The Financial Industry Regulatory Authority (FINRA) is a self-regulatory organization (SRO) in the United States, which was founded under the Securities Exchange Act of 1934. It was a successor to the National Association of Securities Dealers, Inc. (NASD). FINRA is the largest unit that independently regulates all financial and securities firms that are doing business in the United States. This means regulating approximately 5,000 brokerage firms, 173,000 branch offices, and 659,000 registered securities representatives. Another unique fact about FINRA is that it is the largest non-governmental regulator for all these financial and securities firms.
FINRA was established in July 2007 as a successor to NASD. The member regulation, enforcement, and arbitration functions of the FINRA are under the New York Stock Exchange (NYSE). FINRA's main motto or objective is investor protection and market integrity through effective and efficient regulation of the securities organizations. Thus, the main role of the organization is to protect investors by maintaining fair play in the US capital markets.
FINRA regulates the operations of all securities firms that are engaged in public dealing, professional training, testing and licensing of registered persons, arbitration and mediation, market regulation for the NYSE, the NASDAQ, the American Stock Exchange (AMEX), and the International Securities Exchange, etc.
NASD believed that the formation of FINRA will "increase efficient, effective, and consistent regulation of securities firms, provide cost savings to securities firms of all sizes, and strengthen investor protection and market integrity." In addition, it would streamline the broker-dealer regulatory system and help establish uniform rules for all capital markets and exchanges.
FINRA is a regulatory body that overlooks all aspects of securities trading, such as registering and educating investors, formulating rules and regulations for the financial institutions, enforcing those rules and laws, creating awareness about them among investors, and administering disputes related to investors and the firms it looks after.
FINRA uses the Internet and other media and public forums to educate investors about its rules and regulations in order to protect their rights. It also helps them to understand the markets and basic principles of saving and investing better. In fact, the FINRA Investor Education Foundation is the largest organization in the United States that is dedicated to investor education. It is believed that FINRA is a trusted advocate for investors.
The FINRA Board of Governors consists of the CEO and the President of one of NASD's divisions, seven members representing the industry, seven more representing the industry, and two members categorized as "non-public," but also representing the industry.
However, even FINRA is not free from criticisms. In recent years, the capital market has undergone a huge change with a majority of the investors dealing in stocks through their employers and personal investing. Thus, FINRA is said to have overlooked faults made by these bigger organizations and addressed minor issues of rule violation. Some feel that due to this, investors continue to lose money through various broker/dealer scams that have not been addressed by this regulatory organization.