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Insights for investors on what it means to be regulated by FINRA

On Behalf of | May 16, 2024 | FINRA Compliance

Those who follow the financial industry are likely familiar with actions taken by the Financial Industry Regulatory Authority, whose mission is to protect investors and ensure the market’s integrity by overseeing U.S. broker-dealers.

But to provide a closer look at what the organization does and how it works, FINRA recently published an article on its Investor Insights page titled, “What It Means To Be Regulated By FINRA”.

It is an overview of information that investors should know about the authority, a non-profit organization that is authorized under the federal securities laws and registered with the Securities and Exchange Commission.

The article explains that broker-dealers who sell securities to the public must be registered with the SEC and be members of a registered securities association such as FINRA.

“FINRA members must meet extensive conduct, operational and financial requirements,” the article notes. “FINRA, under the close supervision of the SEC, oversees its member firms’ compliance with these requirements. In addition, individuals who are associated with member firms and who are engaged in the investment banking or securities business must be qualified and registered with FINRA.”

Firms who want to become members of FINRA must undergo a comprehensive admissions process and demonstrate their commitment to comply with the numerous FINRA and SEC safeguards designed to protect investors and the integrity of the securities markets.  They must show that the firm’s personnel do not have a history of misconduct that could pose a risk to investors.

Member firms must also satisfy specific capital requirements, disclose changes in their financial condition, provide periodic financial reports to FINRA and have an annual independent audit. This helps ensure that firms have sufficient liquid assets to protect customers and creditors in the event the firm fails.

FINRA members must also undergo regular examinations and inspections to make sure they are complying with FINRA and SEC rules and federal securities laws.  Those found to be in violation of FINRA rules or laws are subject to enforcement actions that bring discipline that includes paying restitution to investors, suspensions or bans from FINRA membership.

Background information is required of firms and their members to determine whether they are a risk to investors. Most of this information is available through FINRA BrokerCheck, a free and quick way to access information about a broker-dealer and its registered persons.

Those attempting to become registered must pass qualifying exams administered by FINRA to ensure they have the knowledge to competently handle securities-related activities.

The article goes on to detail FINRA’s arbitration resolution form,  the largest securities dispute resolution forum in the United States. It assists in the resolution of disputes involving customers, associated persons and member firms.

Investors were also provided with a list of key questions they should ask of any financial professional they are deciding whether to work with:

Investors are advised that if they believe they have been treated unfairly by an individual or member firm, contact the firm to try to resolve the issue.  But if they are still unsatisfied with the firm’s response, they can file a complaint with FINRA.

The attorneys at Lewitas Hyman include former senior attorneys at the SEC whose legal experience and industry knowledge make them uniquely qualified to provide counsel on securities regulatory, compliance and enforcement matters. When it comes to regulatory compliance and enforcement matters, our attorneys have dealt with investigations and enforcement actions stemming from allegations including violations of SEC, FINRA, and SRO rules and regulations. If your firm is facing an investigation from a regulatory agency, please contact Lewitas Hyman at (888) 655-6002 or through our online contact form.