Definition and Example of the Financial Industry Regulatory Authority
The Financial Industry Regulatory Authority (FINRA) is the largest non-governmental organization that writes and enforces the rules governing the ethical activities of all securities firms and registered brokers in the United States. FINRA oversees more than 624,000 registered brokers across the country and analyzes billions of market events daily. Learn about the story of FINRA’s inception and how it operates today to ensure that registered brokers adhere to ethical rules.
How the Financial Industry Regulatory Authority Works
According to its website, FINRA’s mission is to “protect investors from fraud and bad practices.” To be licensed to operate in the United States, brokers must pass required qualification exams and meet continuing education requirements. FINRA inspectors review brokers’ advertisements, websites, sales brochures, and other communications to ensure that investment information is presented fairly and balanced. FINRA’s trained financial inspectors use technology to monitor brokers’ operations. They conduct routine inspections and respond to investor complaints and suspicious activities.
FINRA Arbitration and Mediation
Investors can report suspicious or fraudulent activities conducted by brokerage firms or brokers to FINRA. They can also seek to recover damages by filing a claim for mediation or arbitration administered by FINRA. In arbitration, the broker’s decision is binding and final. In mediation, either party in the dispute can choose to stop and seek resolution in another manner. FINRA’s arbitration and mediation brokers have expertise in securities matters.
Advantages and Disadvantages of the Financial Industry Regulatory Authority
Advantages: FINRA protects investors from bad practices and fraud and tests, qualifies, and supervises broker activities. It provides a means for investors to file complaints and resolve disputes related to brokers.
Disadvantages: FINRA is not accountable to any government agency and has faced criticism from some members of the U.S. Congress and others for not doing enough to fulfill its mission of protecting investors.
What This Means for Investors
FINRA plays a key role in protecting individuals from fraudulent or unethical activities by brokerage firms. The FINRA website includes comprehensive information on how to file a complaint. For investors who believe they are victims of unethical practices by brokers, FINRA also provides a means to resolve disputes and recover damages through arbitration or mediation.
Source: https://www.thebalancemoney.com/what-is-finra-5211097
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