What is the Financial Industry Regulatory Authority (FINRA)?
FINRA is a private self-regulatory organization which means that it is a non-government entity, unlike other regulators such as the FDIC. FINRA receives its power from the Securities and Exchange Commission, and one of its core rules is that brokers must be a member of FINRA. This means brokers must pass the required exams and adhere to FINRA rules. Although it is not illegal to break FINRA rules, losing membership means you will be breaking the law if you continue working as a broker.
FINRA was founded in 2007 to create rules for broker-dealer firms and registered brokers. It is responsible for overseeing 625,000 registered securities representatives, 154,000 branch offices and 3,500 brokerage firms.
FINRA headquarters are in Washington, D.C, United States and Robert W. Cook is the President & CEO. The organization employs over 3,000 employees that work across 20 offices in the United States. FINRA is not funded by taxpayer money, instead, member fees and fines are the revenue source of this organization.
What is FINRA responsible for?
Here we will provide an overview of FINRA’s core responsibilities and how these duties influence the world of finance.
Create rules and guidance
Brokers deal directly with the public and handle their finances when making trades. For this reason, FINRA is able to play an important role by overseeing and employing certain codes of conduct to keep investors and their investments safe. The organization strives to “protect investors and ensure the integrity of today’s rapidly evolving market.” Without rules there would be no structure to hold brokers accountable for their actions making it easy for them to scam investors or lose money due to poor practices. FINRA inspires confidence in the financial system so investors are able to trust brokers to do their job by the book.
One way FINRA ensures rules are followed is by carrying out audits and follow-up reports of any rule breaking. Both individual brokers and small to large firms are held accountable for their actions if they wish to remain a member.
Anti Money Laundering (AML)
Another of FINRA’s core responsibilities is ensuring members adhere to their Anti Money Laundering (AML) rules as per the Bank Secrecy Act of 1970. If these rules are broken, members will have a lot to lose. FINRA has created a framework for companies to follow - FINRA Rule 3310 - and this depicts the minimum expectations of FINRA’s AML compliance program.
Fines and penalties
FINRA is responsible for issuing penalties in cases where the organization detects members who have broken a rule. In 2017 FINRA took disciplinary action against 1,369 cases which resulted in fines that totaled $64.89 million. This resulted in investors receiving a total of $66.8 million in restored funds.
Cases that FINRA is not equipped to deal with are referred to other agencies, such as the Securities and Exchange Commission. These reference cases may occur when FINRA feels like the law is being broken, with Government organizations like SEC stepping in as law enforcement.
Why is FINRA important?
FINRA is a valued regulatory organization that protects investors in both domestic and international financial scenarios. The organization guarantees financial stability for investors that want to use a broker by screening each individual or firm and checking if the investor’s money will not be used for money laundering or any other illicit activities.
Incompetent brokers and firms are typically discovered through testing and struck off to ensure that only law-abiding brokers hold FINRA membership. Prior to FINRA the investment landscape was more of a free-for-all and many investors ended up disappointed and in debt as a result of scams or poor broker practices.
Holding a FINRA membership is a legal requirement of being a broker as stated by the SEC. If you are offering brokerage services without a valid FINRA membership you are breaking the law in the United States.
What regions does FINRA cover?
The Financial Industry Regulatory Authority governs brokers in the United States only. The FINRA committees are organized into regions which include West, Midwest, South and North. Brokers and organizations outside of the United States are not required to attain membership to offer their services to the public.
When might you encounter FINRA?
Investors that transfer money to a broker may need to contact FINRA if they suspect malpractice, to file a claim. Any investor that believes rules have been broken or suspects foul play, should contact the organization directly.
FINRA has a mediation service to settle disputes between two or more parties. The mediation service is a voluntary process that requires both parties to partake of their own volition. The mediation service aims to resolve any issues quickly, arriving at a resolution, at as low a cost as possible. Mediation is an informal process and both parties will need to accept the terms for the proceedings to finalize.
How to contact FINRA?
For those who may wish to contact FINRA to file a claim or to acquire advice, the following options are available, depending on the nature of your query:
Phone: Contact the FINRA Call Center via +1 (301) 590-6500; lines are open Monday to Friday between the hours of 9am to 5pm ET
Form: Investors can fill out a form to file a complaint if fraudulent or suspicious activity has been detected
Other Regulators
Bottom line
The Financial Industry Regulatory Authority (FINRA) is a self-regulatory body that enforces and writes the rules for broker-dealer firms and brokers in the US. The organization is backed by the powers of the SEC and offers membership as a prerequisite for individuals and companies with plans to offer brokerage services across the country.
Thanks to the rules and regulations outlined and implemented by FINRA, investors that employ a broker or brokerage to send money overseas will be protected. If you are considering sending money abroad with a broker, we recommend the services of Key Currency and Cornerstone FX. Both companies are highly rated by users around the world and well-equipped to handle larger transfer amounts.
