A major responsibility of FINRA is
A) insuring customer accounts in the event of the liquidation of brokerage firms.
B) establishing rules for issuing new securities.
C) registering agents of broker-dealers to do business with the public.
D) developing rules and regulations for its members.
The correct answer and explanation is:
The correct answer is D) developing rules and regulations for its members.
The Financial Industry Regulatory Authority (FINRA) is a self-regulatory organization (SRO) responsible for overseeing brokerage firms and their registered representatives. Its primary function is to ensure that the securities industry operates fairly and ethically. One of FINRA’s key responsibilities is developing rules and regulations for its members, which are the broker-dealers and individuals who work within the securities industry. These rules are designed to ensure that firms comply with standards of integrity, transparency, and fairness in their dealings with clients and other market participants.
FINRA enforces these rules by conducting examinations and investigations into potential violations. This can involve scrutinizing business practices, reviewing customer complaints, and even imposing penalties or sanctions on firms or individuals that violate regulatory standards. FINRA also offers a dispute resolution process, where investors and broker-dealers can resolve conflicts without resorting to the court system.
While FINRA does not directly insure customer accounts or regulate the issuance of new securities (those are responsibilities of entities like the Federal Deposit Insurance Corporation (FDIC) and the Securities and Exchange Commission (SEC), respectively), it plays a critical role in the operational aspects of the securities industry. By ensuring that broker-dealers adhere to high standards, FINRA helps maintain investor confidence and stability in the market.
Additionally, FINRA is involved in continuing education for securities professionals, setting the qualifications for those who wish to work in the industry, and enforcing licensing requirements. Through its rule-making and enforcement actions, FINRA aims to create a secure environment for both investors and market participants.