Glossary

FINRA Regulations

The Great Recession of 2008 shook America to its core. It dismantled the country’s economic stability and created a hard market crash that required years of recovery. The federal government passed the Dodd-Frank Wall Street Reform and Consumer Protection Act as part of its recovery efforts. Financial professionals credit this for the birth of the Financial Industry Regulatory Authority.

What Is the Financial Industry Regulatory Authority?

FINRA was established in 2007 as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. In this way, it was a direct response to the Great Recession, its causes, and the aftermath. The U.S. Securities and Exchange Commission oversees this private corporation, which acts as a regulator for the securities industry.

FINRA’s mission is to protect America’s investors by ensuring the securities industry operates fairly and honestly. One unique feature of FINRA is its non-governmental organization status. Consequently, it receives funding through industry fees and not taxpayer dollars.

It is also the most significant regulatory body operating independently in the securities market. As of 2020, it has more than 617,500 registered representatives, oversees more than 152,000 branch offices, and monitors 3,435 securities firms.

What Are the FINRA Regulations?

FINRA has a comprehensive set of rules and regulations that apply to firms and individuals who work in the securities industry. The rules help protect investors, prevent fraud, and ensure market integrity. They cover a wide range of topics, such as the following:

  • Advertising
  • Arbitration
  • Brokerage accounts
  • Commodities
  • Disclosure
  • Margin accounts
  • Research reports
  • Short sales
  • Tenders

How FINRA Achieves Its Goals

It approaches its goal to protect investors and market integrity from several angles. Each angle brings something unique to the table and helps close gaps where unethical practices and fraud can slip through.

Regulation

FINRA strives to create a fair and transparent marketplace by implementing rules that protect investors and ensure market integrity. When companies fail to abide by these rules, they have the right to administer punishment.

Covered parties can find the rules in the FINRA Manual. However, it is essential to treat these as a living document because the organization updates the regulations to keep pace with the market and new developments.

Enforcement

FINRA monitors the marketplace for signs of abuse and fraud. It then uses data collected from firms to identify red flags and potential risks. This information helps the organization focus its enforcement efforts where they are most needed and take action when necessary.

It uses investigations and disciplinary actions to identify and punish firms or individuals who violate FINRA rules and regulations. These actions also serve as a deterrent to future rule-breakers.

As of 2020, the organization has expelled two firms, suspended two firms, suspended 375 individuals, and barred 246 individuals. It also imposed $57 million in fines and referred 970 insider trading and fraud cases for prosecution.

Advocacy

FINRA advocates on behalf of investors at the state, federal, and international levels. The organization also provides regulatory input to help policy-makers create laws and regulations that best serve investors and the securities industry.

It offers a wide range of investor education resources on its website. These focus on teaching people how to manage their finances, how to protect their money, and how to invest. In addition to these resources, FINRA provides an online BrokerCheck tool that lets investors review the background of current and former broker-dealers and their representatives.

Issuing and Administering Licenses

FINRA licenses firms and their representatives who work in the securities industry. These licenses help ensure financial professionals have the knowledge and experience to serve investors properly.

The organization also administers exams for potential brokers, registered representatives, and investment adviser representatives. These exams test individuals’ knowledge of FINRA rules and the securities industry. As of 2020, it administered 1,272 cycle exams.

How LeapXpert Can Help

One of the most critical FINRA rules is the importance of maintaining complete and accurate communication records. Companies now use several different methods to communicate internally, and with customers, so this can create a record-keeping nightmare.

LeapXpert provides the tools companies need to facilitate secure communication by ensuring thorough records archiving. It meets compliance goals by ensuring you store communications data safely and that the data is easily accessible to authorized persons.

Are you ready to take another step toward protecting your business from potential issues with FINRA compliance? Contact us to learn more.