Securities Industry Essentials (SIE) ExamOverview of Regulatory FrameworkHard
A broker-dealer firm is subject to a regulatory examination by FINRA. During the examination, FINRA requests access to the firm's books and records, including customer account statements and trade confirmations. Under which primary authority does FINRA have the right to demand these documents?
- AThe Bank Secrecy Act.
- BThe Investment Advisers Act of 1940.
- CDelegated authority from the Securities and Exchange Commission (SEC).
- DIts powers as a private industry association.
Show answer & explanationAnswer & explanation
Correct answer: C. Delegated authority from the Securities and Exchange Commission (SEC).
FINRA, as a Self-Regulatory Organization (SRO), derives its enforcement and examination authority from the Securities and Exchange Commission (SEC). The SEC delegates certain powers to SROs to oversee and regulate their members, ensuring compliance with federal securities laws and SRO rules.
Why the other options are wrong
- A. The Bank Secrecy Act primarily deals with anti-money laundering (AML) and reporting, not the general examination authority of FINRA.
- B. The Investment Advisers Act of 1940 governs investment advisers, not the examination authority of FINRA over broker-dealers.
- D. While FINRA is an industry association, its regulatory authority is statutory, derived from federal law and SEC delegation, not merely its private status.
FINRA's Authority Source
FINRA's regulatory authority, including its power to conduct examinations and demand records from member firms, is delegated to it by the Securities and Exchange Commission (SEC) under the provisions of the Securities Exchange Act of 1934.
- FINRA is an SRO.
- Authority comes from SEC delegation.
- SEC oversees FINRA's activities.
- Ensures compliance with federal laws and FINRA rules.
Memory trick: SROs are the 'SEC's Right Hand' for industry rules and checks.