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FINRA protects investors, brokers in the securities industry – Part 1

On Behalf of | Oct 14, 2019 | Arbitration, FINRA, Firm News, Mediation |

FINRA protects investors, brokers in the securities industry – Part 1

If you invest money in America and work with a broker or a firm, there’s a good chance you may have heard of FINRA.  

The Financial Industry Regulatory Authority defines itself as a “not-for-profit organization that – working under the supervision of the SEC – actively engages with and provides essential tools for investors, member firms and policymakers.” 

FINRA was extremely active last year in regulating broker and investor relations. In 2018 alone, the organization reports bringing 921 disciplinary actions against registered brokers and firms for unethical behavior; levying $61 million in fines, and ordering $25.5 million in restitution to investors harmed by brokers or firms. FINRA reports referring more than 900 fraud and insider trading cases to the SEC and other agencies last year.

While FINRA works with the U.S. Securities and Exchange Commission to prevent abuse in the securities industry, the organization itself is not considered part of the government. Instead, FINRA is classified as a self-regulatory organization, which Investopia defines as “a non-governmental organization which has the power to create and enforce stand-alone industry and professional regulations and standards.” 

In addition to enforcing regulation, FINRA also provides mediation and arbitration as a means to solve monetary disputes between investors, brokerage firms and individual brokers. 

FINRA describes arbitration as “similar to going to court, but is usually faster, cheaper and less complex than litigation.” A representative of FINRA acts as a neutral party arbitrator and hears both sides. (Note: FINRA sometimes will use a panel of three arbitrators to settle a dispute.) The arbitrator’s decision – known as an award – is final and cannot be superseded by bringing it to court, unless it is arbitrary, capricious or an abuse of discretion. An arbitration can take up to 16 months before an award is determined. 

Read the second part of our post on FINRA here to see what else the agency does for the securities industry.