What is FINRA? The Financial Industry Regulatory Authority

The Financial Industry Regulatory Authority (FINRA)

FINRA, or the Financial Industry Regulatory Authority, is a private corporation that oversees the securities industry, including oversight of brokers and brokerage firms.

Table of Contents

Functions of FINRA

FINRA is the referee in the U.S. securities industry. Its mission statement is to provide investor protection and promote market integrity through effective and efficient regulation of broker-dealers. Given its broad impact, this role often leads people to ask what exactly the FINRA organization is.

According to FINRA, they conduct regulatory oversight of more than 3,394 securities firms and 612,457 registered representatives. They are responsible for writing regulatory authority rules within the financial industry, firm examination, enforcement, arbitration and mediation functions, and all functions previously overseen solely by NASD, including market regulation under contract for NASDAQ, the American Stock Exchange, and the International Securities Exchange. Understanding the FINRA structure often involves exploring its detailed rules and mandates.

According to its mission statement, FINRA strives every day to ensure that:

Every investor receives the essential protection they deserve;
Anyone who sells a securities product has been tested, qualified, and licensed;
Every securities product advertisement used is truthful and not misleading;
Any securities product sold to an investor is suitable for that investor’s needs and
Investors receive complete disclosures about the investment product before purchase.

FINRA receives complaints, investigates wrongdoings, and takes regulatory action to correct this misconduct. Still, what FINRA is in its essence is best appreciated through its role as a regulator.

FINRA Statistics

In 2023 alone, 11,003 investor complaints were received, and 610 new disciplinary actions were filed, according to FINRA statistics. $88.4 million in fines were assessed and $7.5 million in restitution was paid to harmed investors.

What is FINRA’s goal? To ensure that the brokerage firms and brokers play by all the Financial Industry Regulatory Authority’s rules and regulations. The imposed sanctions can range from a simple warning for small offenses to fines and being barred or expelled from the securities industry. In 2023, FINRA suspended and/or barred 485 individuals and referred 623 fraud and insider trading cases for prosecution.

FINRA BrokerCheck Tool

FINRA also suspended four brokerage firms and expelled five firms, in 2023.. The suspension and fines are all public records, and investors may use this information free of charge at FINRA’s BrokerCheck site.

Understanding what is FINRA’s role in leveling the playing field between investors and the securities industry is critical to appreciating its value. Their website is full of information. FINRA BrokerCheck allows investors and financial advisors to research any broker or firm they may be dealing with.

All firms dealing in securities that are not regulated by another self-regulatory organization (SRO) are required to be member firms of FINRA. The regulator confirms that every member is licensed and has passed exams to ensure compliance and up-to-date knowledge of the rules and regulations.

But what is FINRA responsible for beyond licensing? FINRA imposes rules as a financial industry regulatory authority that governs members’ behavior, examines them for regulatory compliance, and is sanctioned by the SEC to discipline registered representatives and member firms that fail to comply with federal securities laws and FINRA’s rules and regulations. This organization regularly releases annual Regulatory and Examinations Priorities Letters to disseminate information.

FINRA Rules

So, what is FINRA’s role in rulemaking within the financial services industry? FINRA rules serve to protect investors, ensure market integrity, enforce regulatory compliance, establish professional standards, and deter misconduct through enforcement actions.

You can find more information on FINRA’s Rules here:

FINRA Rule 2111 Suitability
FINRA Rule 2165 and Elder Financial Exploitation
FINRA Rule 4210 Margin Requirements
FINRA Rule 3270 Outside Business Activities
FINRA Rule 4530: Reporting Requirements
FINRA Rule 2330 Deferred Variable Annuities
FINRA Rule 3241 Limits Brokers as Beneficiaries
FINRA Rule 2020: Manipulative, Deceptive, Fraudulent Devices
FINRA Rule 3280: Private Securities Transactions
FINRA Rule 4111: What Is the reason why your Brokerage Firm is on the Naughty List?
FINRA Rule 3240 Borrowing From or Lending to Customers
FINRA RULE 3110 (SUPERVISION)
FINRA Rule 4512 Customer Account Information
FINRA Rule 2090: Know Your Customer
FINRA Rule 2010
What is FINRA Rule 3210 – Rule 407 Letter?
FINRA Rule 12206 Eligibility
FINRA Rule 8210: Responding to Information Request

These rules also help clarify what is FINRA’s authority over the securities industry.

FINRA Arbitration Claims – The Process

While the Financial Industry Regulatory Authority (FINRA) conducts regulatory reviews and examinations of violations of rules, if you want to sue your financial advisor or brokerage firm for losses, you have to initiate a FINRA arbitration claim. For this, FINRA also administers and oversees the FINRA arbitration process.

To start an arbitration claim using FINRA, you should contact an attorney like The White Law Group for a free consultation. The attorneys will evaluate your claim, determine the likelihood of success in making a FINRA claim, and possibly move forward. Depending on how small or large your damages are, you must pay a filing fee to FINRA. Once FINRA receives the filing fee, your claim will be active.

The amount of the claim for damages will also determine the number of arbitrators assigned to your claim. If your claim is less than $100,000, you will be assigned one arbitrator, and if the amount exceeds $100,000, you will have three arbitrators, one of which is called the chair. In the next section, you will find out what a FINRA arbitrator is and what it takes to become one.

Arbitrator Qualifications

Richard Ketchum, the FINRA Chairman and Chief Executive Officer, stated, “We believe that giving investors the ability to have an all-public panel will increase public confidence in the fairness of our dispute resolution process.”

According to rules imposed by the Financial Industry Regulatory Authoritiy anyone who meets the minimum requirements can become a FINRA arbitrator. No previous arbitration, securities, or legal experience is required; only five years of paid work experience and two years of college-level credits are required.

So, what is the typical career path of a FINRA arbitrator? Arbitrators come from all walks of life. These men and women, who range from retirees to stay-at-home parents, are dedicated individuals serving as independent contractors in the efficient system of dispute resolution. According to FINRA, arbitrators listen to both sides of a securities-related dispute, weigh the facts, and render a final and binding decision.

When a location for arbitration is secured, the process for selecting the arbitrators begins. FINRA will issue a list of about 15 arbitrators for both parties to pick from. If you are wondering what is involved with the FINRA arbitrator selection process, you can look to jury selection. Some arbitrators will be struck for cause, and others will be picked. Once both parties submit their selected list back to FINRA, they will issue out the actual panel of arbitrators.

FINRA Arbitration vs Litigation

When you join a brokerage firm, Financial Industry Regulatory Authority rules require you to sign an arbitration clause in the new account forms. If a dispute arises, it binds both parties to arbitration versus taking each other to court. But what is the benefit of pursuing FINRA arbitration rather than taking the case to court? The court can be costly and time-consuming. It is in the best interest of everyone involved to resolve the issue in the cheapest, speediest manner possible.

The FINRA arbitration process works differently depending on the size of the claim. Claims involving $100,000 or more require a hearing that both parties must attend in person at one of the 71 hearing locations across the United States, San Juan, Puerto Rico, and London, England. In this hearing, there will be three arbitrators and a Chair. If you’re unclear on what a FINRA chair is, think of a court judge. They are tasked with ensuring that both sides follow the rules and regulations.

Only one arbitrator decides more minor claims. Financial industry regulatory authority rules dictate that claims less than $50,000 may be chosen through a Simplified Arbitration Process. The arbitrator will review all the materials produced by both parties without requiring an in-person hearing.

Mediation can be initiated before arbitration begins and even during an arbitration case before it concludes. It offers a flexible alternative to arbitration. So, what is FINRA mediation? Mediation is an informal process in which a trained, impartial mediator facilitates negotiations between disputing parties, helping them find a mutually acceptable solution. Both parties in a dispute must agree to mediation. FINRA does not require parties to mediate.

If you are unsure whether to pursue your case through arbitration or mediation, a securities attorney from a firm like The White Law Group can help. They can assess your case, determine if you are likely to win, and help you decide the route by which you should pursue it.

What is the “Statute of Limitations” for filing a FINRA Claim?

Financial Industry Regulatory Authority Rule 12206 Time Limits reads as follows:

“12206. Time Limits (a) Time Limitation on Submission of Claims

No claim shall be eligible for submission to arbitration under the Code where six years have elapsed from the occurrence or event giving rise to the claim. The panel will resolve any questions regarding the eligibility of a claim under this rule.” (Emphasis added)

With that in mind, it is worth asking what the timeline brokerage firms typically follow when filing a FINRA claim. Since this is currently one of the only pre-hearing Motion to Dismiss that a brokerage firm is permitted by rule to file, the majority of firms will file an eligibility rule if the date of purchase of the investments at issue is more than six years – always taking the position that the “occurrence or event giving rise to the claim” is the date of the purchase of the investment.

So, what is The White Law Group’s stance on filing FINRA claims? The White Law Group has successfully argued on several occasions that the “occurrence or event giving rise to the claim” is when the client knew or should have known about their claims.

Recovery of Investment Losses Through Financial Industry Regulatory Authority Arbitration and Rules to Follow

The White Law Group is providing the foregoing information, which is all publicly available on FINRA’s website.

The White Law Group is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm dedicated to representing investors in FINRA arbitration and mediation claims against brokerage firms throughout the United States.

But what is the advantage of turning to The White Law Group for FINRA claims rather than any other law firm? With over 35 years of experience in the industry, our firm has handled more than 800 FINRA arbitration claims. Our securities attorneys are widely regarded as among the top in the profession. We are here to evaluate your claim to see if any Financial Industry Regulatory Authority rules have been violated, advise you on your options, and guide you through arbitration or mediation.

If you believe you have suffered losses due to your FINRA-registered broker, The White Law Group may be able to help you recover your investment losses. Call (888) 637-5510 for your no-obligation consolation.

The White Law Group is a national securities arbitration, securities fraud, and investor protection law firm with offices in Chicago, Illinois, and Seattle, Washington.

Tags: Financial Industry Regulatory Authority, FINRA, FINRA arbitration, FINRA mediation, FINRA Rule 12206, finra stats, what is FINRA

Tags: Financial Industry Regulatory Authority, FINRA, FINRA arbitration, FINRA mediation, FINRA Rule 12206, finra stats, what is FINRA Last modified: December 2, 2024

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