FINRA: The organization that regulates broker-dealers and protects investors

Finra logo inside oval shape, surrounded by financial icons on blue background
FINRA also provides educational resources and a space for investors to file complaints about brokers if needed.

  • The Financial Industry Regulatory Authority (FINRA) oversees US-based broker-dealer firms, registered brokers, and market dealings.
  • Brokers must be registered with FINRA in order to trade securities with the public.
  • FINRA plays a big role in market security by watching for manipulation or fraud.
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Financial Industry Regulatory Authority (FINRA) is a private organization authorized by the US government to enforce ethical investment practices among registered brokers. FINRA is largely known for regulation and registration of brokers and brokerage firms.

In reality, FINRA casts a much wider net of responsibility. The organization also monitors daily market functions, handles customer complaints, and maintains a library of educational materials for investors.

“Our whole mission is investor protection and market integrity,” says Gerri Walsh, senior vice president of Investor Education at FINRA.

Learn more about how FINRA protects everyday investors, maintains market integrity, and why its job is so important.

What is FINRA?

FINRA is a self-regulatory organization (SRO) that oversees broker-dealer firms, registered brokers, and market dealings in the US.

Empowered by the Securities and Exchange Commission (SEC), FINRA writes rules that brokers must abide by, evaluates firms’ compliance with those rules, and disciplines brokers that fail to adhere. In order to trade securities with the public, brokers must be registered with FINRA, which administers a rigorous application and examination process. FINRA’s online BrokerCheck tool shows whether a broker is registered with the organization.

FINRA also provides educational resources and a space for investors to file complaints about brokers.

Understanding FINRA

FINRA exists to help the SEC regulate aspects of the securities business, namely brokers and their relationships with consumers.

“Investing is an important part of people’s hard-earned money,” said Harris Kay, a managing partner with Murphy & McGonigle, a law firm specializing in securities law. “They deserve to be in a place that follows the rules.”

FINRA’s services can be divided into a few different, but connected, duties.

  1. Regulate and oversee brokers. Once registered with FINRA, brokers must complete ongoing education requirements over the years. Brokers are subject to periodic audits, which checks whether a firm and its employees are conducting competent and honest business. If a broker is found to be noncompliant, FINRA can bring disciplinary actions against the individual and/or the firm.
  2. Maintain its BrokerCheck database on brokers and firms. You can use FINRA’s BrokerCheck tool to check whether a broker is registered. BrokerCheck also provides background information on a broker or firm, including any history of disciplinary action.
  3. Receive and address customer complaints. When you have an issue with your broker or brokerage firm, you can turn to FINRA to file a complaint, which FINRA will then investigate.
  4. Provide dispute resolution services. When customer complaints evolve into legal action, FINRA provides a forum and lawyers for arbitration and mediation between customers and brokers as an alternative to going to court.
  5. Offer resources and tools for investors. FINRA has a wealth of personal finance and investing articles and calculators available to beginner and advanced investors alike. It even offers free online investing courses. You can give FINRA a toll-free call, to get help in understanding your investments whether you don’t understand something in your statements or you want to know more about a hard sell your broker is trying to make. There’s even a specialty helpline for senior citizens.
  6. Surveille equity markets. FINRA’s technology department plays a strong role in maintaining market integrity by monitoring market transactions and orders every day. Through algorithms and artificial intelligence, FINRA looks for any patterns or signs of market manipulation or fraud. If anything is found, it gets flagged to FINRA’s enforcement team, or sent to other relevant parties like the SEC or the securities exchange itself.

With such a wide responsibility, FINRA is split into 11 departments, including:

  • Board and External Relations includes Investor Education, Government Affairs, and Communications departments.
  • Enforcement takes care of FINRA’S disciplinary actions against brokers.
  • Legal oversees FINRA’s rulemaking and corporate legal functions, and includes Corporate Financing and Dispute Resolution departments.
  • Member Supervision watches over and examines member firms.
  • Market Regulation Transparency Services works with the SEC and exchanges to surveille markets and examine firms to identify any potential market manipulation or fraud. This department also checks that firms remain compliant to federal securities laws.
  • Office of Hearing Officers provides impartial adjudicators to preside over the disciplinary actions brought forward by the Enforcement Department.
  • Technology touches all aspects of technology at FINRA, including the algorithms that surveille markets.

FINRA vs. SEC

FINRA

SEC

Type

Private self-regulatory organization

Government agency

Main Focus

Regulation of brokerage firms and brokers

Regulate individual securities & markets

Other Duties

Administer examinations and registration to brokers and brokerage firms

Take legal action against violations of securities laws

Public Protection

Field and address customer complaints

Provide arbitration forum

Ensures accuracy of information regarding publicly available securities

Due to the magnitude of the securities trading industry, the SEC delegated the regulation of brokers to FINRA as a matter of efficiency. By outsourcing one side of the business, the SEC can maintain better oversight.

One way to see it is that FINRA primarily deals with the human aspect of investing, focusing on the way brokers do business with the public. It ensures that brokers are up to code with its registration process and audits, and assists the public by receiving complaints and offering an arbitration forum.

Meanwhile, the SEC focuses on the bigger picture. The SEC is able to regulate and keep an eye on securities. The SEC also verifies that companies are providing accurate and total information on their publicly available securities, whether on exchanges or over-the-counter. If someone is found in violation of securities laws, the SEC can bring action against them in federal court.

Still, FINRA and the SEC work together in examining broker practices, sharing market surveillance information, and teaming up on enforcement actions.

The financial takeaway

While it may seem like a background player compared to big name and trendy brokerage firms, FINRA should be investors main resource when it comes to securities and investment safety.

FINRA is a great and important resource for anyone who participates in securities markets. It provides a ton of resources, including BrokerCheck, to help investors make smart investment decisions. It also puts brokers and firms through a rigorous registration process to ensure only qualified entities are interacting with the public when it comes to securities.

FINRA can even serve as your personal secondary gut check with its toll-free helpline whenever you need help understanding the investment world.

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Robinhood’s IPO filing reveals over 50 lawsuits related to trading restrictions it imposed during January’s meme-stock madness

Vlad Tenev
Vlad Tenev, co-founder and co-CEO of investing app Robinhood.

  • Robinhood’s IPO filing shows the company faces more than 50 legal complaints stemming from January’s meme-stock trading.
  • Customers were angered by Robinhood’s move to temporarily stop users from buying certain stocks.
  • Robinhood said it is cooperating with investigations by officials.
  • See more stories on Insider’s business page.

Retail trading platform Robinhood is facing more than 50 lawsuits stemming from the restrictions it put in place to manage the trading mania in January surrounding so-called meme stocks, according to the company’s IPO filing.

Robinhood in its S-1 filing with the Securities and Exchange Commission on Thursday said it has become aware of about 50 putative class lawsuits and three individual actions that have been filed against it in various federal and state courts. It said two of the class action complaints have been voluntarily dismissed with prejudice.

The legal complaints follow Robinhood’s move in January of temporarily stopping users from buying shares of GameStop, AMC Entertainment and other stocks whose prices quickly soared as retail investors defended the shares from short-sellers.

“The complaints generally allege breach of contract, breach of the implied covenant of good faith and fair dealing, negligence, breach of fiduciary duty and other common law claims,” Robinhood said in the SEC filing. It added that several complaints further allege federal securities claims, federal and state antitrust claims, and certain state consumer protection claims based on similar factual allegations. It said 19 of the putative class actions also name other broker-dealers or market makers as defendants.

The company said it’s being investigated by regulators including staff at the SEC and the antitrust division of the US Department of Justice. It said Vladimir Tenev, Robinhood’s co-founder and CEO, and others have received requests for information and testimony, subpoenas and that the US Attorney’s Office executed a search warrant to obtain Tenev’s cell phone.

“We are cooperating with these investigations and examinations,” Robinhood said.

The company on Wednesday agreed to pay nearly $70 million to settle claims by FINRA that the brokerage misled millions of customers, approved ineligible traders for risky strategies, and didn’t supervise technology that locked millions out of trading.

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The SEC will tackle bad actors in crypto and needs to be prepared to fight cases against them, Chair Gensler said

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Gary Gensler is the new head of the Securities and Exchange Commission.

  • SEC Chairman Gary Gensler said that the SEC and FINRA have to be prepared to fight crypto cases.
  • At the annual FINRA conference, Gensler said tighter regulations would help protect investors.
  • Earlier this year, SEC “crypto mom” Hester Peirce presented a safe-harbor policy to ease regulatory pressures on crypto firms.
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The Securities and Exchange Commission will tackle bad actors in crypto and has to be prepared to make cases against them to protect investors, chairman Gary Gensler said at the annual FINRA conference on Thursday.

“The SEC and FINRA should be ready to bring cases involving issues such as crypto, cyber, and fintech.”, Gensler said in his remarks at the conference, indicating that the SEC would crack down on misconduct in the crypto industry.

At the end of 2020, the SEC sued Ripple, a global payments firm that works with blockchain technology, and two of its executives. The SEC said they had raised $1.3 billion by selling the cryptocurrency XRP as an unregistered securities offering. The case is still ongoing and the company’s management has repeatedly denied any wrongdoing.

“We need to do whatever we can to ensure that bad actors aren’t playing with working families’ savings and that the rules are enforced aggressively and consistently,” Gensler said.

He reiterated the SEC would go after misconduct in all areas of the financial system. This could include “deceptive conduct by private funds, offering or accounting frauds, insider trading, market manipulation, failures to act in retail customers’ best interests, reporting violations, best execution and fiduciary violations”, according to the SEC chairman.

Alongside equities markets, climate change, market transparency and human capital, crypto and the gamification of investing – which is often associated with the rise in retail and crypto investing during the pandemic – were areas that Gensler would seek to address, he said.

Regulations and their enforcement are key in achieving the SEC’s mission of encouraging the creation of capital, ensuring investors’ safety and maintaining “fair, orderly, and efficient markets,” Gensler said. “We need rules of the road and a cop on the beat,” he continued.

Rules are there for a reason and bending them was not in the interest of consumers and could cause more harm than good, Gensler told the audience.

The SEC is considering regulatory approaches towards crypto, amongst them the safe-harbor policy proposed by crypto-friendly SEC commissioner Hester Peirce, nicknamed ‘crypto-mom’. Her policy would give crypto asset and fund issuers a three-year grace period in which crypto tokens would not be classified as securities.

In March, Peirce said she hoped crypto regulation would progress in 2021, as regulatory bodies were too focused on the illicit activities linked to crypto technology, rather than the benefits and she hoped to collaborate with then newly installed chairman Gensler on this.

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