciplinary actions against firms or individuals, reinforcing a culture of compliance within the financial services industry.
• Discuss the significance of self-regulatory organizations like FINRA in the context of financial regulation.
  • Self-regulatory organizations (SROs) like FINRA play a crucial role in maintaining market integrity by allowing industries to regulate themselves under the oversight of governmental bodies such as the SEC. This system helps promote efficiency in regulation while enabling quicker responses to market changes. By enforcing rules, monitoring compliance, and providing education within their sectors, SROs help build investor confidence and protect market participants from fraud.
• Evaluate how FINRA's actions can impact both individual investors and the broader financial markets.
  • FINRA's actions significantly impact individual investors by promoting fair trading practices and protecting them from potential fraud through stringent regulatory oversight. The authority's enforcement of rules ensures that brokerage firms adhere to ethical standards, which fosters trust in financial markets. Additionally, by maintaining market integrity through regulations and oversight, FINRA helps ensure stable financial markets that can adapt to changing economic conditions, ultimately benefiting all market participants.

Related terms

Securities and Exchange Commission (SEC):

The SEC is a U.S. government agency responsible for enforcing federal securities laws and regulating the securities industry, including stock exchanges, brokers, and investment advisors.

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).

Regulatory Compliance: Regulatory compliance refers to the processes that organizations implement to ensure they are following applicable laws, regulations, and guidelines set forth by regulatory bodies like FINRA.