What is FINRA? And How Do I Stay Compliant?

by | Apr 10, 2021

If you’re in the financial industry, it’s more than likely you’ve heard of FINRA, but what exactly is FINRA? The Financial Industry Regulatory Authority (FINRA) is a non-governmental agency that provides regulatory services for the financial industry. FINRA regulates over 4,200 brokerage firms on the market (which amounts to approximately 63,000 brokers) and oversees the stock market and securities industry so that investors feel safe entering the market. It’s their responsibility to protect the public, investors and brokers from unethical practices and fraud through regulations and monitoring. FINRA works to help manage and minimize risk and keep the market ordered, uniformed and structured.

What is the Difference Between FINRA and the SEC?

Even though FINRA is not a government agency, they are themselves overseen by the SEC (Securities and Exchange Commission), which is a government agency. SEC oversees several organizations such as FINRA, and are in charge of ensuring fairness for investors in general. FINRA enforces both SEC and FINRA regulations and rules.

How Does FINRA Regulate the Financial Market?

FINRA:

  • Examines firms for compliance with FINRA and SEC rules
  • Fosters transparency in the marketplace
  • Educates investors
  • Enforces high ethical standards
  • Implements investor safeguards

What Other Responsibilities Does FINRA have?

Establish and Enforce Industry Rules

FINRA requires that all financial brokers must be licensed and registered, passing their qualification exams and adequately meeting their continuing education requirements.

To keep informed on the ways brokers operate, FINRA has their financial examiners in the field every day closely examining brokers day-to-day operations. FINRA tries to focus most of its resources on preventing the greatest potential financial risks to the markets and investors.

They conduct regulatory examinations and inquiries based on complaints they get and any flagged suspicious activity. FINRA checks all advertisements (about 100,000 a year) on broker websites, sales brochures and other types of communication to make sure financial information is presented fairly and balanced.

Detect Wrongdoing

FINRA uses the latest technology, and multiple data gathering techniques to detect insider trading and any strategies used by firms that may give them, in FINRA’s eyes, an unfair advantage.

Approximately, 30-50 billion financial transactions are processed by FINRA every day, allowing them to gain insight into the US market as a whole. In addition to FINRA’s own enforcement actions, they also refer cases to the SEC and other agencies. In 2014 they referred over 700 cases to the SEC and similar other agencies.

Discipline Non-Compliance

If brokers break FINRA’s rules, FINRA imposes hefty fines, suspensions, and can even bar brokers.

Through what FINRA describes as their “aggressive vigilance”, they bring oversight and disciplinary actions against firms and individuals. In 2014, FINRA imposed 1,397 disciplinary actions, collected $134 million in fines and ordered restitution of $32.3 million be paid.

When FINRA determines that industry rules have been broken, the Enforcement Department or Market Regulation Department files a complaint with the Office of Hearing Officers (OHO), and where the case is further examined.

Resolve Securities Disputes
FINRA also acts as a forum for arbitration or as an intermediary when disagreements between investors occur. FINRA helps resolve disputes, handling almost 100 percent of the industry’s arbitrations and mediations from more than 70 hearing locations. FINRA has locations in all 50 states and also has offices in London and Puerto Rico.

Staying Compliant with FINRA

FINRA provides important regulatory oversight that keeps the U.S. markets safe and fair. That being said, FINRA is very powerful and can shut down and heavily fine any firm or brokerage found guilty of wrongdoing. Even organizations who are compliant may find FINRA’s regulatory examinations extremely stressful. FINRA brokerage compliance is essential for keeping your firm and clients safe and can be easier than ever by going paperless.

Using a paperless document management system is one of the best ways to stay compliant with FINRA. eFileCabinet specializes in helping brokers go paperless, resulting in increased efficiency and security, making FINRA’s regulatory compliance hassle-free. eFileCabinet maintains robust security features designed to protect confidentiality and privacy, reduce risk and liability, and maintain industry compliance (FINRA, HIPAA). We use 256-bit encryption and all information is stored on SAS 70 Type II certified servers.

Paperless document management also offers the benefit of helping any audits by FINRA go by quickly and efficiently. A big part of FINRA industry examinations is taking a look at a firm’s books and records to make sure they are current and accurate. By having all the records they will want access to available electronically, easily, and quickly, audits will be much more simple and go by much faster. Paperless management helps firms be upfront with FINRA and minimizes the headaches that accompany being audited.

eFileCabinet also implements features that promise security, such as role-based security features in document management products. Role-based security makes sure that only authorized individuals have access to view confidential or sensitive documents and is essential for maintaining good standing with regulatory organizations like HIPAA, the SEC, and FINRA. Another way that eFileCabinet offers security and quality is through continually implementing regular system updates, so you know you’re always up-to-date on compliance regulations.

Role-based security and carefully monitored updates are just a few aspects of the security a DMS system like Rubex by eFileCabinet can offer. eFileCabinet is listed in the FINRA Compliance Vendor Directory, and can offer you the tools you need to ensure the privacy your clients and customers deserve, and the peace of mind you deserve. Explore Rubex today!