The Financial Industry Regulatory Authority (FINRA) is a self-regulatory organization (SRO) in the United States responsible for regulating the securities industry. FINRA’s mission is to protect investors, maintain market integrity, and facilitate fair and efficient capital markets. It achieves this by enforcing securities industry rules and regulations, overseeing brokerage firms and professionals, and providing investor education. FINRA plays a critical role in ensuring the integrity of U.S. securities markets.
FINRA’s Role in U.S. Financial Regulation
The Financial Industry Regulatory Authority (FINRA) is a self-regulatory organization (SRO) that operates under the supervision of the U.S. Securities and Exchange Commission (SEC). Its primary mandate is to regulate broker-dealers and protect investors by ensuring the fairness and integrity of the U.S. securities markets. Although it is not a government agency, FINRA has the authority to enforce compliance with federal securities laws and its own rules.
FINRA plays a vital role in maintaining market confidence by overseeing how financial professionals and firms conduct their business. Its efforts help prevent misconduct, detect fraud, and ensure that retail and institutional investors receive transparent, ethical service.
Key Functions and Responsibilities
FINRA performs a wide range of regulatory functions across the securities industry. These include:
Licensing and registration: FINRA administers qualification exams and licenses for brokers and registered representatives, including Series 7 and Series 63 exams.
Surveillance and enforcement: It conducts regular market surveillance and investigates potential violations such as insider trading, fraud, misrepresentation, or failure to disclose risks.
Rulemaking: FINRA develops and updates rules and guidance that govern the conduct of member firms and individuals, often in alignment with SEC regulations.
Examinations and audits: FINRA routinely inspects member firms to assess compliance with its rules and broader financial crime regulations.
Investor protection and education: Through resources like BrokerCheck, FINRA provides public access to information about registered brokers and firms to help investors make informed decisions.
FINRA and Financial Crime Compliance
Although FINRA is not solely an anti-money laundering (AML) body, it plays a critical role in overseeing how broker-dealers implement their financial crime compliance frameworks. FINRA’s Rule 3310, for example, requires member firms to establish and maintain a written AML program reasonably designed to comply with the Bank Secrecy Act (BSA) and its implementing regulations.
Key compliance expectations under FINRA include:
Conducting customer due diligence (CDD) and ongoing monitoring
Reporting suspicious activity to the Financial Crimes Enforcement Network (FinCEN)
Implementing internal controls and appointing an AML compliance officer
Providing AML training to appropriate personnel
FINRA often collaborates with the SEC and FinCEN to examine firms’ compliance with sanctions, anti-fraud controls, and cybersecurity safeguards, particularly as digital assets and financial technology evolve.
Regulatory Actions and Enforcement
FINRA has broad disciplinary powers, including the ability to fine, suspend, or expel firms and individuals who violate its rules or U.S. securities laws. It publishes disciplinary actions on its website, providing transparency and reinforcing public trust.
Common enforcement actions include:
Misrepresentation or omission of material facts
Unsuitable investment recommendations
Unauthorized trading or excessive trading (churning)
Failures to supervise or implement adequate compliance controls
AML program deficiencies or failure to file Suspicious Activity Reports (SARs)
FINRA also issues regulatory notices to update firms on rule interpretations, exam priorities, and industry risks.
Coordination and Oversight
FINRA does not operate in isolation. It works closely with federal and state regulators, including the SEC, the Commodity Futures Trading Commission (CFTC), and state securities administrators. Internationally, FINRA participates in regulatory discussions to support cross-border cooperation and information sharing, especially in areas like market abuse and financial crime prevention.
Importance to the Financial System
FINRA’s oversight ensures that investors are treated fairly, market integrity is preserved, and misconduct is detected and penalized. For compliance teams, staying aligned with FINRA’s evolving rules, guidance, and exam expectations is essential to maintaining a compliant and reputationally sound operation.
