Who Regulates Brokerage Houses?
Brokerage houses face regulation from various agencies at the federal and state level depending on the array of investment products they offer to the public. There are also independent groups, created by the investment industry itself, that regulate parts of the brokerage industry.
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Federal Legislation
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At the federal level the Congress of the United States passes laws to regulate the investment industry. Through this legislation agencies like the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have been created.
Securities and Exchange Commission
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The SEC is the federal agency charged with providing regulation and oversight for the securities industry. Its primary mission is to ensure safe and fair practices for investors. This oversight includes audits of brokerage houses, exchanges and financial organizations.
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Financial Industry Regulatory Authority
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FINRA is an industry group, otherwise known as a self-regulatory organization or SRO, that provides regulation and services for the securities industry. FINRA provides licensing for its members, regulatory oversight through audits (including brokerage houses and financial organizations), dispute resolution and arbitration services, and information about its members to the public.
Commodity Futures Trading Commission
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The CFTC is the federal agency charged with the responsibility with providing regulation and oversight for the commodities and futures industry. Its primary mission is to ensure safe and fair practices for investors. This oversight will include audits of brokerage houses, exchanges and financial organizations.
National Futures Association
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The NFA is an industry organization that provides regulation and services for the commodities and futures industry. The NFA provides training and licensing for its members, regulatory oversight through audits, dispute resolution, voluntary electronic alerts to members and information about its members to the public .
State Regulation and Insurance
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Brokerage houses and financial organizations also face securities regulation from the states. Brokerages and individuals selling securities to the public will need to be registered with each state where they intend to do business. Brokerage houses that also sell insurance products, like life insurance and annuities, will also face state insurance regulations. The insurance industry is regulated entirely at the state level and any broker selling insurance products must have the appropriate license to do so.
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