FINRA the Financial Industry Regulatory

FINRA

The Financial Industry Regulatory Authority Inc. (FINRA) is a private corporation that acts as a self-regulatory body for brokerage firms and securities markets. FINRA was created in 2007 in order to perform self-regulation for all securities firms that do business with the U.S. public. This includes brokerage houses, investment dealers, banks and hedge funds (FINRA website, 2010).

The mandate of FINRA is to write and enforce rules, examine firms for compliance, educate investors and help firms to pre-empt risk. In addition, FINRA provides trade reporting. FINRA receives its mandate from the contracts that it signs with various exchanges. Firms that deal with a FINRA-contracted exchange must submit to FINRA oversight. These exchanges include both the New York Stock Exchange and NASDAQ. FINRA's predecessors were the NASD and NYSE Regulation Inc., the self-regulatory bodies for the two major exchanges. These bodies merged to create FINRA (Ibid).

FINRA's jurisdiction over securities dealers consists of their actions when dealing with the public. All firms that are members of FINRA fall under this jurisdiction, but in order to trade on the two major exchanges, FINRA membership is mandatory. FINRA typically covers broker-dealers, but does not cover investment advisers. FINRA has attempted to expand its coverage in the past to include investment advisers, insurance agents and other employees at broker-dealers that deal with the public (Hansard, 2008).

The move to expand jurisdiction is indicative of one element in FINRA's philosophy. The organization argued at the time that expanding jurisdiction would allow it to oversee all activities conducted by broker-dealers, indicating that it felt public protection should be expanded. FINRA is involved in regulating every aspect of the securities business, so part of its underlying philosophy is blanket regulatory coverage of the business.

FINRA believes, however, in going beyond regulation. A stated mandate of FINRA is to improve investor education, because FINRA believes that "investor protection begins with education" (FINRA website, 2010). FINRA has set up an Investor Education Foundation, which in 2009 spend $46 million on improving investor education about the markets.

FINRA believes that the markets should be fair for all participants. The body feels that this will ensure investors have as many choices as possible for their money. In addition, FINRA believes in taking a proactive approach to regulatory issues, because this will enhance its mission of consumer protection (Ibid).