FINRA
FINRAAlso called financial Industry Regulatory Authority
FINRA, the Financial Industry Regulatory Authority, is the self-regulatory organisation for US broker-dealers. It is a not-for-profit body overseen by the SEC. It writes and enforces conduct rules, examines member firms, licenses registered representatives, runs qualification exams and operates the largest securities dispute resolution forum in the US.
How it works
Any broker-dealer that deals with the public must join FINRA. Member firms follow FINRA rules on supervision, communications, books and records, anti-money laundering and suitability, alongside SEC rules. FINRA examiners review firms on a risk basis, and its enforcement team can fine, suspend or expel firms and bar individuals. Each year it publishes a regulatory oversight report setting out its examination priorities.
FINRA matters to compliance teams because its rules are detailed and operational. Rule 3110 requires a supervisory system with written procedures. Rule 3310 requires an AML programme with independent testing and customer due diligence. Registered staff need qualification exams and continuing education. FINRA also handles customer arbitration, so conduct failures can lead to both disciplinary action and customer claims.
The rules
Provides for registration of national securities associations with the SEC, the legal basis for FINRA as a self-regulatory organisation.
National securities associations and their broker-dealer membersSEC approved the merger of NASD and NYSE member regulation into FINRA on 26 July 2007.
US broker-dealersRequires a written AML programme with independent testing, a designated AML officer, training and, since May 2018, risk-based customer due diligence.
FINRA member firmsCommon questions
Is FINRA a government agency?
No. FINRA is a private, not-for-profit self-regulatory organisation. It operates under federal law and SEC oversight, and the SEC must approve its rules. Its disciplinary decisions can be appealed to the SEC and then to the federal courts.
Who has to be a FINRA member?
Broker-dealers that do business with the public in the US are generally required to join FINRA. Their registered representatives must pass qualification exams and register through FINRA. Investment advisers are regulated by the SEC or the states, not FINRA, unless they are also brokers.
What does the FINRA oversight report cover?
FINRA publishes an annual regulatory oversight report that sets out its examination findings and priorities. Recent editions cover topics such as AML, cybersecurity, third-party risk, communications with the public and the use of generative AI by member firms.
What penalties can FINRA impose?
FINRA can censure and fine member firms, order restitution to customers, suspend firms or individuals, and expel firms or bar individuals from the securities industry. It publishes disciplinary actions monthly and makes records available through its BrokerCheck service.
