Compliance Requirements by Regulatory Bodies

Compliance Requirements Set Forth by Regulatory Bodies such as FINRA, NFA, or SEC

In order to maintain the integrity and stability of financial markets, regulatory bodies like the Financial Industry Regulatory Authority (FINRA), National Futures Association (NFA), and Securities and Exchange Commission (SEC) have established compliance requirements that must be followed by firms operating within their jurisdictions. These requirements aim to protect investors, ensure fair practices, and promote transparency in the financial industry.

Financial Industry Regulatory Authority (FINRA)

FINRA is a self-regulatory organization that oversees brokerage firms and registered brokers in the United States. It sets forth various compliance requirements for its members:

  1. Licensing Requirements: All individuals engaged in securities business must pass qualifying examinations such as the Series 7 or Series 63 exams.
  2. Sales Practice Standards: Firms are required to adhere to strict standards when conducting sales activities. They must provide accurate information about investments, disclose risks involved, and avoid misleading statements.
  3. Recordkeeping: Firms must maintain detailed records of transactions, customer accounts, communications with clients, and other important documents for specified periods of time.
  4. Fraud Prevention Measures: Compliance programs should include measures to detect and prevent fraudulent activities such as insider trading or unauthorized trading on behalf of clients.

National Futures Association (NFA)

The NFA is a self-regulatory organization responsible for overseeing the derivatives market in the United States. It imposes compliance requirements on firms engaged in futures and swaps activities:

  1. Registration: Firms involved in futures or swaps trading must register with the NFA.
  2. Risk Disclosure: Firms are required to provide customers with clear and concise information about the risks associated with futures and swaps trading.
  3. Cybersecurity Measures: Firms should implement robust cybersecurity measures to protect customer data from unauthorized access or breaches.
  4. Audit Trail Requirements: Accurate records of all transactions, orders, and executions must be maintained by firms for audit purposes.

Securities and Exchange Commission (SEC)

The SEC is a federal agency responsible for regulating securities markets in the United States. It establishes compliance requirements for companies issuing securities and investment advisors:

  1. Filing Requirements: Companies offering securities to the public must file registration statements disclosing important information about their business operations, financial condition, management team, and risk factors.
  2. Duty of Care & Loyalty: Investment advisors have a fiduciary duty towards their clients. They must act in their clients’ best interests, avoid conflicts of interest, disclose any potential conflicts, and provide suitable investment advice based on clients’ objectives.