FINRA Faces Big Legal Battles in 2025

It’s shaping up to be a long year for the Financial Industry Regulatory Authority.

The Wall Street watchdog is facing two lawsuits and criticism from lawmakers on both sides of the aisle that claim the agency is inefficient, ineffective, and even unconstitutional. Sen. Elizabeth Warren asked “is anyone working?” in a letter to the agency last year after her office found enforcement cases plummeted to their lowest level on record. Citing budget concerns, Project 2025, a GOP-backed report that has links to the incoming Trump administration, floated axing the organization altogether. Oof.

Making matters worse, a federal court limited FINRA’s ability to expel its own members and an unrelated suit is questioning the constitutionality of its enforcement. It could prove to be an impactful year for the regulator and one that could define the future of the agency itself. “Chipping away at enforcement seems like a likely avenue,” said Adam Gana, a securities attorney at Gana Weinstein. “You’re going to start to see erosion at the edges.”

Is FINRA Even Constitutional, Bro?

The most recent developments came in November when a group of three federal judges sided in part with Utah-based Alpine Securities, which argued FINRA’s move to expel the firm via an in-house enforcement system was unconstitutional. The court ruled that Alpine would face “irreparable harm” if FINRA was allowed to move forward and imposed future reviews by the Securities and Exchange Commission on expedited expulsions. The court did not address the constitutionality argument. 

“FINRA really dodged a bullet,” Gana said. In July, a separate suit also claimed the enforcement process is unconstitutional because it doesn’t let members have their day in court. There’s a real possibility the upcoming rulings could crimp FINRA’s powers of enforcement, especially as a Republican administration looks to deregulate the industry, he said.

“FINRA remains confident that the self-regulatory model will continue … as it has for more than 200 years,” a FINRA spokesperson said.

Play Nice, Everybody. While the legal cases may take years to settle, that hasn’t stopped lawmakers from asking pressing questions. According to the Warren report, FINRA took “the cop off the beat” in 2023:

• FINRA expelled just five members, suspended 257 brokers, and barred 178.
• Fines for members dropped to just $88.4 million, down almost half from the $174 million imposed in 2016.
• Meanwhile, compensation and benefits for FINRA employees jumped to $233,500 in 2023, up 4.7% from the previous year, according to the agency’s annual report.

Gana says any changes to the regulator will likely come through the courts. Lawmakers are unlikely to find common ground to push new rules through Congress and a strong finance industry lobby in Washington will make it even more challenging. “The question becomes: What does the future of FINRA look like?” Gana said. “We’re years away.”