Financial Industry Regulatory Authority (FINRA)

What is Financial Industry Regulatory Authority?

Financial Industry Regulatory Authority (FINRA) is a nonprofit government agency that aims to protect U.S. investors and ensure market integrity, supervises U.S. brokers. Founded in 2007, F inancial Industry Regulatory Authority FINRA supervises and regulates more than 4250 brokerage firms in the USA.


Roles of Financial Industry Regulatory Authority

We have said that the purpose of FINRA is to protect investors' rights and ensure the markets' stability. FINRA takes on some duties and responsibilities to achieve this goal.

  • Auditing the qualifications of brokerage firms
  • Protecting the integrity of the market
  • Raising awareness of investors and protecting investors' rights.
  • Checking whether brokerage firm employees have the necessary licenses.
  • Reducing financial crime risks in the investment sector
  • Prevent many financial crimes by banning brokers who violate the code
  • FINRA Customer Due Diligence rule needs to be applied, requiring companies to identify legal entity clients' beneficiaries, understand client accounts' nature and purpose, and continuously monitor client accounts.


Anti-Money Laundering – FINRA

Financial institutions serving in the USA have to comply with the "Bank Secrecy Act." The BSA money laundering law contains several laws . The purpose of Anti-Money Laundering/Counter-Terrorism Financing regulations is to detect and prevent crimes such as money laundering, terrorist financing, corruption, and bribery. FINRA audits whether companies comply with their obligations of AML regulations. An AML compliance program under FINRA 3310 must have some basic principles. If we examine these principles;


  • The company's AML compliance program must be approved by the senior manager or board of directors.
  • The AML compliance program must be designed to enable the company to detect and report suspicious activities.
  • Companies must collect customer information in customer account opening processes and check the accuracy of this information.
  • Companies must implement a risk-based approach to all AML control processes by applying risk assessment to their customers.


Also, FINRA organizes Anti-Money Laundering (AML) courses to train AML compliance officers. Companies are also referred to as the Money Laundering Reporting Officer, MLRO, who will analyze money laundering and report suspicious situations to the necessary institutions. MLRO's meaning can be said as providing anti-money laundering regulations in the company.


Financial Industry Regulatory Authority Fines

Financial Industry Regulatory Authority (FINRA) has 19 offices and more than 3,000 employees in the United States. FINRA, in its enforcement capacity, is empowered to take disciplinary action against registered individuals or companies that violate industry rules, and FINRA AML also fines companies that do not fulfill their obligations and violate investor rights. For example, companies in the US were fined $ 176 million in 2016, $ 65 million in 2017, and $ 68 million in 2018. FINRA also has the power to refer certain cases to the Securities and Exchange Commission (SEC) and other government agencies for prosecution.


To give an example of one of the specific penalties the Financial Industry Regulatory Authority imposed , we can look at the August 2020 Interactive Brokers LLC penalty for their failure in the anti-money laundering (AML) program. FINRA had heard that the company fined $ 15 million for widespread failures in its anti-money laundering (AML) program over five years. As part of the deal, FINRA also asked Interactive Brokers to confirm that the firm will follow a third-party advisor's advice to fix AML program errors. Besides, the Securities and Exchange Commission and the Commodity Futures Commission announced that Interactive Brokers were fined $ 11.5 million for AML failures, resulting in fines and other penalties of more than $ 38 million.

You Might Also Like