Securities Industry Essentials (SIE) ExamOverview of Regulatory FrameworkHard
A broker-dealer firm is subject to a regulatory examination by FINRA. During the examination, the firm questions FINRA's authority to impose certain rules and disciplinary actions. From which primary source does FINRA derive its authority to regulate its member firms?
- ADirect legislation passed by Congress specifically for FINRA.
- BThe U.S. Constitution, which grants FINRA direct regulatory power.
- CThe Securities Exchange Act of 1934, delegated by the SEC.
- DInternational agreements with global financial regulators.
Show answer & explanationAnswer & explanation
Correct answer: C. The Securities Exchange Act of 1934, delegated by the SEC.
FINRA is a Self-Regulatory Organization (SRO) that operates under the oversight of the Securities and Exchange Commission (SEC). Its authority is delegated by the SEC, which itself derives its powers from federal laws like the Securities Exchange Act of 1934.
Why the other options are wrong
- A. While Congress passes laws, FINRA's direct authority comes from the SEC's delegation under existing law.
- B. FINRA's authority is delegated, not directly from the Constitution.
- D. FINRA's authority is domestic, not primarily from international agreements.
FINRA's Authority Source
FINRA, as a Self-Regulatory Organization (SRO), derives its authority to regulate its member firms from the Securities Exchange Act of 1934, through delegation by the Securities and Exchange Commission (SEC).
- SRO status under SEC oversight
- Authority delegated by the SEC
- SEC's power from Securities Exchange Act of 1934
- Ensures fair and honest operation of the industry
Memory trick: SEC 'DELEGATES' power, 'FINRA' 'REGULATES'.