The Financial Industry Regulatory Authority (FINRA) is the self-regulatory agency that oversees the securities industry in the United States. This includes many retirement planning products and the people and firms who sell them. Although FINRA is not a government organization, they are empowered by the Securities Exchange Commission (SEC) to carry out the enforcement of securities laws in the U.S.
All individuals and organizations who engage in the sale of securities in the U.S. must be registered with FINRA.
History of FINRA
FINRA’s predecessor, the National Association of Securities Dealers (NASD) was founded in 1939. It was registered with the SEC in accordance with the 1938 Maloney Act, and later started the National Association of Securities Dealers Automated Quotations (NASDAQ) stock market. In the year 2000, the NASDAQ underwent a major recapitalization and became separate from the NASD. In July 2007, the SEC sanctioned a new regulatory body to succeed the NASD. The NASD and the regulation, arbitration, and enforcement functions of the New York Stock Exchange were consolidated to form FINRA.
Financial Professionals and FINRA
FINRA requires individuals who wish to sell securities to meet a number of requirements.
The individual must pass a qualifying exam. The Series 7 exam licenses an individual to sell general securities such as stocks, bonds, exchange-traded funds, mutual funds, variable annuities, and other instruments. The Series 6 exam licenses individuals to sell only mutual funds, variable annuities, closed-end funds in the primary market, and unit investment trusts.
In order to take a FINRA exam, a person must be sponsored by a broker-dealer firm that is registered by FINRA. They must also pass a background check, as there are certain criminal convictions that make a person ineligible for FINRA registration. FINRA also monitors the behavior of registered representatives and carries out disciplinary actions when necessary.
You can view a registered representative’s employment history, licenses, and disclosure events by visiting FINRA’s BrokerCheck website.
Broker-Dealers and FINRA
A firm wishing to engage in securities business must register with FINRA, along with the individuals who work at the firm. Officers of the firm must meet with FINRA staff and answer questions about the business they wish to conduct, the amount of capital they have, and the qualifications of the firm’s officers.
Broker-dealers must employ registered principals to supervise the operations and staff of the firm. Individuals who wish to register as principals must hold either a Series 6 or Series 7 license and must pass an additional exam – either the Series 24 or 26 – to qualify as a supervisory principal.
After a firm gets authorization to conduct business, it is still under the supervision of FINRA, who performs audits and exams to ensure compliance of its member firms. Nearly all aspects of a broker-dealer firm’s business are subject to FINRA’s rules.
Product Subject to FINRA Supervision
FINRA supervises the sale of virtually all investment products, including products intended for retirement planning. Stocks, bonds, mutual funds, exchange-traded funds, and variable annuities are some of the most common investments overseen by FINRA.
