What is FINRA Compliance?
FINRA compliance means complying with all applicable standards developed by the Financial Industry Regulatory Authority for brokers and brokerage firms conducting financial transactions that relate to securities and the New York Stock Exchange. The failure to comply with FINRA regulations can result in fines, suspensions, and loss of license.
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.
FINRA Compliance FAQs
What are the FINRA rules and regulations?
Because FINRA governs the activities of many different types of organizations (i.e., broker firms, capital acquisition firms, funding portals, etc.) there is no one-size-fits-all set of rules and regulations. Organizations qualify for FINRA membership should review the full regulation suite and search for those that apply to their type of business.
What is the advantage of being a FINRA member?
If your organization engages in any activity for which FINRA has developed standards – and it is not already regulated by another SRO, you have to become a FINRA member. Being a member helps protects your clients against fraud, market manipulation, and insider trading. FINRA also operates an online “Broker Check” portal that clients are advised to review before engaging a broker.
When was FINRA founded?
FINRA was founded in 1939 as the National Association of Securities Dealers (NASD). The name was changed to FINRA in 2007 when NASD´s oversight and regulatory operations merged with those of the New York Stock Exchange (NYSE) – the New York Stock Exchange having retained its name after a merger with the AMEX Stock Exchange nine years earlier.
What is the connection between FINRA and NASDAQ?
Although NASDAQ (the National Association of Security Dealers Automated Quotations stock market) was founded by FINRA in 1971, NASDAQ has operated independently as a stock exchange since 1973. Although mostly self-regulating, NASDAQ has contracted FINRA to undertake specific functions and activities on NASDAQ´s behalf.
What help is available for FINRA compliance?
FINRA hosts an online portal packed full of compliance tools to help organizations fulfil their regulatory obligations, while organizations just starting out in the securities industry can take advantage of the organization´s e-learning courses. Alternatively, you can speak with a compliance expert to find out more about FINRA compliance.
