Understanding FINRA Compliance

The Financial Industry Regulatory Authority (FINRA) plays a crucial role in maintaining the integrity and confidence of the securities markets in the United States. As a not-for-profit organization authorized by Congress, FINRA oversees and regulates the securities industry to protect investors and ensure market fairness. In this blog, we explore what FINRA is, why it’s important, and its key compliance requirements.

What is FINRA?

FINRA stands for the Financial Industry Regulatory Authority. It is a self-regulatory organization that oversees brokerage firms, securities exchanges, and other entities involved in buying, selling, and trading securities.

FINRA’s mission is to protect investors by ensuring the fairness and integrity of the securities markets. It achieves this through regulatory oversight, enforcement of high standards of conduct, and investor education.

Why is FINRA Important?

FINRA is essential for maintaining investor confidence and market integrity. By enforcing compliance with securities laws and regulations, FINRA helps prevent fraud, market manipulation, and other unethical practices. This regulatory oversight ensures that investors can trust the securities markets and that their investments are protected.

Affected Industries

FINRA regulation primarily affects entities and professionals involved in the securities industry. Here are the main industries subject to FINRA oversight:

• Brokerage Firms
• Investment Advisors
• Securities Exchanges & Alternative Trading Systems
• Investment Bankers & Underwriters
• Clearing and Settlement Services
• Market Makers & Trading Firms

Key FINRA Compliance Requirements

To ensure investor protection and market integrity, FINRA sets forth several compliance requirements for firms and individuals operating within the securities industry. Here are some of the key requirements:

1. Registration and Licensing: Firms and individuals must register with FINRA and obtain the appropriate licenses to operate in the securities industry.
2. Supervisory Systems and Procedures: Establish and maintain supervisory systems and procedures to ensure compliance with FINRA rules and securities laws.
3. Customer Due Diligence: Conduct due diligence on customers to assess their investment objectives, risk tolerance, and financial situation. Provide suitable investment recommendations based on the customer’s profile and disclose associated risks.
4. Identity Verification and Anti-Money Laundering (AML): Establish procedures to verify the identity of customers and beneficial owners of accounts. Identify and report suspicious activities that may indicate money laundering or other illicit activities. Maintain an effective AML compliance program.
5. Record Keeping: Maintain accurate and complete records of customer accounts, transactions, communications, and other business activities in accordance with FINRA rules and securities laws.
6. Public Communications: Ensure that all communications with the public, including advertisements, sales literature, and social media posts, comply with FINRA rules and regulations. Provide fair and balanced disclosure of risks and avoid making false or misleading statements.
7. Cybersecurity Measures: Implement robust cybersecurity measures to protect sensitive customer information and confidential data from unauthorized access, theft, or disclosure.
8. Employee Training and Education: Provide ongoing training and education to employees on compliance policies and procedures, securities regulations, and ethical standards.
9. Reporting Requirements: Report certain events and disclosures to FINRA, such as regulatory filings, changes in ownership or control, disciplinary actions, and customer complaints.

Learn More and Get Compliant with Sourcepass

Sourcepass provides Security Advisory Services that can help provide support and guidance for your compliance needs.

Speak to one of our IT specialists to learn how Sourcepass can help with regulatory adherence.