The Financial Industry Regulatory Authority (FINRA) is a US-based securities regulator that is responsible for regulating and overseeing activities of around 4000 securities firms and close to 650,000 brokers in the US. Such a staggering number of FINRA regulated brokers is instrumental in safeguarding the interests of investors in the securities and exchange market, which saw the agency slapping fines close to a $100 million to its regulated members in 2015 alone. FINRA has also managed to recover and reimburse around $90 million to aggrieved investors who were
FINRA is an independent authority and acts as a private corporation that does not seek Government funds for its operations. Rather, FINRA is funded entirely through fees from its regulated members and fines imposed on companies for financial irregularities. FINRA is directly associated with the Congress regarding the mode of operation and regulatory frameworks, while the primary duties of FINRA involve regulating firms in the NYSE that deal in securities and investments.
History Of FINRA and FINRA Forex Brokers
FINRA was formed in 2007 after the SEC approved a merger between the National Association of Securities Dealers (NASD), the NYSE, and the NYSE Regulations Inc. to streamline the process of regulating all financial firms operating in the US securities market. NASD was the primary regulator for the NYSE; however, after the recapitalization of the NASD into the NASDAQ, the FINRA was formed to oversee the regulation of member firms and brokers throughout the country.
On the contrary, FINRA does not regulate Forex brokers directly, as the job of regulating brokers in the Futures market falls on the NFA and the commodities market is taken care of by the CFTC. Therefore, FX brokers are regulated by the NFA and the CFTC for all intents and purposes, which makes it a scarcity to find any FINRA regulated Forex brokers operating in the US markets. However, there are FINRA Forex brokers that offer Forex trading products and other allied services through their subsidiaries, which may be directly regulated by the NFA and the CFTC.
FINRA regulated brokers should not directly indulge in Forex brokerage services. Instead, they can create sub-divisions or entirely new brokerages that can provide Forex trading services. Of course, such a firm can indeed advertise about its numerous products and services portfolios on different platforms, but the broker should ensure that investors are offered a clear picture of the various markets and their risk implications. For instance, a broker can advertise about its securities brokerage service on its FX trading website, and vice-versa, but the broker should be clear about the different regulatory status and the different terms that govern the two very different types of financial markets.
The Licensing Requirements For FINRA Regulated Brokers
FINRA regulation has some strict rules that govern broker regulation, which is amended by the SEC from time to time. The SEC plays an essential role in designing and developing the regulatory framework to ensure a fair and transparent marketplace that helps the FINRA to safeguard investor rights through proactive regulation of its member firms. The following guidelines outline the regulatory protocols that every single member of the FINRA agency must follow to satisfy the stringent SEC guidelines:
Brokers should be qualified, tested, and certified by the FINRA before they can sell any types of securities products to their clients.
Brokers should not indulge in false advertising or misrepresentation of facts that may either directly or inadvertently harm an investor. Companies should put the investor’s interest into priority while designing advertising and other promotional materials.
It is the duty of the broker to ascertain the risks of a security product and to sell such an option to an investor according to their risk appetite and investment goals.
All investors should enjoy a basic protection against the dangers of the market, and should have a rudimentary idea about the risky nature of securities before investing. Therefore, brokers should offer complete disclosure to its investors regarding the different factors that may affect the profitability of their investments.
How Does FINRA Stay On Top Of Financial Malpractices?
FINRA is actively involved in regulating the financial industry and has around 650,000 entities under its regulatory oversight. In 2015, the company had actively sought out the numerous financial irregularities in the Securities market through proactive auditing of its member firms and had managed to acquire close to $200 million in fines and restitution. FINRA has managed to restore investor confidence by reimbursing investors who faced financial fraud and abuse at the hands of dishonest brokers, which not only helped in protecting investor rights but also assisted in validating the entire purpose of FINRA after the financial turmoil of 2007-08 financial crisis.
FINRA requires every member firm to submit periodic audit reports and the agency also oversees the compliance of companies and other financial entities according to the updated SEC guidelines. The SEC and the FINRA work together to create several rules that can guarantee a safe and stable economy by protecting the integrity of the markets. The regulatory frameworks and the regulation processes are also preceded by the Congress, which ensures that the FINRA operates under a standard protocol without diverging from the laws embedded in the constitution.
FINRA is committed to the welfare of the individuals by working with an investor in case of disputes with a company. The FINRA arbitration process is quite transparent, which allows investors as well as financial entities to come up with an amicable resolution without escalating the matters into the court. However, consumers are also free to take matters to court if they are unable to find common ground in resolving their issues with the FINRA or the regulated company.
FINRA also supports arbitration between companies and its employees and has made it compulsory for all participating firms to have arbitration agreement between a company and its employees. The employees in question can either be low-level employees, shareholders, managers, investors, or even company executives, who might have differences in opinions or any other issues with regards to the operations of a firm. Therefore, FINRA is considered to be one of the best regulatory agencies in the market due to their extensive regulatory oversight, albeit, FINRA does not have any FX brokers directly under its jurisdiction. However, there are FINRA regulated brokers that do offer Forex trading services through their sister concerns, which can indeed help you to take advantage of the excellent reputation that the FINRA possess.
