What FINRA Does: A Plain-English Guide to the Regulator
What FINRA does as the self-regulatory organization for U.S. broker-dealers: rulemaking, examinations, enforcement, arbitration, and its link to the SEC.
What FINRA does comes down to a single job: it is the self-regulatory organization that writes and enforces rules for the broker-dealers that sell securities to the public in the United States. FINRA stands for the Financial Industry Regulatory Authority. It is a private, not-for-profit organization, not a government agency, and it works under the oversight of the Securities and Exchange Commission (SEC).
In brief
- FINRA writes rules for broker-dealer firms and the people who work at them.
- It examines firms, investigates complaints and brings disciplinary cases.
- It licenses brokers through qualification exams and keeps the public registration database.
- It runs a securities dispute forum used in customer and industry arbitration.
- It monitors trading in the equity and options markets for misconduct.
- The SEC supervises FINRA and approves its rule changes.
Where FINRA comes from
Congress built the American securities system around a principle sometimes called self-regulation under government oversight. The Securities Exchange Act of 1934 authorized national securities associations and exchanges to write rules for their members, subject to SEC review. For decades the main body for over-the-counter broker-dealers was the National Association of Securities Dealers (NASD). In 2007 the NASD combined with the member regulation, enforcement and arbitration operations of the New York Stock Exchange, and the combined organization took the name FINRA.
The structure persists for a practical reason. Securities firms are numerous, and an industry body can field a large staff of examiners with market expertise. The SEC retains the authority to approve, amend or disapprove the rules and to bring its own cases. FINRA is registered as a national securities association under the Exchange Act.
Who FINRA covers
FINRA’s jurisdiction is over its members: broker-dealer firms that do business with the public, and the registered individuals associated with them. That includes large wirehouses, independent brokerages, investment banks, placement agents and many small firms. It also covers funding portals that facilitate crowdfunding offerings under SEC Regulation Crowdfunding.
It does not regulate everyone in finance. Banks are supervised by the Federal Reserve, the Office of the Comptroller of the Currency or the FDIC, depending on the charter. Insurance is primarily a state matter. Registered investment advisers are regulated by the SEC or by states, though individuals who hold both broker and adviser roles may touch both systems. Commodity futures markets fall under the Commodity Futures Trading Commission and the National Futures Association.
The core functions
Writing rules
FINRA maintains a rulebook covering how members conduct business: sales practices, advertising, supervision, financial responsibility, trade reporting, books and records, and more. A proposed rule or change cannot take effect until it is filed with the SEC under Section 19(b) of the Exchange Act. Our guide to how FINRA rules are made walks through that process.
Licensing and registration
People who sell securities for a broker-dealer must register through the firm and pass the qualification exams that match their activity. FINRA administers those exams and operates the Central Registration Depository, the system that holds registration, employment and disciplinary information. The public part of that information is available through FINRA BrokerCheck, a free lookup tool. Investors can use it to see a broker’s history, including customer complaints and regulatory actions that firms and regulators have reported.
Examining firms
FINRA examiners visit or review firms on a cycle that depends on risk. Exams look at topics such as supervision, sales practices, anti-money laundering programs, net capital, communications with the public and handling of customer accounts. Findings can range from informal notes to formal referral for enforcement. FINRA publishes its examination and risk monitoring priorities in an annual report that firms and investors both read to see where attention is heading.
Market surveillance
FINRA monitors trading activity across equity and options markets, using data collected from exchanges and trading venues. Its surveillance programs look for manipulation, insider trading patterns, wash sales and similar misconduct. Cases that look like violations of the securities laws, rather than FINRA rules, may be referred to the SEC.
Enforcement and discipline
When examiners or investigators find a violation, FINRA’s enforcement staff can open a case. Most end in a settlement, usually through a letter of acceptance, waiver and consent in which the firm or individual neither admits nor denies the findings. Sanctions include censure, fines, restitution to harmed customers, suspension and, in serious cases, a bar from the industry. Contested cases go to a hearing panel, can be appealed within FINRA and then to the SEC, and finally to the federal courts of appeals.
Dispute resolution
Most brokerage account agreements require customers to arbitrate disputes. FINRA runs the largest securities arbitration and mediation forum in the country, with panels drawn from a roster of arbitrators and rules that govern discovery, hearings and awards. Many disputes between firms and registered employees also go to this forum. The process is an alternative to litigation, not a government proceeding.
Investor education
FINRA publishes investor alerts, an education foundation and tools such as its fund analyzer. These are informational and are not a substitute for professional advice.
How FINRA is funded and governed
FINRA’s revenue comes mainly from fees charged to member firms, fines, and fees for services such as exam administration and arbitration. Its board has a mix of public and industry governors, a composition that is meant to prevent the regulated group from controlling the regulator. Financial statements and annual reports are published on its site.
FINRA and the SEC compared
| FINRA | SEC | |
|---|---|---|
| Legal status | Private, not-for-profit self-regulatory organization | Federal government agency |
| Rules apply to | Member firms and associated persons | Public companies, broker-dealers, advisers, exchanges and others |
| Can bring a case against | Members and associated persons | Almost anyone covered by the securities laws |
| Oversight | SEC | Congress and the courts |
The relationship is layered. Many FINRA rules implement or complement SEC rules, and the SEC can also direct FINRA, through its approval power over rules and its inspections of FINRA operations. An individual or firm may face both FINRA action and SEC action for the same events.
Key terms
Self-regulatory organization (SRO). An organization, such as FINRA or a stock exchange, that writes and enforces rules for its members under SEC oversight.
Associated person. A person associated with a member, such as a registered representative, principal or other employee.
Regulatory Notice. The communication FINRA uses to announce rule proposals, rule changes, guidance and compliance reminders. Readers following FINRA news often start with these notices.
BrokerCheck. The public database of broker and firm records.
AWC. A letter of acceptance, waiver and consent, the usual form of a settled FINRA disciplinary case.
Common misconceptions
“FINRA is part of the government.” It is a private not-for-profit corporation. It exercises authority delegated through the Exchange Act and is accountable to the SEC.
“FINRA insures my account.” Account protection comes from the Securities Investor Protection Corporation (SIPC) in the event of a broker-dealer failure, not from FINRA, and SIPC does not protect against investment losses.
“A clean BrokerCheck record means a broker is safe.” The database shows reported information. It does not rate quality or predict conduct.
“FINRA regulates all financial advisers.” Advisers who are only investment advisers are outside FINRA’s jurisdiction.
A worked example
A customer believes her broker placed her in an unsuitable product. She can start by contacting the firm’s compliance department. If unsatisfied, she can file a complaint with FINRA, which may route it to the examination or enforcement group, or she can file an arbitration claim if her account agreement provides for it. In an arbitration, a panel hears evidence and can order the firm to pay damages. Separately, FINRA’s staff may review the broker’s conduct and pursue discipline. The two tracks are independent, and one does not require the other.
Where to find official information
The FINRA website has the rulebook, Regulatory Notices, disciplinary actions and BrokerCheck. The SEC site lists FINRA rule filings and the Federal Register notices that go with them. Investor.gov, the SEC’s investor education site, also explains how to check a professional’s background.
FAQ
Is FINRA a government agency?
No. It is a private, not-for-profit self-regulatory organization overseen by the SEC.
Does FINRA regulate banks?
No. Banks are regulated by federal and state banking agencies. A bank’s securities affiliate that is a broker-dealer is a FINRA member.
How can I check a broker’s record?
Use FINRA BrokerCheck on finra.org or the SEC’s Investment Adviser Public Disclosure site for advisers.
Can FINRA bar someone from the industry?
Yes. A bar is one of the most severe sanctions in FINRA’s disciplinary process, and it can be appealed to the SEC.
Does FINRA make laws?
It writes rules for its members. The statutes themselves come from Congress, and the SEC must approve FINRA’s rules before they take effect.
Prepared with AI assistance from public sources and reviewed under our editorial policy. Not investment advice.
