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What Is FINRA and Why It’s Important?

Investors depend on fair financial markets. Ensuring that these markets operate with integrity and protecting investors is FINRA’s job. But what exactly is FINRA, and why does it matter?

What Is FINRA?

FINRA, which stands for Financial Industry Regulatory Authority, is a not-for-profit self-regulatory organization that is subject to oversight by Congress and the Securities and Exchange Commission (SEC). It works to protect investors by overseeing the broker-dealer industry and ensuring that brokers are fair and truthful in their operations. FINRA regulates trading in equities, corporate bonds, securities futures, and options. In addition, it monitors over 624,000 brokers nationwide and analyzes billions of market events daily.1

FINRA regulates three types of organizations:

  • Broker-Dealer Firms: Businesses that buy or sell securities for their customers or for their own accounts.
  • Capital Acquisition Brokers: Firms that partake in a narrow range of activities, including: 
    • “advising companies and private equity funds on capital raising and corporate restructuring, and
    • acting as placement agents for sales of unregistered securities to institutional investors under limited conditions.”2
  • Funding Portals: Crowdfunding platforms connecting investors with early-stage companies.

To remain effective, FINRA employs technologies like artificial intelligence and machine learning to monitor market activity and detect potential issues.

Why Is FINRA Important?

FINRA's role is essential because it provides a safeguard for both individual investors and the broader financial system. It ensures:

  1. Investor Protection: FINRA enforces rules that provide every investor basic protections. It makes sure that the marketing of securities is communicated truthfully, not misleading, and in the best interest of the investor.
  2. Professional Qualifications: Anyone selling securities must be tested, licensed, and comply with FINRA’s rules as well as securities laws.
  3. Market Integrity: Through regulations and examinations, FINRA prevents misconduct like manipulative trading, financial crimes, or unfair pricing of securities.

Each year, FINRA publishes an examination report detailing its findings. For example, the 2023 report highlighted issues such as cybersecurity risks, complex financial products, and mobile apps' compliance with regulations.3 By sharing these insights, FINRA helps financial firms improve their practices and maintain investor confidence.

Additionally, FINRA is authorized by the SEC to discipline firms or individuals that fail to follow securities laws or its own rules. This authority reinforces trust in financial markets. FINRA also provides training and educational resources to support the industry and investors.

In short, FINRA ensures the financial industry operates fairly and responsibly, giving investors the confidence to participate in the markets. Without it, trust in the financial system would falter, making it harder for people to invest and grow their money.

1. https://www.finra.org/rules-guidance/enforcement/customer-cooperation#:~:text=Who%20We%20Are,620%2C000%20brokers%20across%20the%20country.

2. https://www.finra.org/registration-exams-ce/capital-acquisition-brokers

3. https://www.finra.org/rules-guidance/guidance/reports/2023-finras-examination-and-risk-monitoring-program

The information contained herein is for informational purposes only.  While MMBB made every attempt to ensure that the information is accurate, MMBB is not responsible for any errors or omissions or the results obtained from the use of this information.  MMBB is not liable for any success or failure that is directly or indirectly related to the use of the information contained herein.  The information contained herein does not constitute any financial, insurance, investment, legal, or tax advice.  In no event shall, MMBB and/or its fiduciaries, directors, officers, employees, or agents thereof be liable for any special, direct, indirect, consequential, or incidental damages or any damages whatsoever, whether in action of contract, negligence or tort, arising out of or in connection with the use of the information contained herein.

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Translations of any materials into languages other than English are intended solely as a convenience to the non-English-reading public. We have attempted to provide an accurate translation of the original material in English, but due to the nuances in translating to a foreign language, slight differences may exist.

Las traducciones de cualquier material a idiomas que no sean el inglés son para la conveniencia de aquellos que no leen inglés. Hemos intentado proporcionar una traducción precisa del material original en inglés, pero debido a las diferencias de la traducción a un idioma extranjero, pueden existir ligeras diferencias.

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