The Financial Industry Regulatory Authority (FINRA) is an independent, non-profit agency.
It develops and enforces regulations for licensed brokers and broker-dealer businesses in the United States.
Its claimed goal is to “protect the investing public against fraud and unethical acts.” It is regarded as a self-regulating organization.
In 2007, the National Association of Securities Dealers (NASD) and the (NYSE) member regulatory, and arbitration activities merged to become FINRA2.
The goal of the consolidation was to eliminate duplicate or redundant legislation while also lowering the cost and complexity of compliance.
|Assets||Stocks, Bonds, ETFs, Mutual Funds|
The Financial Industry Regulatory Authority (FINRA) is the single biggest independent regulatory organization for US-based securities businesses.
As of 2019, FINRA regulates about 3,500 brokerage companies, 154,000 branch offices, and almost 625,000 registered securities representatives.
FINRA is in charge of overseeing the trading of stocks, corporate bonds, securities futures, and options.
FINRA employs nearly 3,000 people and has 19 locations around the United States.
FINRA, in addition to supervising securities companies and their brokers, provides the qualifying tests that securities professionals must pass to sell securities or supervise others who do so.
Two examples are the Series 7 General Securities Representative Qualification Examination and also the Series 3 National Commodities Futures Examination.
FINRA has the authority to take disciplinary action against registered people or businesses who breach the industry’s regulations.
In 2019, it announced that it started 854 disciplinary procedures, imposed $39.5 million in penalties.
It also banned six-member businesses and suspended another 21, removing 348 people from the securities industry and suspending another 415.
It forwarded 827 fraud and insider trading cases to (SEC) and other government authorities for prosecution in 2019.
FINRA runs BrokerCheck for investors looking for a broker or checking in on their present one.
It is a database of brokers, investment advisers, and also financial advisors that can be searched.
BrokerCheck contains information on credentials, education, and any enforcement actions.
BrokerCheck is also built on FINRA’s Central Registration Depository (CRD) database.
It provides information about persons and businesses in the securities industry in the United States.
Difference Between SEC And FINRA
Because of the size of the securities trading business, the SEC delegated broker regulation to FINRA for efficiency.
The SEC can also retain stronger control by outsourcing one element of the business.
One way to look at it is that FINRA primarily deals with the human side of investment. That is, focusing on how brokers do business with the general public.
Its registration procedure and audits guarantee that brokers are up to code. And also, it supports the public by hearing complaints and providing an arbitration forum.
Meanwhile, the SEC is concerned with the broader picture. The SEC has the authority to regulate and monitor securities.
The SEC also ensures that corporations provide complete and accurate information on their publicly traded securities.
If someone is determined to violate securities laws, the SEC has the authority to sue them in federal court.
To sum up, FINRA is the primary body that oversees and regulates stockbrokers and brokerage companies in the United States.
The (SEC) objective is to protect investor fairness. The (SEC) is the principal regulator of the United States’ securities markets and has considerable authority.
It is a federal agency that oversees numerous other agencies (including FINRA). It is informally known as the “Wall Street watchdog.”
Drawbacks and Criticism of FINRA
Many of the same criticisms are leveled at FINRA at every self-regulatory entity.
Critics, including Senators Warren of Massachusetts contend that FINRA does not go far enough to safeguard investors.
10 Academic research by Egan, Matvos, and Seru, in particular, revealed that there were concerns with repeat offenders.
They discovered that financial counselors with a history of wrongdoing were several times more likely to commit crimes in the future. 11 FINRA may have been overly cautious in exerting its authority.
The common accusation leveled at all self-regulatory organizations, such as FINRA, is that they only do enough to keep the public’s faith.
Self-regulatory organizations, in my opinion, have an inherent conflict of interest.
While members are concerned about maintaining the public’s trust, their concern is limited.
Members must select the worst offenders, but they do not want to be the center of attention. For example, it may rate all members based on their honesty.
However, this would imply that around half of all members are rated as having below-average honesty. Surprisingly, self-regulatory organizations seldom rate their members.
The primary benefit of FINRA is to safeguard investors from any abuses and enforce ethical behavior in the financial industry.
Investors can use BrokerCheck to establish whether a person claiming to be a broker is indeed a member in good standing.
It also prevents many financial crimes from occurring by prohibiting brokers who breach its standards of conduct.
Furthermore, by merging these duties under one entity, FINRA clarified their accountability.
In July 2007, the SEC authorized the merger of the two preceding businesses.
FINRA announced its formation that included “rule writing, firm examination, enforcement, arbitration, and mediation functions.
Apart from these, all functions were previously overseen solely by NASD.
This also includes market regulation under contract for Nasdaq, the American Stock Exchange, and the Chicago Climate Exchange, etc.
While it may appear to be a little role compared to big-name and fashionable brokerage firms, it should be the primary reference for investors regarding securities and investment safety.
It is a fantastic and vital resource for anybody involved in the financial markets.
Finra offers a wealth of services, such as BrokerCheck, to assist investors in making sound financial decisions.
It also requires brokers and businesses to go through a rigorous registration procedure to guarantee that only competent organizations contact the public regarding securities.
It may even function as your secondary check if you need assistance comprehending the finance industry with its toll-free hotline.
Can you trade stocks on FINRA platform?
It is not a platform for individual investors to act upon and buy and sell stocks. It is just a regulatory body to oversee other brokers and also other financial institutions under its jurisdictional territory. So, you cannot trade stocks or any other asset on FINRA platform.
Can I use FINRA platform to screen stocks or similar assets?
FINRA does not provide the screener of any kind of financial asset and no trading of them, as mentioned above. FINRA is a regulatory body to oversee this stuff in different brokerages or institutions. So, do not expect to see any kind of information about any financial asset on FINRA and its website or platform because they are just a regulatory body.