In the U.S., there are around 4,200 brokerages and almost 634,000 brokers. They require regulation, and the Financial Industry Regulatory Authority provides this. FINRA is an organization that creates rules to control brokerages and brokers.
As the enforcer for the Securities and Exchange Commission, FINRA investigates complaints of potential securities violations. If needed, it brings disciplinary actions against both individuals and firms.
This is important for investors to know. When their broker or financial advisor engages in misconduct, FINRA can help to hold these individuals accountable.
FINRA’s mission is to protect investors against fraudulent practices. It means to correct the wrongdoing and find those who pose a substantial risk to investors. FINRA’s priorities are:
- Protecting senior citizens
- Getting rid of brokers who continue to engage in misconduct
- Acquiring compensation for investors
- Safeguarding the reliability of markets
The FINRA disciplinary action process
If FINRA finds a violation of a rule, it will decide if the infringement warrants disciplinary action. Disciplinary action may go through two separate procedures:
In a settlement, the respondent can take care of violations by submitting a Letter of Acceptance, Waiver of Consent (AWC). The firm or individual sends the AWC to the National Association of Securities Dealers (NASD). If accepted, the NASD will not bring further actions against the respondent for the alleged violations. The letter will become part of the respondent’s disciplinary record.
2: Litigation proceedings
FINRA may issue a formal complaint to its Officer of Hearing Officers and the respondent. Each claim is in writing and describes the violation. The respondent has a chance to answer the complaint within 25 days of service and a second chance to respond within 14 days. If the respondent fails to answer, the Hearing Officer may issue a default decision.
With each case, FINRA decides the punishment for the infringement by using its Sanction Guidelines. Monetary sanctions can range from $2,500 to $77,000. Suspension of a brokerage or broker may depend on the seriousness of the violation. In egregious cases, FINRA may consider barring the responsible individual.