Does FINRA Have Enforcement Authority?

Summary of Keypoints

• FINRA is a self-regulatory organization with delegated enforcement power: FINRA operates under authority granted by the Securities Exchange Act of 1934, overseen by the SEC, and derives enforcement power from its membership agreement with broker-dealers and registered representatives.
• FINRA’s enforcement authority covers broker-dealers and registered individuals: Its jurisdiction includes enforcing federal securities laws, FINRA rules, MSRB rules, and exchange rules through investigations, Rule 8210 requests, disciplinary proceedings, and sanctions such as fines, suspensions, and industry bars.
• FINRA’s powers have defined limits: FINRA cannot bring criminal charges, generally lacks authority over non-registered individuals and pure investment advisers, and relies on referrals to criminal authorities or coordination with the SEC and state regulators for matters beyond its scope.
• The enforcement process includes investigations, hearings, and appeals: Actions may begin through exams or complaints, proceed through investigations and formal complaints, and be resolved via hearings or settlements (AWCs), with appeal rights to FINRA’s NAC, the SEC, and federal courts.
• Enforcement outcomes carry long-term professional consequences: FINRA disciplinary actions become part of a permanent regulatory record visible on BrokerCheck, making early compliance planning and experienced FINRA-focused legal representation critical for affected securities professionals.

Financial advisors and securities professionals often ask about the scope and limitations of FINRA’s enforcement authority. This question is particularly relevant for those facing investigations, examinations, or potential disciplinary actions. Understanding FINRA’s enforcement powers—along with their boundaries—is essential for securities professionals navigating the regulatory landscape, if you have questions you should speak to a securities lawyer. 

FINRA’s Regulatory Framework

FINRA (Financial Industry Regulatory Authority) operates as a self-regulatory organization (SRO) authorized by Congress and overseen by the Securities and Exchange Commission (SEC). While not a government agency, FINRA exercises significant regulatory powers delegated through the Exchange Act and approved by the SEC. This unique status creates a regulatory authority that is technically private but wields substantial public enforcement powers.

FINRA derives its authority from several sources: the Securities Exchange Act of 1934, SEC oversight, and the membership agreement that all broker-dealers must sign to conduct securities business. This membership-based authority creates a contractual foundation for FINRA’s enforcement powers. When firms and representatives register with FINRA, they explicitly agree to comply with federal securities laws, SEC regulations, and FINRA rules—and to accept FINRA’s authority to enforce these requirements.

Scope of FINRA’s Enforcement Authority

FINRA’s enforcement jurisdiction extends to broker-dealers and their associated persons (registered representatives). This includes all member firms and individuals who have an active registration with FINRA through Form U4. The authority covers conduct related to securities business as well as certain aspects of personal conduct that might reflect on professional fitness or integrity.

FINRA has authority to enforce:

• Federal securities laws and regulations
• FINRA rules and conduct standards
• Exchange rules for participating markets
• Municipal Securities Rulemaking Board (MSRB) rules

FINRA’s enforcement tools include a range of investigative and disciplinary powers. The organization can initiate investigations, conduct examinations, request information through Rule 8210, require testimony under oath, bring formal complaints, conduct disciplinary hearings, impose sanctions, and monitor compliance with disciplinary actions. These powers allow FINRA to address violations ranging from paperwork deficiencies to serious fraud.

The sanctions FINRA can impose are substantial. These include monetary fines (which can reach millions of dollars for serious violations), suspensions from the securities industry, permanent bars from association with any member firm, expulsion of member firms, restitution to harmed investors, and various forms of remedial requirements such as additional supervision, training, or procedural changes. 

Limitations of FINRA’s Authority

Despite its broad powers, FINRA’s enforcement authority does have significant limitations. Most importantly, FINRA lacks criminal enforcement authority. While serious violations may be referred to criminal authorities like the Department of Justice or state prosecutors, FINRA itself cannot bring criminal charges or impose criminal penalties such as imprisonment.

FINRA’s jurisdiction is generally limited to current member firms and registered individuals. However, FINRA rules do extend continuing jurisdiction for certain purposes for up to two years after registration termination. This allows FINRA to investigate and bring actions based on conduct that occurred while the individual or firm was registered, even after they leave the industry.

Another key limitation involves enforcement against non-registered individuals. FINRA’s authority generally doesn’t extend to individuals who have never registered, even if they work for member firms in non-registered capacities. However, FINRA rules do prohibit member firms from allowing disqualified persons to associate with them, creating indirect regulation of some non-registered individuals.

FINRA also lacks direct authority over investment advisers unless they are dually registered as broker-dealers or representatives. Pure investment advisory activities fall under SEC or state securities regulators’ jurisdiction rather than FINRA’s authority.

How FINRA Exercises Its Enforcement Authority

FINRA’s enforcement process typically begins with detection through various channels, including routine examinations, market surveillance, customer complaints, tips, referrals from other regulators, or self-reporting by firms. When potential violations are identified, FINRA’s enforcement division initiates investigations to gather evidence and determine whether formal action is warranted.

Rule 8210 provides FINRA with its primary investigative tool—the authority to require member firms and associated persons to provide information, documents, and testimony under oath. Failure to comply with 8210 requests constitutes a separate violation that often results in automatic bars from the industry. This investigative power gives FINRA broad information-gathering abilities during investigations.

If an investigation reveals evidence of violations, FINRA may pursue formal disciplinary proceedings. The process typically begins with a Wells notice informing the potential respondent of FINRA’s intent to recommend formal charges and providing an opportunity to respond. After considering any Wells submission, FINRA may file a formal complaint initiating disciplinary proceedings before a hearing panel. These proceedings include discovery, motion practice, and formal hearings with testimony and evidence presentation.

Hearing panels include a hearing officer (typically an attorney employed by FINRA) and two industry panelists drawn from the securities industry. These panels hear evidence, determine whether violations occurred, and impose appropriate sanctions. Their decisions may be appealed to FINRA’s National Adjudicatory Council (NAC), then to the SEC, and ultimately to federal courts.

Many FINRA investigations resolve through settlements rather than contested proceedings. These settlements, called Acceptance, Waiver, and Consent (AWC) agreements, include a description of findings, applicable rules violated, and agreed sanctions. While AWCs contain neither admissions nor denials of the findings, they have the same practical effect as fully litigated decisions, becoming part of the individual’s or firm’s permanent regulatory record.

Enforcement Coordination with Other Regulators

FINRA’s enforcement authority operates within a broader regulatory ecosystem, often in coordination with other regulators. FINRA regularly coordinates investigations and enforcement actions with the SEC, particularly for serious or complex cases. This coordination can include parallel investigations, information sharing, or referrals between agencies.

Similarly, FINRA works with state securities regulators who have their own enforcement authority over broker-dealers operating in their jurisdictions. In cases involving potentially criminal conduct, FINRA may refer matters to the Department of Justice, FBI, or state criminal authorities. This regulatory coordination creates multiple layers of potential enforcement for serious violations.

Challenging FINRA’s Enforcement Actions

Respondents in FINRA actions have several avenues to challenge enforcement proceedings. Within FINRA’s structure, cases can be contested through the hearing process with full evidentiary presentations and legal arguments. Unfavorable hearing panel decisions can be appealed to the NAC, which conducts an independent review of both factual findings and sanctions imposed.

Beyond FINRA’s internal process, respondents can appeal adverse NAC decisions to the SEC, which conducts its own review of the record and FINRA’s conclusions. SEC decisions can then be appealed to federal Circuit Courts of Appeal. While these multiple levels of appeal provide procedural protections, successful challenges to FINRA enforcement actions remain relatively uncommon, particularly when factual violations are well-documented.

Procedural defenses and challenges to FINRA’s jurisdiction or authority occasionally succeed, though courts have generally upheld FINRA’s basic enforcement authority and the constitutional validity of its disciplinary system. The contractual foundation of FINRA’s authority through the membership agreement creates a strong legal basis for its enforcement actions.

Practical Implications for Financial Professionals

For financial advisors and broker-dealers, understanding FINRA’s enforcement authority has practical implications for both compliance planning and responding to potential investigations. Proactive compliance programs should address all areas within FINRA’s jurisdiction, with particular attention to high-priority enforcement areas identified in FINRA’s annual examination priorities.

When facing potential enforcement actions, early engagement with specialized counsel experienced in FINRA matters is crucial. The specific procedures and strategic considerations in FINRA enforcement differ significantly from other legal proceedings. Experienced FINRA defense counsel can help navigate the unique aspects of FINRA investigations, evaluate settlement options versus contested proceedings, and develop appropriate response strategies.

The permanent nature of FINRA disciplinary records underscores the importance of effective representation throughout enforcement proceedings. FINRA disciplinary actions appear on BrokerCheck permanently, potentially affecting future employment opportunities and professional reputation long after any suspension ends or monetary sanctions are paid.

Conclusion

FINRA possesses substantial enforcement authority over broker-dealers and registered representatives, including investigative powers, disciplinary proceedings, and the ability to impose significant sanctions. This authority derives from the Exchange Act, SEC oversight, and the contractual relationship created through membership and registration.

While FINRA’s enforcement powers have meaningful limitations—particularly regarding criminal matters and jurisdiction over non-registered individuals—the organization exercises broad authority within its prescribed scope. For securities professionals, understanding both the extent and limitations of FINRA’s enforcement authority provides essential context for compliance planning and responding to potential regulatory challenges.

When facing FINRA enforcement matters, securities professionals should secure representation from attorneys with specific FINRA experience rather than general litigation or securities counsel. The specialized nature of FINRA proceedings, combined with their significant professional implications, makes experienced representation particularly valuable in navigating these complex regulatory matters effectively.