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Self-Regulatory Organization – Definition

Self-Regulatory Organization (SRO) Definition

An organization that has the power to regulate an industry, develop a profession or has enforcement authority over an industry is referred to as a self-regulated Organization. A self-regulated organization (SRO) is a non-governmental organization whose regulatory authorities can exit in place of government regulation.

A SRO exercises some level of authority over an industry, it has the power to create and enforce regulatory standards in an industry. SROs establish rules and enforce regulations in order to protect the rights of investors. Common examples of SROs are the United States National Association of Securities Dealers, Investment Dealers Association of Canada and stock exchanges.

A Little More on What is a Self-Regulatory Organization

SROs are not bounded by government rules and regulations, as the name implies, they are self-regulated. Due to the mandate that a SRO has, internal control mechanisms as well as external agreements are established in order to control or regulate the operations of an industry.

FINRA (the Financial Industry Regulatory Authority) is a prime example of a self-regulated organization. The regulatory influence that a SRO exhibits over an industry or a profession can be likened to the influence of a government regulation. Hence, when firms fail to comply by the regulations created and enforced by a SRO, punishments can be meted out to erring firm.

The Financial Industry Regulatory Authority (FINRA) is a self-regulated private corporation that protects investors by ensuring a fair operation of the broker-dealer industry. There are diverse powers or authorities associated with FINRA which includes its ability to give license to broker-dealers or securities dealers.

As a not-for-profit organization, FINRA’s aim is to promote fairness in deals, transparency and ethical practises in the securities market. In order to ensure that there is compliance to standard market practices, FINRA audits dealers and associate firms, it also settles investment disputes between brokers and investors. FINRA enforces regulations that protect investors and also enhance standard practises in the marketplace.

Aside from creating and enforcing industry regulations and standards, a self-regulated organization has the responsibility of education investors. Investor education entails that a SRO puts investors through on appropriate businesses they can invest in as well as investments etiquettes required of investors in the marketplace.

SRO enlighten investors on areas of focus, unethical activities within the industry, as well as tips to detect fraudulent practises. With the investor education that SROs offer, a better understanding of how investment works and how to subdue investment risks are made available to investors.

SROs are self-regulated, not-for-profit private organizations that create and enforce regulations and standards in an industry or profession. These regulations can replace government regulations in given industry. SROs often regulate an industry or a profession through the establishment of both internal mechanisms and external agreement between the major players in an industry.

Despite the status and influence of these organizations, they are also liable to government regulations to an extent.

References for Self-Regulatory Organization

Academic Research on Self-Regulatory Organization (SRO)

Contracting and Enforcement with a Selfregulatory Organization, DeMarzo, P., Fishman, M., & Hagerty, K. (2001).

Should Investment Companies Be Subject to a New Statutory SelfRegulatory Organization, Seligman, J. (2005). Wash. ULQ, 83, 1115.

The enforcement policy of a selfregulatory organization, DeMarzo, P., Fishman, M., & Hagerty, K. (2000). Graduate School of Business, Stanford University.

Financial Planning: Is It Time For a SelfRegulatory Organization, Foster, S. K. (1987). Brook. L. Rev., 53, 143.

Dodd-Frank’s Failure to Address CFTC Oversight of SelfRegulatory Organization Rulemaking, Fischer, D. (2015). Colum. L. Rev., 115, 69.

HR 4624: The Pitfalls of a SelfRegulatory Organization for Investment Advisers and Why User Fees Would Better Accomplish the Goal of Investment Adviser …, Tittsworth, D. G. (2013). John’s L. Rev., 87, 477.

Could a SelfRegulatory Organization Work-An Examination of For-Profit Higher Education and One Potential Solution, Kim, A. (2012). Geo. LJ, 101, 467.

SELF REGULATORY ORGANIZATION, KOUSISIS, S. T. SELF REGULATORY ORGANIZATION.

The Enforcement Policy of a SelfRegulatory Organization, Fishman, M., & Hagerty, K. M. (2000, August). In Econometric Society World Congress 2000 Contributed Papers (No. 1636). Econometric Society.

… –regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. SelfRegulatory, Change, P. R. (2018).

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