The History of FINRA and the Evolution of Its Exams

🧾 The History of FINRA and the Evolution of Its Exams
📘 How FINRA Came to Be and the Development of Its Licensing Exams

The Financial Industry Regulatory Authority (FINRA) plays a crucial role in regulating and overseeing the securities industry in the United States. FINRA’s responsibility is to ensure that securities markets operate fairly and transparently, and that professionals who sell and advise on financial products are well-qualified and act in the best interests of investors. A major part of this process is the development and administration of various licensing exams required for individuals to work in the securities industry.

Let’s explore the history of FINRA and how its exams have evolved over time.

🎯 1. The Birth of FINRA: 1938–2007

Origins of FINRA:
The story of FINRA begins with the creation of its precursor organizations that were designed to regulate the securities industry in the U.S. The Securities Exchange Act of 1934 established the SEC (Securities and Exchange Commission), which oversaw the functioning of securities markets. However, private, self-regulatory organizations (SROs) were also formed to assist in this regulation.

Key Milestones:

• 1938: The National Association of Securities Dealers (NASD) was established to regulate the activities of brokerage firms and their employees.
• 1940s–1990s: NASD was the largest SRO for the securities industry. It provided oversight, market surveillance, and organized licensing exams for professionals in the industry.
• 1999: The NASD merged with the New York Stock Exchange’s regulation department to form a more unified self-regulatory body.

The Role of the NASD:

The NASD was responsible for ensuring the competency of professionals entering the securities industry. They created and administered exams such as the Series 6, Series 7, Series 63, and Series 24. These exams were designed to assess a candidate’s knowledge of securities products, regulations, and market ethics.

🎯 2. The Formation of FINRA: 2007 and Beyond

FINRA’s Creation:
In 2007, the NASD merged with the Regulation, Inc. division of the New York Stock Exchange (NYSE), resulting in the formation of FINRA (Financial Industry Regulatory Authority). FINRA consolidated the regulatory responsibilities of NASD and other exchanges to create a more efficient, unified regulatory structure.

FINRA’s Purpose:

FINRA’s primary mission is to:

• Regulate securities firms and their employees.
• Ensure that professionals comply with SEC rules, FINRA regulations, and state laws.
• Administer licensing exams to ensure that individuals entering the industry are properly qualified.

🎯 3. The Evolution of FINRA’s Licensing Exams

FINRA’s Role in Licensing:
FINRA plays a crucial role in licensing individuals working in the securities industry. Its exams are designed to assess an individual’s knowledge of the securities market, investment products, and regulatory requirements.

Key Exams and Evolution:

1. Securities Industry Essentials (SIE) Exam (Introduced in 2018):
   • Purpose: The SIE exam was introduced to provide a foundational understanding of the securities industry and is required for all individuals looking to enter the securities industry.
   • Content: The exam covers topics like types of securities, market participants, and ethical standards.
   • Significance: It’s an entry-level exam that can be taken before securing sponsorship from a FINRA-member firm.
2. Series 6:
   • Purpose: The Series 6 exam qualifies individuals to sell specific investment products, including mutual funds, variable annuities, and unit investment trusts (UITs).
   • Evolution: This exam has been around since the 1960s and has evolved to include modern investment products and regulatory rules.
3. Series 7 (General Securities Representative Exam):
   • Purpose: The Series 7 exam is one of the most comprehensive exams and qualifies professionals to sell a broad range of securities products like stocks, bonds, and options.
   • Evolution: The Series 7 exam has undergone several changes to reflect current market practices and new regulations. For example, the knowledge base covered by the exam was expanded in the early 2000s to include options, mutual funds, and structured products.
4. Series 63 (Uniform Securities Agent State Law Exam):
   • Purpose: The Series 63 exam qualifies individuals to sell securities within a specific state.
   • Evolution: The Series 63 was introduced in 1956 and is still one of the most commonly required exams for financial professionals today.
5. Series 24 (General Securities Principal Exam):
   • Purpose: The Series 24 exam is designed for individuals who want to supervise and manage securities-related activities at a broker-dealer firm.
   • Evolution: The Series 24 was introduced in the 1980s and has continued to evolve in line with changes in market regulations and the expansion of the financial services industry.
6. Series 66 (Uniform Combined State Law Exam):
   • Purpose: The Series 66 exam is a combination of the Series 63 and Series 65 exams, qualifying individuals to work as both securities agents and investment adviser representatives.
   • Evolution: Introduced in 2000, this exam was designed to streamline the process for those seeking to hold both securities licenses and investment advisory licenses.

🎯 4. Modern-Day FINRA Exams and Continuing Education

Changes in Exam Content:

• Increased Focus on Technology: Modern exams like the SIE reflect the increased use of technology in trading and investment platforms.
• Regulatory Changes: FINRA has continuously updated its exams to reflect the latest regulatory changes in securities laws, including Dodd-Frank and MiFID II.

Ongoing Education:

• FINRA mandates continuing education (CE) for licensed professionals. Individuals must complete periodic CE courses to stay current with changes in regulations, products, and market trends.

🚀 Conclusion

The evolution of FINRA and its exams has played a critical role in ensuring that professionals entering the securities industry are well-prepared, knowledgeable, and committed to high ethical standards. From the early days of the NASD to the modern FINRA exams, the regulatory landscape has shifted to adapt to the dynamic financial markets.

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