The Financial Industry Regulatory Authority, or FINRA, is a private self-regulatory organization that regulates certain aspects of the securities industry and is the successor to the National Association of Securities Dealers, or NASD. While the Securities and Exchange Commission is the ultimate regulatory authority for the industry, FINRA plays an important role when it comes to protecting investors.
What is FINRA?
FINRA is an independent nonprofit organization that was created from the merger of the NYSE's regulatory committee and the NASD, which had been around since 1939. The agency oversees all brokerage firms and provides regulatory oversight.
Responsibilities of FINRA
FINRA aims to ensure the securities industry operates fairly and honestly. According to FINRA's website, the agency strives to ensure the following five things:
- That every investor receives the basic protections they deserve.
- That anyone who sells a securities product is licensed and qualified.
- That securities advertisements are not misleading.
- That all securities sold to investors are suitable for their individual needs.
- That investors receive a complete disclosure before purchasing any investment products.
In order to achieve these goals, FINRA writes and enforces the rules governing the activities of the entire securities industry, checks for compliance with these rules, and educates investors.
For starters, all brokers must be licensed by FINRA, which means passing qualification exams and completing continuing-education requirements. After brokers pass, FINRA observes their operations and conducts examinations to ensure they operate in a compliant manner. FINRA also reviews any advertisements, brochures, and websites in order to make sure the information is presented honestly and fairly.
FINRA also has the authority to bring disciplinary action in response to rule violations. In 2015 alone, FINRA completed more than 1,500 disciplinary actions and levied fines of $95 million. In addition to imposing fines, FINRA can suspend or ban brokers from the industry, depending on the severity of the infraction.
Last but not least, FINRA devotes a considerable amount of its resources to educate investors to help them make wise financial decisions. FINRA's BrokerCheck lets investors check the backgrounds of registered brokers and firms, and the agency's Market Data Center provides information on all sorts of investments. It also can help investors determine whether an opportunity is a scam by answering just four questions. For FINRA's investor education, check out the agency's website here.
Difference between FINRA and the SEC
In a nutshell, FINRA is the main organization that monitors and regulates U.S. stockbrokers and brokerage firms. The mission of the Securities and Exchange Commission (SEC) is to ensure fairness for investors. The SEC is the primary overseer of the U.S. securities markets and has a broad reach. It is a government organization and has oversight of several other agencies (including FINRA). It is colloquially known as the "watchdog of Wall Street."
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