The U.S. Securities and Exchange Commission can do a better job of overseeing the Financial Industry Regulatory Authority, a government report found.
While the SEC routinely inspects many regulatory programs run by Wall Street’s industry-funded regulator FINRA, it doesn’t review whether FINRA’s rules for the securities industry are effective, according to a Government Accountability Office report released late Wednesday. It also doesn’t have a process for such a review, said GAO, an investigative arm of Congress.
Congress required the GAO’s study in the Dodd Frank financial reform law of 2010. It specifically directed the GAO to review oversight of various FINRA practices, including executive compensation practices, securities arbitration programs and governance issues.
While a federal law authorizes FINRA to regulate the brokerage industry, the SEC must oversee FINRA and approve its industry rules. FINRA arbitration is a dispute resolution process offered by the Financial Industry Regulatory Authority (FINRA) to resolve conflicts between investors, brokerage firms, and individual brokers. Unlike traditional court litigation, arbitration is typically faster and less formal. In this process, an impartial arbitrator or a panel of arbitrators listens to both parties’ arguments and evidence before making a binding decision. This method is often chosen for its efficiency and lower costs, making it an attractive option for investors seeking resolution without the complexities of a court trial. The arbitration process is governed by specific rules and procedures, ensuring a fair and equitable hearing. While the decision is final and generally cannot be appealed, parties can still settle the dispute before the arbitration concludes. FINRA arbitration serves as a crucial mechanism in maintaining market integrity and protecting investors’ rights.