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, and interviews several associated persons. Which of the following statements accurately describes FINRA's authority to conduct such an examination?
- AFINRA's authority for examinations is derived solely from its voluntary membership agreements with firms.
- BFINRA's examination powers are limited to reviewing publicly available information.
- CFINRA can only conduct examinations if a specific complaint has been filed against the firm.
- DFINRA's authority to conduct examinations is granted by the Securities Exchange Act of 1934.
Show answer & explanationAnswer & explanation
Correct answer: D. FINRA's authority to conduct examinations is granted by the Securities Exchange Act of 1934.
FINRA's authority as an SRO, including its power to examine member firms, is explicitly granted by the Securities Exchange Act of 1934, which also established the SEC and the framework for self-regulation in the securities industry.
Why the other options are wrong
- A. While firms agree to FINRA rules, the underlying authority for FINRA's existence and powers comes from federal law.
- B. FINRA has broad powers to access internal records and interview personnel, not just public information.
- C. FINRA conducts routine examinations and can initiate them without a prior complaint.
FINRA's Authority Source
FINRA's authority to regulate and examine its member firms and associated persons is derived from the Securities Exchange Act of 1934, which established the framework for self-regulatory organizations (SROs).
- Authority granted by the Securities Exchange Act of 1934.
- Enables FINRA to act as an SRO under SEC oversight.
- Allows for examinations, rule enforcement, and disciplinary actions.
Memory trick: The '34 Act Gives FINRA Regulatory Might.