What is FINRA?

By October 6, 2015 September 20th, 2017 Resources

FINRA is the Financial Industry Regulatory Authority, a self-regulatory organization charged with regulating the securities industry.  It is the successor to the National Association of Securities Dealers, Inc. (NASD).  All firms dealing in securities that are not regulated by another self-regulatory organization are required to be member firms of FINRA.

FINRA’s key functions are three-fold. First, it educates investors, offering various tools to aid investors in making informed choices about the products they purchase and with whom they invest. One important tool is BrokerCheck, an online database that allows investors to search the employment history and disciplinary history of their brokers.

FINRA’s second main function is to regulate the industry by establishing rules for its members and then disciplining members when those rules are violated. According to FINRA’s website, for instance, FINRA brought 1,397 disciplinary actions against registered brokers and firms, levied $134 million in fines, and ordered the restitution of $32.3 million to harmed investors in 2014.

Finally, FINRA administers arbitration proceedings between investors and their brokers or financial advisors.  Most new account forms (or contracts) with brokerage firms contain a provision known as a “Pre-Dispute Arbitration Clause” requiring investors to pursue any claim or dispute against the firm or the broker working for the firm in FINRA arbitration rather than in court.  Even if your contract does not contain this clause, customers have the right to force the firm or broker into FINRA arbitration.

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