The Financial Industry Regulatory Authority (FINRA) is a private American corporation that acts as a self-regulatory organization (SRO) that regulates member brokerage firms and exchange markets.
FINRA is the successor to the National Association of Securities Dealers, Inc. (NASD) as well as to the member regulation, enforcement, and arbitration operations of the New York Stock Exchange.
The Financial Industry Regulatory Authority is the largest independent regulator for all securities firms doing business in the United States.
FINRA's mission is to protect investors by making sure the United States securities industry operates fairly and honestly.
The NASD and the member regulation, enforcement and arbitration functions of the New York Stock Exchange were then consolidated into the Financial Industry Regulatory Authority (FINRA).
[17][18] FINRA licenses individuals and admits firms to the industry, writes rules to govern their behavior, examines them for regulatory compliance, and is sanctioned by the U.S. Securities and Exchange Commission (SEC) to discipline registered representatives and member firms that fail to comply with federal securities laws and FINRA's rules and regulations.
[citation needed] NASD, the predecessor of FINRA, founded the NASDAQ (National Association of Securities Dealers Automated Quotations) stock market in 1971.
[21][22][23] FINRA publishes the background and experience of all licensed financial brokers, advisors and firms for free through the BrokerCheck website.
[27] In 2017, Reuters analyzed FINRA data and found that a significant percentage of brokers with multiple disclosures on their record worked at 48 firms.
[28] According to studies in the Journal of Financial Economics and from the University of California, Berkeley, FINRA approves 84% of requests for expungement of BrokerCheck disclosures.
It also requires brokers to file straight-in requests within two years of the closing of a customer arbitration or civil litigation and requires earlier notification of customers and state regulators when brokers seek expungement while allowing state regulators to participate in straight-in requests.
[43][44][45] However, FINRA rules do not allow member firms to limit customers’ right to pursue class actions in court, rather than arbitration.
[47][48] In 1987, the U.S. Supreme Court ruled in Shearson/American Express Inc. v. McMahon that clauses mandating arbitration for disputes under the Securities Exchange Act of 1934 were enforceable.
Three years later, it overturned Wilko v. Swan completely in Rodriguez de Quijas v. Shearson/American Express Inc., extending the arbitration requirement to disputes under the Securities Act of 1933.
In that announcement, Richard Ketchum, then-FINRA Chairman and chief executive officer stated "We believe that giving investors the ability to have an all-public panel will increase public confidence in the fairness of our dispute resolution process.
According to Richard Jackson, a principal at the advisor firm of Schlindwein Associates, LLC "It's probably pretty important to have someone on the panel who has specific industry knowledge and past experience in that field to explain some of the complexities that may be at issue,"[62]