What is the Financial Industry Regulatory Authority (FINRA)?
The Financial Industry Regulatory Authority (FINRA) is an independent, nongovernmental organization that writes and enforces the rules governing registered brokers and broker-dealer firms in the United States. Its stated mission is "to safeguard the investing public against fraud and bad practices." It is considered a self-regulatory organization.
How the Financial Industry Regulatory Authority (FINRA) Works
The Financial Industry Regulatory Authority (FINRA) is the single largest independent regulatory body for securities firms operating in the United States.
FINRA oversees more than 3,700 brokerage firms, 155,000 branch offices, and nearly 630,000 registered securities representatives, as of 2019. FINRA regulates the trading of equities, corporate bonds, securities futures, and options. Unless a firm is regulated by a different self-regulatory organization, it is required to be a FINRA member firm to do business.
The Financial Industry Regulatory Authority (FINRA) has the power to fine or ban brokers and brokerage firms that violate its rules.
FINRA has 16 offices across the United States and some 3,600 employees. In addition to overseeing securities firms and their brokers, FINRA administers the qualifying exams that securities professionals must pass in order to sell securities or supervise others who do. Those include, for example, the Series 7 General Securities Representative Qualification Examination and the Series 3 National Commodities Futures Examination.
In its enforcement capacity, FINRA has the power to take disciplinary actions against registered individuals or firms that violate the industry's rules. In 2018, for example, it reported that it initiated 921 disciplinary actions, levied fines totaling $61 million, and ordered restitution of $25.5 million to investors. It also expelled 16 member firms and suspended another 23, while barring 386 individuals from the securities business and suspending another 472. In 2018 it also referred 919 fraud and insider trading cases to the Securities and Exchange Commission (SEC) and other government agencies for prosecution.
For investors who are shopping for a broker or want to check up on their current one, FINRA maintains BrokerCheck, a searchable database of brokers, investment advisors, and financial advisors, which includes certifications, education, and any enforcement actions. BrokerCheck is based on FINRA's Central Registration Depository (CRD), a database containing the records of individuals and firms that are in the securities business in the United States.
History of the Financial Industry Regulatory Authority (FINRA)
The Financial Industry Regulatory Authority was created as the result of the consolidation of the National Association of Securities Dealers (NASD) and the member regulation, enforcement and arbitration operations of the New York Stock Exchange (NYSE). The consolidation, which was meant to do away with overlapping or redundant regulation—and to reduce the cost and complexity of compliance—was approved by the Securities and Exchange Commission in July 2007.
In announcing its formation, FINRA described a broad mandate that included responsibility for "rule writing, firm examination, enforcement and 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." (The American Stock Exchange was subsequently renamed NYSE American, and the Chicago Climate Exchange, a market for trading greenhouse gas emissions allowances, shut down in 2010.)