Financial Industry Regulatory Authority (FINRA)

FINRA is a the industry organization for the securities industry. It is not a government agency, but it has regulatory authority and represents the securities industry's efforts to regulate itself. FINRA was created by brokerages and exchanges. FINRA does NOT represent individual investors to recover investment losses from brokers.

Historical Background

The predecessor to FINRA was the National Association of Securities Dealers (NASD), which goes back to the 1939 during a period of low investor confidence during the Great Depression. Its predecessors were private committees drawn from the investment banking community. The Maloney Act of 1938 allows the industry to created NASD as a "self-regulatory agency."

In its early years, the NASD focused more on the details of disciplinary cases. But in the early 1960s, in response to a study commissioned by Congress and the SEC, the NASD shifted its focus to policy and management issues. In 2007, NASD merged with the member regulation, enforcement and arbitration functions of the New York Stock Exchange. The new organization is called the Financial Industry Regulatory Authority (FINRA),

Investor Protection

FINRA attempts to protect investors by focusing on the front-end, educating investors to enable them to recognize the warning signs of fraud for themselves. As their website says, "We publish information to provide you — the investor — with the tools you need to avoid problems in today's complex world of investing."

“Securities regulators are dedicated professionals who serve as the securities “police.” They review thousands of complaints each year, but must regulate thousands of firms with hundreds of thousands of brokers, dealing with of millions of clients. 

“Regulators issue fines and suspensions when regulations are violated but do not usually recover losses.   As well regulators can only enforce their own regulations.  However, investors can take action under state and federal laws, including laws which apply securities regulations, to recover their losses.  (This is similar to an auto accident in which the police issue tickets but damages costs must be sought privately.)  Investors who do not hire attorneys are rarely successful in securities actions.”  

Arbitration through FINRA

FINRA arbitration is a common forum for resolving disputes between investors and brokers. The organization does not act as an advocate for individual investors during arbitration, however. Click here to learn how securities attorneys can help with FINRA arbitration cases.

Experienced securities attorneys can prepare your case and increase your chances of winning the arbitration decision. Although these arbitration cases are not conducted in a court, there are similarities. If you haven't been through an arbitration before, it is difficult to adequately prepare your case on your own. In addition to a lawyer, an accountant's service is often needed.

Claims under $25,000 are classified "small claims".by FINRA; these are typically decided by one arbitrator- there is no hearing most of the time. Larger claims (over $25,000) involve hearings. Most hearings last two or three days. Your securities attorney will go to the hearing with you.

Related: Types of securities fraud.

Recover investment losses.

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