The Essential Oversight Duties of FINRA

  • Public education and information access
  • Fraud detection and prevention
  • Creation of rules and regulations
  • Enforcing compliance
  • Registration and licensing

The US Financial Industry Regulatory Authority, Inc. (FINRA) is a private organization that has been sanctioned by the federal government to perform several official regulatory functions. The organization was preceded by the now-defunct National Association of Securities Dealers, Inc. Its primary purpose is to protect investors by promoting transparency, security and ethical practice in the broker-dealer industry. The organization has significant authority to create and enforce regulations within its scope.

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1. Public Education and Information Access

One of the main ways the organization aids investors is by facilitating access to information regarding brokers and their firms. They also sponsor educational efforts to inform people about the potential risks of various types of investing, as well as strategies for handling their money safely in the market. The organization’s official website includes access to BrokerCheck, a digital tool that helps users search a detailed database that includes registration status and professional history of brokers or firms.

2. Fraud Detection and Prevention

Identifying and addressing fraud in the industry is another of FINRA’s primary responsibilities, which they perform by addressing investors as well as brokers. In addition to their efforts to educate investors, they also offer online utilities like Scam Meter and Risk Meter to help individuals identify potential risks, according to the Financial Industry Regulatory Authority . The organization also fights fraud across the industry by applying data science to information gathered from entire markets.

3. Creation of rules and regulations

As a self-regulating agency, the regulatory authority drafts official rules and regulations that broker members are expected to follow. While ultimate authority over regulation and enforcement falls on the official Securities and Exchange Commission (SEC), the regulatory authority still has considerable influence in this area. The requirements set forth by the organization are typically more restrictive than the baseline required by federal authorities in order to better promote fairness, transparency and ethical behavior.

4. Enforcing compliance

Despite its status as a private corporation, the Financial Industry Regulatory Authority also has significant leverage when enforcing their rules. The organization is able to conduct audits to ensure that firms and brokers are following regulations. They also initiate disciplinary actions against offenders to levy punitive fines and help investors recoup losses due to misconduct. In addition to financial penalties, enforcement action may also take the form of a suspension or complete ban from the industry.

5. Registration and licensing

Individual brokers and firms must file documents with FINRA and seek the appropriate licensing in order to enjoy registered status with the organization. The registration process helps the authorities ensure that brokers are qualified and trustworthy professionals. The organization can also revoke or suspend membership as part of a disciplinary action, which can be a significant deterrent for those who want to establish a strong reputation in the industry.

The financial industry is notoriously difficult to oversee, which is part of the reason why the federal government delegates some responsibilities to the regulatory authority. While it may not catch every single offender, FINRA performs many vital functions that help investors and reputable brokers conduct business in an open and fair environment.

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