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Difficulty: EasySelf-Regulatory Organizations (SROs) and FINRA

Under securities industry regulations, which of the following activities falls directly within the authority and jurisdiction of the Financial Industry Regulatory Authority (FINRA)?

  1. Investigating customer complaints regarding trade execution practices of a member broker-dealerAnswer
  2. B
    Filing criminal charges and prosecuting individuals in federal court for insider trading violations
  3. C
    Regulating the mortgage lending practices and deposit account terms of commercial banks
  4. D
    Directly examining state-registered investment advisers that operate solely on a fee-for-advice model

Answer

Investigating customer complaints regarding trade execution practices of a member broker-dealer
FINRA is the primary self-regulatory organization (SRO) responsible for regulating broker-dealers and registered representatives in the U.S. securities industry. Its jurisdiction includes writing rules, examining member firms, enforcing compliance, and investigating customer complaints regarding trade executions and sales practices.

Step-by-Step Solution

1
Identify FINRA's status and primary statutory mandate.
FINRA operates as a self-regulatory organization (SRO) overseeing securities broker-dealers and registered associated persons.
Understanding SRO authority establishes which entities and activities are subject to FINRA rules.
2
Evaluate the choices to determine which function is within FINRA's regulatory enforcement scope.
Monitoring member sales practices, conducting compliance examinations, and investigating investor complaints fall directly under FINRA oversight.
Criminal prosecutions are reserved for government prosecutors, bank lending is governed by banking regulators, and fee-only investment advisers are governed by SEC/state regulatory bodies.

Key Concept

FINRA Scope of Authority and Jurisdiction as an SRO
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Topics

Self-Regulatory Organizations (SROs) and FINRA

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