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What is FINRA Compliance?

FINRA compliance is often mentioned in relation to the securities industry, but what is FINRA and what does FINRA compliance entail? Find out more about the FINRA, the role it plays, how the agency exerts control over brokers and brokerage firms, and the penalties for noncompliance with FINRA rules and regulations.

What is FINRA?

FINRA, an acronym of the Financial Industry Regulatory Authority, is a non-profit self-regulatory organization or SRO which is overseen by the Securities Exchange Commission (SEC).

An SRO is a non-government agency that has a degree of regulatory authority over an industry, which in the case of FINRA is the securities industry and the New York Stock Exchange.

The SEC’s role is to ensure fairness for investors whereas FINRA is also concerned with monitoring and regulating stockbrokers and brokerage firms, deterring misconduct, and ensuring the financial markets are fair.

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FINRA ensures transparency in the industry transaction and develops and enforces rules for the securities industry. FINRA also helps enforce SEC rules and other regulations.

FINRA is responsible for securities industry and stock market oversight and monitors the activities of more than 4,200 brokerage firms and their brokers. Up to 75 billion transactions are processed by FINRA each day. That level of data crunching requires serious technology. State of the art technology and advanced data collection techniques are used to obtain and analyze financial transactions to gain a complete, holistic picture of market trading in the U.S.

FINRA investigates complaints and suspicious activity, and each year checks more than 100,000 individual advertisements and communications between brokers and investors. Web content, printed material and communications are assessed to ensure they present information fairly and do not mislead investors.

What is FINRA Compliance?

FINRA has developed its own rules and regulations which must be followed by brokers and brokerage firms. FINRA requires all brokers to be licensed and registered. FINRA makes sure all brokers have passed their examinations, have the right qualifications, and satisfy continuing education requirements.

FINRA has hundreds of professionally trained financial examiners who investigate brokers and the way they are operating. When violations of FINRA and SEC rules are suspected, in depth investigations are conducted.

Brokerage firms that do not pay sufficient attention to FINRA compliance and individual brokers who do not adhere to FINRA rules and regulations face disciplinary action.

Fines for FINRA Compliance Failures

FINRA aggressively regulates the securities industry. When brokerage firms violate FINRA rules, disciplinary action can be taken which can include fines for compliance failures. The purpose of the fines is to deter financial misconduct.

In 2014, FINRA collected more than $134 million in financial penalties for noncompliance and took 1,397 disciplinary actions against brokerage firms and brokers. In 2015, FINRA collected 93.8 million in fines, rising to $173.8 million in 2016.  The total for 2017 is still being calculated.

Major FINRA fines in 2017 include a $24.6 million financial penalty for Red River Securities, a $13 million and $1.4 million fine for Merrill Lynch, Morgan Stanley was fined $13 million, and Citigroup $11.5 million.

In addition to fines, FINRA can order suspensions or even permanently bar individuals from working in the industry. While investigations are conducted, FINRA refers fraud and insider trading cases to government agencies and the SEC.

Author: Steve Alder is the editor-in-chief of HIPAA Journal. Steve is responsible for editorial policy regarding the topics covered on HIPAA Journal. He is a specialist on healthcare industry legal and regulatory affairs, and has several years of experience writing about HIPAA and other related legal topics. Steve has developed a deep understanding of regulatory issues surrounding the use of information technology in the healthcare industry and has written hundreds of articles on HIPAA-related topics.