What is FINRA?
FINRA stands for Financial Industry Regulatory Authority, a private organization that regulates brokers and brokerage firms. FINRA, the successor to the National Association of Securities Dealers, Inc., was formed in 2007 by order of the Securities & Exchange Commission. FINRA has two primary missions – to protect investors and to ensure the integrity of financial markets. FINRA accomplishes these goals in a few different ways. FINRA regulates roughly 4,000 firms employing over 600,000 registered representatives.
First, FINRA sets its own rules for how brokers and brokerage firms should operate. Brokers are required to pass tests on FINRA rules and federal securities laws in order to work in the industry. FINRA conducts routine audits of brokers and their firms, and FINRA reviews all advertising to make sure that brokerage firms present honest and fair information to the public. Brokers and firms who do not obey the rules are subject to discipline. In 2014, for instance, FINRA brought roughly 1,400 disciplinary actions, levied fines of over $130 million, and ordered restitution of $30 million to defrauded investors.
Second, FINRA provides free research tools and educational materials to help investors make better financial decisions. For instance, FINRA’s BrokerCheck tool allows investors to research the background and qualifications of individual brokers and investment advisers. FINRA also provides other data on different types of investments, as well as Investor Alerts about potential frauds and scams.
Finally, FINRA has a Dispute Resolution arm, which is charged with resolving disputes between investors and brokers. In lieu of a lawsuit, all FINRA member brokers and firms are required to submit to binding arbitration with FINRA. FINRA’s dispute resolution branch is the largest arbitration forum in the United States. In 2014, roughly 3,822 cases were filed with FINRA, with the vast majority of those cases involving allegations that a broker breached fiduciary duties, recommended unsuitable investments, made misrepresentations, or committed negligence.
Please Note: Rabin Kammerer Johnson provides these FAQs for informational purposes only, and you should not interpret this information as legal advice. If you want advice as to how the law might apply to the specific facts and circumstances of your case, please contact one of our attorneys.