Who is and what is FINRA’s Role?

The Financial Industry Regulatory Authority (FINRA) is a self-regulatory organization authorized under U.S. federal securities laws and registered with the Securities and Exchange Commission (SEC). It plays a crucial role in overseeing U.S. member broker-dealers and their personnel. 

• Regulation and Compliance: FINRA sets rules and regulations for broker-dealers to ensure compliance with federal laws. These rules cover a wide range of activities, from how securities are marketed and sold to how firms must handle customer complaints.
• Licensing and Examinations: FINRA conducts licensing exams for securities professionals, such as the Series 7 exam. These exams are designed to ensure that individuals who engage in the securities industry are qualified and knowledgeable about the laws and regulations governing their activities.
• Enforcement Actions: FINRA is responsible for handling enforcement actions related to violations within the securities industry. This includes investigating complaints, conducting disciplinary hearings, and imposing penalties or sanctions on firms and individuals that violate FINRA rules or federal securities laws.

What is the SEC's Role in this Case?

The Securities and Exchange Commission (SEC) is a government organization with a broad mandate to oversee and regulate the securities industry in the United States. 

• Investor Protection: The SEC's primary mission is to protect investors. It ensures that they have access to essential information about publicly traded securities, helping them make informed investment decisions.
• Market Integrity: The SEC works to maintain market integrity by enforcing securities laws, promoting stability, and ensuring transparency in the financial markets. This involves regulating the stock exchanges, securities firms, and investment advisers.
• Enforcement: The SEC handles enforcement actions related to violations within the securities industry. This includes investigating potential violations, bringing civil enforcement actions against wrongdoers, and working with other regulatory bodies like FINRA to maintain compliance and protect investors.

In summary, while both the SEC and FINRA regulate the financial industry, the SEC is a government entity focused on investor protection, and FINRA is a self-regulatory organization that works alongside the SEC to enforce rules and maintain market integrity.

What Happened?

FINRA Fine

M1 Finance LLC was fined $850,000 by FINRA due to issues related to their use of social media influencers. The influencers made posts that were not fair or balanced and contained misleading claims, violating FINRA's communication rules.

Influencer Program

M1 Finance's influencer program was notably extensive, with over 39,400 new accounts opened through a program where influencers were paid to promote the company using unique tracking hyperlinks. This significant volume of new accounts highlights the program's impact and reach.

Rule Violations

The firm violated several FINRA rules by failing to review, approve, or retain influencer communications. Additionally, M1 Finance lacked a supervisory system to oversee these activities properly. This failure to implement adequate supervision and compliance measures was a key factor in the enforcement action taken by FINRA.

Remediation and Compliance

In response to FINRA's findings, M1 Finance consented to the violations and agreed to implement a supervisory system designed to comply with communication rules. This move aims to ensure future compliance and prevent similar issues from occurring. 

For more detailed information, you can visit FINRA's website and their Disciplinary Actions Online database. Further details about the case are available in the announcement titled "FINRA Fines M1 Finance $850,000 for Violations Regarding Use of Social Media Influencer Program" on FINRA's website.

How could RippleXn help you?

Sponsorship and Pay by Product are easier to manage, albeit can be very difficult when above 20 creators on multi-platforms. This article talks about the double risk of advertising laws, rules and regulations and the additional and tigher specifica regulations of a restricted product. In this case, the use of affiilate partners who are also social media creators has morphed into a new and unwieldy set of risks. Tal to the RippleXn team about the ambassasor-always-on-program for details.