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All About FINRA (Financial Industry Regulatory Authority)

Investing can be an intimidating endeavor with all its terminology and the complexities of the market. But you shouldn’t let that stop you. Investing provides a great way to grow your money. There are some risks associated with investing due to the volatility of the market to be sure. However, you can count on certain agencies, laws and financial advisors to help you succeed. That’s where FINRA comes in.

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What Is FINRA?

After the 1929 stock market crash, it became clear that the securities industry needed more regulation. In 1939, the National Association of Securities Dealers (NASD) was created to oversee all broker-dealers and registered representatives in the country. Then in 2007, the U.S. Securities and Exchange Commission (SEC) approved the formation of FINRA, or the Financial Industry Regulatory Authority. This new agency would serve as a mix between the NASD and the New York Stock Exchange’s regulatory branch.

Now, as a private (non-governmental) agency, FINRA regulates the securities industry, ensuring honesty and fairness for investors. The agency oversees dealers, brokers and all other public investors.

What Does FINRA Do?

All About FINRA (Financial Industry Regulatory Authority)

FINRA oversees and regulates brokerage firms, stock brokers and exchange markets. As a private, non-profit agency, it mandates how investors and securities participants can behave and interact. Should any participants be non-compliant, the agency has the authority to discipline those involved. At its center, FINRA works to protect investors and maintain market integrity.

First, FINRA sets the rules that brokers must follow. These rules detail ethical and professional practices to prevent fraud and bad practices. FINRA regularly reviews brokers to enforce these regulations. Agency examiners will even review ads and brochures to ensure they comply. Further, brokers and firm representatives must regularly report their activities to FINRA. 

If brokers break any rules, FINRA can fine, suspend or bar them from the industry. FINRA will then record any and all disciplinary actions on its website. That way, when you’re looking for a broker, you can check if it has a record.

FINRA also works to maintain market transparency. On average, the organization processes 37 billion transactions a day. In 2016 alone, it referred more than 785 fraud and insider trading cases to the SEC. With technology and country-wide personnel, FINRA regularly looks for signs of unfair market advantages and fraud.

FINRA does provide forums to deal with disputes. Should you experience an issue with a broker, you can file a dispute with FINRA. Experts can then help resolve the issue.

Lastly, FINRA strives to educate investors through public resources on its website. For one, you can learn more about the financial industry and how to identify investment fraud. You can also make use of their tools to compare costs of different funds, weigh investment risks, assess possible scam and more. You can also seek funding for local financial educational programs. 

FINRA Licensing

All About FINRA (Financial Industry Regulatory Authority)

To maintain its goals of financial education and high standards, FINRA administers licenses for brokers-dealers. Any company or individual who wants to sell securities in America needs to register with FINRA to get a license. To obtain the license, a candidate must pass a set of exams and continuing education programs. Both will cover all aspects of the securities industry to ensure that the license and those who hold it maintain the highest standards.

As FINRA members, brokers and firms must abide by the rules set by the agency. They must also pay an annual membership fee. This fee helps keep the agency running, along with any disciplinary fines it might charge.

Brokers that aren’t registered with FINRA can be forced to pay fines, face legal penalties and even close down if necessary. Essentially, the agency serves as the gateway for individuals and firms to participate in the investment industry.

The Takeaway

FINRA’s main goal is to keep the markets fair for investors by holding brokers to high ethical standards. It plays a huge role in monitoring America’s financial system, with no extra cost to taxpayers as a private agency. So even if investing seems scary from afar, you can trust that FINRA can look out for you and your best interests.

Photo credit: ©iStock.com/wsfurlan, ©iStock.com/xijian, ©iStock.com/Rawpixel Ltd

Liz Smith Liz Smith is a graduate of New York University and has been passionate about helping people make better financial decisions since her college days. Liz has been writing for SmartAsset for more than four years. Her areas of expertise include retirement, credit cards and savings. She also focuses on all money issues for millennials. Liz's articles have been featured across the web, including on AOL Finance, Business Insider and WNBC. The biggest personal finance mistake she sees people making: not contributing to retirement early in their careers.
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