As a free-market, capitalist country, the United States depends on the integrity of all its markets in order to continue functioning. This applies especially to its capital markets. Without integrity there can be no trust. Without trust, markets will cease to exist. And without markets, the United States would be a very different country.
The foremost tool in this country’s arsenal for maintaining market integrity is non-governmental organization called “FINRA.” Although it is overseen by a government agency (the U.S. Securities and Exchange Commission, or SEC), the Financial Industry Regulatory Authority, Inc. (FINRA) is a private corporation tasked with regulating member brokerage firms and exchange markets.
FINRA undertakes this task primarily to protect the investing public against fraud and other bad practices—and it does so at no cost to taxpayers. Yet, because of the complex, interconnected nature of our economy, even the non-investing public ultimately benefits from this corporation’s work. Here are six ways in which FINRA serves the interest of all citizens.
1. FINRA Makes the Rules
Safeguarding the investing public against fraud and other bad practices begins, first and foremost, with clear, coherent rules and regulations. FINRA writes many of those rules; but rules without teeth are meaningless. Therefore, FINRA also enforces the rules they write, as well as Federal securities laws and the rules of the Municipal Securities Rulemaking Board.
Every day FINRA financial investigators examine the way brokers operate and conduct routine examinations, as well as making inquiries based on investor complaints and suspicious activity. They also review all broker communications (e.g., advertisements, websites, and sales brochures) to ensure brokers present information in a fair and truthful manner.
2. FINRA Deters Misconduct in the U.S. Markets
With Congressional authorization to make sure the broker–dealer industry operates fairly and honestly, FINRA oversees more than 624,000 brokers across the country and analyzes billions of daily market events. They use innovative artificial intelligence (AI) and machine learning technologies to oversee the market, deter wrongdoing, and provide essential support to investors, regulators, policymakers, and other stakeholders.
The data-gathering techniques employed by FINRA are powerful enough to detect potential abuses in the market such as insider trading and other strategies that individuals or firms may use to gain an unfair advantage. They also work to fight fraud, sharing information with other regulators to prevent harm to investors.
3. FINRA Punishes the Rule-breakers
FINRA possesses not just regulatory and compliance powers, but disciplinary ones as well. They have the authority, technology, and experts to respond quickly and effectively to wrongdoing. If brokers or investors break the rules, they can be fined, suspended, or barred from the industry by FINRA.
4. FINRA Educates and Informs
To encourage the highest levels of professionalism, FINRA requires that all brokers be licensed and registered by them, pass their qualification exams, and satisfy continuing education requirements. In addition, because an essential component of investor protection is knowledge, they provide investors with educational tools and resources that can help them make wise financial decisions.
Through the FINRA Investor Education Foundation, they teach investors the skills needed to protect themselves from financial fraud, while also equipping underserved audiences nationwide with the resources needed for financial success. Their website also offers dozens of free resources for the public, including tips for avoiding fraud, online calculators, and investor alerts.
5. FINRA Resolve Securities Disputes
When disputes between brokers and investors arise, FINRA administers the largest forum specifically designed to resolve securities-related disputes between and among investors, securities firms, and individual brokers.
Their dispute resolution forum is the largest in the country for the securities industry, handling numerous securities-related arbitrations and mediations in all 50 states, as well as in London and Puerto Rico.
6. FINRA and Good Corporate Citizenship
Lastly, as a public service organization entrusted with safeguarding America’s investors and ensuring principled industry conduct, FINRA is dedicated to acting in ways that strengthen American workplaces and communities.
To that end, FINRA has centered their corporate social responsibility program to reflect their mission—investor protection and market integrity—by embracing these four core values:
- shared economic opportunity,
- diversity,
- community service, and
- sustainability.
Clearly, FINRA doesn’t just believe in doing what’s right for investors and the markets, they believe in doing what’s right—period.
If you are a broker and would like expert guidance in education and compliance, please learn about our FINRA Services.
