Who Do FINRA Rules Apply To?
While working as a financial adviser for Wells Fargo in Florida, Paul Zoch has been accused of helping to lure investors into a fraudulent movie financing scheme and of mishandling other clients’ funds. For Wells Fargo, the movie scam and other charges are merely the...read more
The Financial Industry Regulatory Authority (FINRA) has rules and regulations that, unsurprisingly, govern the financial industry. But how far do these rules reach? It is important to understand if the financial advisor or stockbroker you are working with is governed by FINRA rules and how these rules affect non-professionals, like private investors. The FINRA arbitration claims lawyers at Epperson & Greenidge explain who FINRA rules govern and what that means for investors across the United States.
What Do FINRA Rules and Regulations Do?
The “financial industry” is comprised of many types of professionals, and it comes as no surprise that multiple organizations and government entities help regulate and control the industry. FINRA is one of them, but its area of control is very particular, and it doesn’t have broad rule-making powers that govern Americans at large. Instead, it primarily governs and regulates professionals who work in the financial industry.
The body that writes rules and regulations that generally apply to everyone with the force of law is the SEC, not FINRA. The Securities and Exchange Commission is a regulatory agency within the US government founded by the Securities Exchange Act of 1934. This creates rules that investors and companies need to follow, at large. While many of these rules affect securities and stocks and how they can be traded and sold, they apply to professionals and non-professionals. Many of the rules that apply to professionals actually double-up with FINRA rules, such as regulations requiring licensure, certification, or registration by a professional who wants to deal in securities.
FINRA specifically governs the financial industry professionals. FINRA is made up of industry professionals, and it is considered a “self-regulatory organization.” This means that it is made of brokers and financial advisors who write rules for other financial advisors. Like how the American Medical Association consists of doctors writing rules for doctors and state bar associations consist of lawyers writing rules for lawyers, FINRA is a self-regulating group.
FINRA is not a government agency, but it is authorized by the government to regulate and enforce rules that apply across the country. The SEC oversees FINRA and allows it to make its own certification procedures and exams for the financial industry. Since FINRA controls licenses and certification, every professional within the financial industry must follow its rules or else risk losing their licenses. Moreover, by getting licensed by FINRA, these professionals submit themselves to fines, penalties, or damages that FINRA might assess against them for bad actions.
Who is Covered by FINRA Rules?
Because FINRA oversees workers within the financial industry, its rules primarily apply to brokers and financial advisors. Anyone who buys or sells stocks or securities on behalf of clients is required to get certification, register their name and address, and follow other requirements. To follow these requirements, these professionals must go through FINRA, which means putting nearly every stockbroker or financial advisor under FINRA’s authority.
Specifically, FINRA’s regulations govern “broker-dealers.” This is a broad term used to encompass both agents of financial transactions as well as those who trade for themselves or their firm. For instance, if your stockbroker buys stocks for you, they would be acting as a broker, but if they perform transactions for their brokerage firm’s own accounts, they function as a dealer instead. Regardless, FINRA covers both of these types of professionals, creating rules and regulations to govern their actions.
How Do FINRA Rules Affect Investors?
FINRA does not have the power to write laws or to regulate the industry beyond its professionals. Because of this, it cannot write rules for investors at large. Instead, those rules are usually promulgated by SEC or Congress. However, FINRA rules are very important for investors in two major ways.
First, one of the primary functions of FINRA is to reach out to help investors. It offers free services and information regarding what the rules are for brokers and financial advisors to help investors make sure they get the best services they can. This information helps investors learn about investment scams and schemes, understand when they are the victims of fraud, or become informed about the warning signs for unauthorized trades and other bad investment practices.
FINRA also creates pathways for victims of financial negligence or other issues to get compensation from their financial advisor or broker. Rather than taking your case to court, you can go before FINRA for arbitration on your case. Since these financial professionals must follow FINRA rules and submit themselves to FINRA’s authority, arbitration through FINRA may be a powerful option to get justice if you were harmed by a financial advisor or broker. Talk to a lawyer today about your options.
FINRA Arbitration Attorneys for Victims of Fraud and Financial Negligence
If you were taken advantage of by a broker or financial advisor, you may be able to file a claim through FINRA. The FINRA attorneys at Epperson & Greenidge can use FINRA rules that govern brokers and financial advisors to help you seek compensation and other damages for the financial harms you suffered. For a free consultation on your case, contact our law offices today at (877) 445-2961.