Securities Industry Essentials (SIE) ExamOverview of Regulatory FrameworkMedium
A broker-dealer firm is reviewing its policies to ensure that all communications with the public, including advertising and sales literature, meet regulatory standards. Which organization has the primary responsibility for establishing rules governing these communications for its member firms?
- AFederal Trade Commission (FTC)
- BFinancial Industry Regulatory Authority (FINRA)
- CMunicipal Securities Rulemaking Board (MSRB)
- DSecurities and Exchange Commission (SEC)
Show answer & explanationAnswer & explanation
Correct answer: B. Financial Industry Regulatory Authority (FINRA)
FINRA has comprehensive rules governing all forms of communication with the public by its member firms, including advertising, sales literature, and social media, to ensure they are fair, balanced, and not misleading.
Why the other options are wrong
- A. The FTC regulates general consumer advertising but not specific securities industry communications.
- C. The MSRB creates rules for municipal securities, but FINRA's rules are broader for all member firm communications.
- D. The SEC sets broad federal standards but delegates specific communication rules for broker-dealers to FINRA.
FINRA Communication Rules
FINRA establishes and enforces detailed rules governing how its member broker-dealer firms and their representatives communicate with the public, covering advertising, sales literature, and other forms of communication to ensure they are fair, balanced, and not misleading.
- Governs all public communications by BDs.
- Ensures fairness and balance.
- Prevents misleading statements.
- Covers advertising, sales literature, social media.
Memory trick: FINRA is the 'Voice of Reason' for broker-dealer ads.