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Question

Difficulty: MediumSelf-Regulatory Organizations (SROs) and FINRA

An associated person of a FINRA member firm is under investigation for simultaneous allegations of improper securities recommendations and violations of commercial bank lending laws at an affiliated banking entity. Which of the following statements accurately describes FINRA's jurisdiction and enforcement scope in this situation?

  1. FINRA has regulatory authority to examine and discipline the individual solely regarding securities industry conduct rules, as its jurisdiction does not extend to commercial banking regulations.Answer
  2. B
    FINRA possesses statutory authority to enforce federal banking statutes whenever a member firm maintains a direct corporate affiliation with a commercial bank.
  3. C
    FINRA can initiate criminal prosecution and levy prison sentences against the associated person for systemic violations of banking statutes.
  4. D
    FINRA loses all investigative jurisdiction over the associated person if the customer transactions involved principal dealer trades rather than agency broker trades.

Answer

FINRA has regulatory authority to examine and discipline the individual solely regarding securities industry conduct rules, as its jurisdiction does not extend to commercial banking regulations.
FINRA is a self-regulatory organization (SRO) authorized by Congress to oversee broker-dealers and associated persons in the securities industry. Its jurisdiction is restricted to securities rules, conduct regulations, and member firm compliance. It does not regulate commercial bank lending laws, which are overseen by bank regulatory bodies.

Step-by-Step Solution

1
Identify the scope of FINRA's regulatory mandate as a Self-Regulatory Organization (SRO).
FINRA oversees broker-dealers, registered representatives, and securities trading activities.
SRO authority stems from federal securities laws and SEC delegation, specifically targeting securities market participants.
2
Distinguish FINRA's jurisdiction from banking regulators and government agencies.
Commercial bank lending laws are enforced by banking authorities (such as the OCC, FDIC, or Federal Reserve), not FINRA.
FINRA does not regulate commercial banking practices or possess criminal enforcement powers.

Key Concept

FINRA Jurisdictional Scope and SRO Limitations
Estimated Time:1m 15s
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Topics

Self-Regulatory Organizations (SROs) and FINRA

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