The Financial Industry Regulatory Authority (FINRA) is a self-regulatory organization (SRO) that oversees broker-dealer firms, registered brokers, and market dealings in the United States. Empowered by the Securities and Exchange Commission (SEC), FINRA plays a crucial role in maintaining market integrity and protecting investors from manipulation or fraud.
Brokers must be registered with FINRA in order to trade securities with the public. The organization administers a rigorous application and examination process to ensure that only qualified entities interact with the public when it comes to securities. Investors can use FINRA’s online BrokerCheck tool to verify whether a broker is registered with the organization.
In addition to regulating brokers, FINRA also monitors daily market functions, handles customer complaints, and provides educational resources for investors. Its mission is centered around investor protection and market integrity, as stated by Gerri Walsh, senior vice president of Investor Education at FINRA.
FINRA’s services can be divided into various departments, including Board and External Relations, Enforcement, Legal, Member Supervision, Market Regulation Transparency Services, Office of Hearing Officers, and Technology. Each department has specific responsibilities, such as overseeing investor education, disciplining brokers, ensuring compliance with federal securities laws, and surveilling markets for potential manipulation or fraud.
The history of FINRA dates back to 1934 when the Securities Exchange Act was established in response to the stock market crash of 1929. The National Association of Securities Dealers, Inc. (NASD) was created in 1938 as a private regulatory body. In 2007, the SEC approved the merger of NASD and the New York Stock Exchange (NYSE), resulting in the formation of FINRA.
While FINRA primarily focuses on regulating brokerage firms and brokers, the SEC’s main focus is on regulating individual securities and markets. The SEC ensures the accuracy of information regarding publicly available securities and takes legal action against violations of securities laws. FINRA and the SEC work together in examining broker practices, sharing market surveillance information, and collaborating on enforcement actions.