Celebrating 85 Years of FINRA History

This year, FINRA turns 85. This milestone is more than a number. It’s a testament to FINRA’s enduring commitment to protecting investors and safeguarding market integrity. For more than eight decades, FINRA has created safer markets and built investor trust through effective regulation of member firms, evolving technology to meet the changing demands of the markets and a commitment to continuous innovation. As we continue in our vital role, we are honored that our mission is our legacy.

85th

FINRA's CEO Robert Cook

A Reflection on FINRA's History

To commemorate FINRA’s 85th anniversary, we are exploring each decade in FINRA’s history with a series of short articles that will post each month throughout our milestone year. Over the past 85 years, as the markets have changed, so did FINRA as we evolved our regulatory requirements, developed ground-breaking technologies, and supported new products and services. However, one thing remains constant: FINRA’s ability to deliver on its mission to protect investors and ensure market integrity. Follow along to learn more about defining moments in our history and what makes FINRA special today.

1930s

An Enduring Mission Built on Necessity

As Americans grappled with the Great Depression, the U.S. government knew legislative reform was crucial to improve market regulation and safeguard investors. While the Securities Act of 1933 and the Securities Exchange Act of 1934 increased confidence in U.S. securities regulation, more oversight of the over-the-counter markets was needed. In 1939, the Investment Bankers Conference officially registered FINRA’s predecessor, the National Association of Securities Dealers (NASD), as a national securities association under amendments to the Maloney Act. 

Working under the supervision of the Securities and Exchange Commission, NASD was tasked with overseeing broker-dealer members and their market activities. Its goals were to prevent fraudulent and manipulative practices, promote just and equitable principles of trade, provide safeguards against unreasonable profits or charges, and protect investors and the public interest. 

Guided by a clear purpose as a self-regulatory organization, NASD had the power to create, standardize and enforce industry principles and regulations, hold brokers accountable to those practices, and keep the best interests of the investing public at the heart of the mission—a mission that has stood the test of time today. 

Throughout the next eight decades, NASD evolved into the FINRA we know today, adapting to an everchanging market, providing support to virtually every aspect of the securities business and empowering millions of investors to participate confidently in the markets. We enhanced regulatory standards to increase accountability, developed ground-breaking technology that allowed for more transparency, strengthened the education of firms, brokers and investors, and supplied resources as new products and services reached the public. At every turn, FINRA was there to advocate for a fair market and increase investor trust.

1940s

Beginning Eight Decades of Protecting Investors

Entering the 1940s, FINRA’s predecessor, the National Association of Securities Dealers (NASD), had a clear purpose to begin creating, standardizing, and enforcing industry principles and regulations. An early priority for NASD was ensuring brokers maintained high ethical standards resulting in a fair market where all investors clearly understood the cost of buying and selling securities. To increase investor confidence, it was critical that broker-dealers be discouraged from violating the association's rules and disciplined if regulations were not followed.

Early ground rules were established by NASD, such as enhancing disclosure requirements and deterring unreasonable fees, to increase transparency and eliminate abuses. Next, it was paramount for NASD to hold broker-dealers accountable to follow fair market practices. To that end, NASD launched its enforcement program in 1941.

NASD examiners were tasked with ensuring compliance by evaluating members’ practices and finances through questionnaires and in-person inspections while also reviewing complaints from investors who believed they were deceived. Violators faced censure, fines, suspension, or even expulsion from the NASD. Word of the enforcement program spread, as shortly after its launch, NASD received 140 complaints resulting in 32 censures, 29 fines, six suspensions, and 26 expulsions.

Throughout the decade, there were challenges managing an increasing volume of complaints, exacerbated by workforce demands during World War II, when NASD only retained a half-dozen associate examiners. However, NASD was demonstrating the early potential of its self-regulatory organization model in bringing transparency, fairness, and protection to the industry and the investors it served. These efforts and more laid the groundwork for the robust Enforcement Program we know today at FINRA.

Advancing Investor Protection

Today, FINRA Enforcement is made up of more than 350 attorneys, investigators, data analysts, paralegals, as well as operations and administrative support personnel. Enforcement investigates potential FINRA rule violations originating from various sources including automated surveillance reports, examination findings, filings made with FINRA, customer complaints, tips, and more. If it appears that rules have been violated, Enforcement will determine whether the conduct merits formal disciplinary action or another regulatory response towards member firms and registered representatives.

Drawing from its founding purpose and evolving through the years, Enforcement’s priorities are obtaining restitution for harmed customers; protecting seniors and vulnerable investors; ridding the industry of brokers engaged in fraud or other egregious misconduct

Enforcement in Action

Two real-life situations where FINRA brought bad actors to justice:

The Craffy and Monmouth Matter

In July 2023, Enforcement expelled Monmouth Capital Management for churning and excessively trading customer accounts in violation of Regulation Best Interest, failing to supervise its representatives, and providing false and misleading disclosures to retail customers on its client relationship summary forms.

Several of the churned accounts were owned by Gold Star families who had funded their accounts with military-related death gratuity payments. For example, an account at Monmouth was for the benefit of a 13-year-old child following the death of the child’s father. Although the account had an average monthly equity of approximately $150,000, Monmouth representatives purchased more than $1.9 million in securities in the account over a 20-month period, generating nearly $80,000 in commissions and trading costs.

One of the central individuals in the Monmouth matter was Caz Craffy, who worked as a financial counselor for the U.S. Army while simultaneously working as a broker at Monmouth. In this role, he was able to obtain the trust of multiple Gold Star families. Craffy convinced these customers to fund brokerage accounts at Monmouth, which he then mismanaged through excessive and unauthorized trading.

FINRA barred Craffy from associating with a FINRA-member firm in December 2022. He was subsequently sentenced to 151 months in prison by a federal judge in New Jersey for defrauding Gold Star families and related crimes.

The BofA Matter

In November 2023, FINRA Enforcement fined BofA Securities, Inc., $24 million for engaging in more than 700 instances of spoofing in U.S. Treasury secondary markets and related supervisory failures spanning more than six years.

“These cases go to the core of FINRA’s mission – investor protection and market integrity. FINRA is committed to bringing meaningful enforcement actions against those who undermine the fairness of the financial markets. In the Craffy and Monmouth matter, FINRA acted quickly to stop ongoing customer harm and protect investors. In the BofA matter, FINRA identified and remediated a significant threat to the integrity of the U.S. Treasury securities market.”

– Bill St. Louis, Head of FINRA Enforcement

1950s

Overseeing Thousands to Protect Millions 

Following World War II, American consumer interest in the stock market surged, thanks to the end of wartime austerity and a surplus of cash. By the mid-1950s one out of every 12 American adults personally held securities, while millions more owned them through insurance companies, mutual funds, or pension funds. 

As stocks boomed and demand soared, so too did the number of people selling securities, including inexperienced dealers pushing dubious securities on an uninformed public through so-called boiler rooms. Not surprisingly, complaints to the National Association of Securities Dealers (NASD) – FINRA’s predecessor -- increased nearly 15-fold between 1951 and 1962. 

By its second full decade of operating as a self-regulatory organization, NASD examined about a third of its members every year, sending examiners to visit firms, review their books and records, and complete field questionnaires and interviews to learn the nature of the firm’s business and its operations. Based on their findings, NASD could impose discipline through sanctions, including censures, fines, suspensions, or expulsions. 

Concerned about the growing number of complaints and unqualified stocks salespeople, NASD established new baseline requirements for its members and introduced a mandatory qualifying exam intended to weed out unqualified representatives, promote industry-wide standards, and strengthen investors’ confidence. Between 1946 and 1958, NASD registered nearly 42,000 representatives, bringing the organization’s total to nearly 70,000, working in nearly 4,000 member offices. 

Member Supervision at a Glance 

Today, FINRA’s examination program is overseen by Member Supervision. It remains a central component of FINRA’s regulatory operations and one of the principal ways FINRA protects investors and promotes market integrity. 

Member Supervision has more than 1,400 employees and is responsible for the review, surveillance, investigation, and examination of member firms and their associated persons. Member Supervision has five primary regulatory programs: Risk Monitoring, Examinations, National Cause and Financial Crime Detection Programs (NCFC), Membership Application Program (MAP), and Statutory Disqualification Program (SD).

FINRA's Oversight in 2024:

3,298Firms
628,392Representatives
148,718Branch Offices
1,271Exams conducted

FINRA’s Examination Program Today 

The paper-based and surprise in-person exams of the 1950s are a thing of the past. Technology has revolutionized the way FINRA receives information from firms and conducts exams. 

FINRA has transitioned away from the checklist approach to a risk-based approach, with the goal of detecting, deterring, or addressing activities that may cause investor harm or adversely impact the integrity of the markets. Under this approach, FINRA classifies each member firm by primary business model into one of five Firm Groups: Capital Markets, Carrying and Clearing, Retail, Trading and Execution, and Diversified. Each of these groups has teams of Exam and Risk Monitoring staff with subject matter experts who can spot trends and allow FINRA to identify and mitigate potential issues more efficiently.

Member Supervision at Work

Member Supervision works in concert with other departments at FINRA, including Enforcement and Market Regulation and Transparency Services (MRTS), together known as Regulatory Operations (RegOps), to protect customers and maintain market integrity. 

Significant cases like the recent Robinhood Financial matter, which resulted in a record $70 million in financial penalties for systemic supervisory failures and significant harm to millions of customers, is an example of Member Supervision’s partnership with other departments. The sanctions included a $57 million fine and $12.6 million in restitution to thousands of harmed customers. 

FINRA’s investigation found that Robinhood negligently communicated false and misleading information to its customers about a variety of critical issues, including customers placing trades on margin, the amount of cash in customers’ accounts, the risk of loss customers faced in certain options transactions, and whether customers faced margin calls. Robinhood also failed to exercise due diligence before approving customers to place options trades, reasonably supervise the technology that it relied on to provide core broker-dealer services, and report to FINRA tens of thousands of written customer complaints that it was required to report. 

The themes of partnership and collaboration have echoed across the decades at FINRA. Challenges were met with innovation. Uncertainty was met with evolution. The constant: FINRA continuing to live its mission of protecting investors and ensuring market integrity at every turn. 

Stay tuned for the next article about FINRA’s history coming on Dec. 3, when we’ll dive into the 1960s and explore a major milestone in market transparency.

1960s

FINRA in the ’60s is coming on December 3 as part of this series that posts on the first Tuesday of each month throughout our milestone year.

1970s

FINRA in the ’70s is coming on January 7 as part of this series that posts on the first Tuesday of each month throughout our milestone year.

1980

FINRA in the ’80s is coming on February 4 as part of this series that posts on the first Tuesday of each month throughout our milestone year.

1990s

FINRA in the ’90s is coming on March 4 as part of this series that posts on the first Tuesday of each month throughout our milestone year.

2000s

FINRA in the 2000s is coming on April 1 as part of this series that posts on the first Tuesday of each month throughout our milestone year.

2010s

FINRA in the 2010s is coming on May 6 as part of this series that posts on the first Tuesday of each month throughout our milestone year.

2020s

FINRA in the current decade is coming on June 3 as part of this series that posts on the first Tuesday of each month throughout our milestone year.