The skilled FINRA defense lawyers at the Spodek Law Group can provide advice and help when responding to FINRA enforcement inquiries and FINRA actions. We have over 40 years of experience, and have immense knowledge handling FINRA issues. We offer a risk free consultation, and are here to help you – regardless of whether you’re an institution, small/medium sized company, or broker.
We can handle all aspects of the enforcement process, including, but not limited to:
Irrespective of what your issue is, our FINRA defense lawyers can guide you and assist in you preparing and drafting responses. We can help prevent a FINRA inquiry from turning into a formal investigation and disciplinary action.
The FINDA defense attorneys at the Spodek Law Group understand how to help brokers, and financial advisors, navigate FINRA rule 8210 enforcement process. If you have just received a letter from a FINRA investigator who is conducting an inquiry into something you did – this should not be ignored. The inquiry letters are made under FINRA rule 8210. They require a member, a person associated with the member, or anyone else subject to FINRA’s jurisdiction to provide information either orally, or in writing, or electronically. It also authorizes FINRA to take the person’s testimony in an on the record interview. If you fail to comply with the information and documents requested by FINRA under Rule 8210, it can lead to sanctions like fines, suspensions, or even being barred from the industry. If your FINRA inquiry was the result of a termination, the inquiry can result in a significant burden on any new, or pending, transition to a firm.
In addition to terminations, or separation of employment, financial advisors can receive inquiry letters based on a variety of circumstances. Some common events include:
The Financial Industry Regulatory Authority (FINRA) is the largest independent regulator for United State’s securities industry. Its main purpose is to protect investors by ensuring that there is integrity and fairness in all stock market deals. All securities firms whose activities are not regulated by other self-regulatory organizations are required to join FINRA.
Initially, securities firms were monitored by the National Association of Security Dealers (NASD) and the New York Stock exchange Regulatory Committee. This brought about difficulties as sometimes, the two bodies would draft overlapping or contradicting rules. It was also costly to run two regulatory authorities. The two institutions were therefore consolidated into Securities Industry Regulatory Authority (SIRA). The body was later renamed to FINRA.
FINRA is based in Washington DC and New York. It also has more than 20 regional office throughout the United States. Today, FINRA regulates more than 4500 brokerage firms. It also oversees more than 500,000 registered security representatives. The body mainly raises funds through annual members’ contributions, and assessment of applicants and registered security representatives. It also earns income from fines levied on firms that break the rules.
The specific duties performed by FINRA are listed below.
Before brokerage firms are allowed to operate in the USA, they must satisfy FINRA licensing requirements. The requirements are prescribed to prevent rogue brokers from joining the industry. FINRA also evaluates whether securities firms are in compliance with the rules of other bodies such as the federal government and the Municipals Securities Rulemaking Board.
To ensure compliance with its rules, FINRA administers a mandatory qualification examination for all brokers. Passing the exam is part of the licensing requirements. Besides this, the body also conducts continuous assessments.
FINRA has a team of financial examiners. The auditors routinely review the brokerage firms to identify risks and non-compliance. They also investigate complaints from the public and other regulatory bodies. FINRA mandate goes beyond just examining the financial records. For example, every year, it reviews more than 100,000 promotional materials. It also monitors the communication between brokerage firms and investors.
If brokers fail to comply with the set regulations, FINRA can fine, suspend, or expel them from the industry. It can also order them to compensate investors who have incurred losses due to the non-compliance. In 2016, FINRA closed 1434 disciplinary cases. These cases resulted in more than $ 170 million in fines and compensation of about $28 million to investors.
Many agreements between investors and brokerage firms contain a mandatory arbitration clause. Under the agreement, both parties relinquish the right to trial in a court of law. Many disputes in the securities industry are, therefore, resolved through arbitration.
FINRA provides the largest arbitration platform in the US securities industry. It handles almost all the conflicts between investors and brokerage firms, brokerage firms and employees, and one brokerage firm and the other. In rare cases, FINRA resolves disputes among investors.
FINRA avails various educational tools and resources to investors. The materials include investor alerts, online calculators, scam alerts, and industry news. These tools are meant to help investors make informed decisions. Educating the public on how the securities industry work is one of the measures that FINRA has taken to reduce financial fraud which is rampant in the sector.
FINRA has deployed several technological tools that analyze billions of stock market transactions every day. The rigorous data analysis is an effort to detect abnormalities in the trading patterns. In 2016, the body identified more than 750 fraud cases.
Financial Industry Regulatory Authority (FINRA) Overview of Organization’s Purpose and Functions
The Financial Industry Regulatory Authority (FINRA) ensures that there’s market integrity while it protects investors by efficiently regulating broker-dealers. The organization is non-profit and independent of the government. It was authorized by Congress to ensure that the broker-dealer industry is fair and honest in the execution of its affairs. Its functions are very distinct from those carried out by the Securities Exchange Commission (SEC). SEC enforces laws that relate to the financial markets while FINRA oversees the activities of securities brokers and firms. This organization plays a major role in ensuring that unscrupulous businesses do not mislead investors.
FINRA is able to fulfill its mandate by carrying out the functions listed below:
• By formulating and enforcing rules that govern the activities of 3,700 broker-dealers with 630,000 brokers
• Through examination of firms to ensure they are compliant.
• By nurturing market transparency
The high ethical standards that FINRA enforces play a vital role in the financial system. This extends further to the provision of resources and expertise that’s required in enforcing market integrity. All this functions are carried out without a cost for the taxpayers. This activities are the main foundations upon which the fair financial markets are laid on. FINRA also testes, qualifies and licenses anyone selling securities products. It also ensures that advertisements for securities products are truthful.
Registered firms and brokers faced the wrath of FINRA after 1369 disciplinary actions were administered against them. A total of $66.8 million was also collected in fines. The organization also ordered $66.8 million in restitution to the affected investors. SEC and other concerned agencies received 850 insider trading and fraud cases for hearing.
FINRA deploys technology that enables it to detect fraud, monitor U.S. equities markets, and oversee the brokerage firms. All this serves to ensure investors protection. This regulatory body has more than 3,000 employees scattered around North America. There are also 20 regional offices across the country for its employees. Around 4,250 brokerage firms and approximately 629,525 registered securities representatives are overseen by FINRA.
A consolidation of the arbitration, member regulation, and enforcement operations of the New York Stock Exchange, NYSE Regulation, Inc., and NASD led to the formation of FINRA.
The main strategies that FINRA deploys in protecting investors and overseeing the securities markets are divided into four categories:
Educating and Protecting Investors – there are several projects that FINRA has pursued with the aim of educating people on investments. It also conducts an arbitration program that allows investors to successfully go through the mediation process.
Registration of Broker-Dealer – FINRA has to register companies that wish to sell securities for them to be considered licensed. Failure to which firms attract fines and penalties.
Examinations and Securities Licensure – FINRA conducts background checks on over 600,000 personnel in the U.S. to scan for criminal records. Personnel must be licensed before they conduct securities transactions.
Recordkeeping – Large amounts of extensive records are stored by FINRA, this includes any disciplinary actions that are taken against a representative. The records are available to the public on FINRA’s website.
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