Broker Dealer | Examinations and Audits | FINRA | FINRA Rules

Broker-Dealer To-Do List to Comply with FINRA Changes to Registration Rules

FINRA has implemented several new registration and designation requirements that member firms will need to address on October 1.  See FINRA Regulatory Notice 17-30.

The To-do List includes the following, discussed in greater detail below:

  1. Amend WSPs to reflect the Securities Industry Essentials (“SIE”) Exam (Rule 1210.03)
  2. Prohibit unregistered persons from accepting customer orders (Rule 1230.01)
  3. Designate a “Principal Financial Officer” and a “Principal Operations Officer” (Rule 1220(a)(4))
  4. Register your Chief Compliance Officer as a “Compliance Officer” (Rule 1220(a)(3))
  5. Register an Investment Banking Principal if engaged in IB activity (Rule 1220(a)(5))
  6. Implement, as applicable, the Financial Services Affiliate Waiver Program (Rule 1210.09)
  7. Address Requirements for Members with One Registered Options Principal (Rule 1220.03)
  8. Update Firm documents to reflect the new Continuing Education Rule number (Rule 1240)

1.  Securities Industry Essentials (“SIE”) Exam (Rule 1210.03)

FINRA revised the examination process to include an introductory-level exam that assesses an individual’s knowledge of basic, essential securities industry information.   Also, the existing representative-level examinations (e.g., Series 6, Series 7, Series 7) have been streamlined by removing the general securities knowledge questions and focusing on material relevant to day-to-day activities, responsibilities and job functions of the representatives.  To register as a representative with a firm, an individual must pass the SIE Exam plus one or more revised representative-level (“Top-off”) qualification examinations.   The SIE exam is open to anyone 18 or older, including students and prospective candidates interested in positions within the securities industry.  An individual does not have to be associated with a member firm to take the SIE Exam.  Exam results are valid for four years.

Under a grandfathering provision, existing representatives are excluded from the SIE, including individuals whose registration as a representative was terminated between October 1, 2014, and September 30, 2018, as long as they re-register within four years from the date of their last registration.  Individuals who registered as representatives before October 1, 2018, and who continue to maintain those registrations on or after October 1, 2018, will also be grandfathered.

Individuals who have an open exam window for a representative-level registration before October 1 will not be required to sit for the SIE and the Top-off exam.  They can take the single legacy exam during the exam window.   Individuals who do not take the exam during the window period or fail will have to pass both the SIE and the applicable Top-off exam.

Beginning October 1 firms may register their associated persons to take the SIE and Representative-level examinations through CRD.   Non-associated persons will need to access FINRA’s Financial Professional Gateway (“FinPRO”).  For more details, check out the Slides from FINRA’s August 15th Exam Restructuring conference call.

2.  Prohibit Unregistered Persons from Accepting Customer Orders (Rule 1230.01)

Individuals must be registered to accept a customer order.  When an appropriately registered person is occasionally unavailable, FINRA will permit an unregistered person to transcribe order details submitted by a customer as long as the registered person contacts the customer to confirm the order details before accepting and entering the order.

3.  Designate a “Principal Financial Officer” and a “Principal Operations Officer” (Rule 1220(a)(4))

On October 1, member firms will need to designate a “Principal Financial Officer” and a “Principal Operations Officer” on Schedule A of Form BD.  The designated individual(s) must be registered as a FinOP with the firm.  Introducing firms may designate the same person to function in both roles. Firms may have multiple Principal Operations Officers but may only have one Principal Financial Officer.  Finally, firms may need to amend Section 4 of Form U4 for each designee and register them as an Operations Professional (Series 99) if they are not already registered as such.  The FinOp registration qualifies the designees as Operations Professionals, without having to take further exams.  The Firm’s WSPs should be amended to reflect these changes.

4.  Register Your Chief Compliance Officer as a “Compliance Officer” (Rule 1220(a)(3))

Beginning October 1, individuals designated as Chief Compliance Officer on Schedule A of Form BD will also be required to register as a “Compliance Officer,” with FINRA.  “Compliance Officer” is a new principal registration category under the consolidated rules and replaces the designation of Chief Compliance Officer.  Firms will still be required to designate a CCO on Form BD as per FINRA Rule 3130.    To qualify, an individual must possess the series 7 and 24, or the Series 14, before October 1.  On or after October 1, an individual will need to pass the SIE (see below), Revised Series 7 and the 24, or pass the Series 14 to qualify as a Compliance Officer, unless otherwise grandfathered by the Rule.  Review your CCO’s registration status on October 1 as this registration may be updated automatically.  If not, an amendment to Section 4 of Form U4 will be necessary.  Note that firms may register any other individual who possesses the requisite licenses as a Compliance Officer.  The Firm’s WSPs should be amended to reflect these changes.

5.   Register an Investment Banking Principal if the firm engages in IB Activity (Rule 1220(a)(5))

Principals who supervise the investment banking activities specified in paragraph (b)(5) of Rule 1220 must register as Investment Banking Principals, which requires passing the SIE, Revised Series 79 and Series 24. The Firm’s WSPs should be amended to reflect these changes.

6.  Permissive Registrations (Rule 1210.02)

Firms may register or maintain the registration of any associated person, including individuals working solely in a clerical or ministerial capacity, provided the firm has adequate supervisory systems and procedures reasonably designed to ensure that such individuals do not act outside the scope of their assigned functions.  This change expands permissive registrations under the current rule.

7.  Financial Services Affiliate Waiver Program (Rule 1210.09)

FINRA is implementing the Financial Services Affiliate Waiver Program (“Waiver Program”) to allow representatives and principals who terminate their registrations with a member firm to work for a financial services industry affiliate of a member firm.  Eligible participants would be granted a waiver from the requalification requirements when they reapply for registration with a member firm if certain conditions are met.  Registered persons are eligible for a single, fixed waiver period of seven years from the initial designation date (submitted through the CRD system concurrently with the filing of Form U5).  During the waiver period, the representative must satisfy their regulatory-element continuing education requirements and continuously work for a financial services affiliate of a member firm.  However, industry transfers are permissible, as outlined in Regulatory Notice 17-30.   A “financial services industry affiliate of a member” is defined as a legal entity that controls, is controlled by or is under common control with a member firm and is regulated by the SEC, CFTC, state securities authorities, federal or state banking authorities, state insurance authorities, or substantially equivalent foreign regulatory authorities.   Firms should amend their WSPs to include a section regarding the Waiver Program.

8.  Members with One Registered Options Principal (Rule 1220.03)

This rule is not new but is now easier to find.  The following has been added to the Rule as Supplementary Material .03

A member that has one Registered Options Principal shall promptly notify FINRA in the event such person is terminated, resigns, becomes incapacitated or is otherwise unable to perform the duties of a Registered Options Principal.  Following receipt of such notification, FINRA shall require the member to agree, in writing, to refrain from engaging in any options-related activities that would necessitate the prior or subsequent approval of a Registered Options Principal until such time as a new Registered Options Principal has been qualified.

Members failing to qualify a new Registered Options Principal within two weeks following the loss of their sole Registered Options Principal, or by the earliest available date for administration of the Registered Options Principal examination, whichever is longer, shall be required to cease doing an options business; provided, however, they may effect closing transactions in options to reduce or eliminate existing open options positions in their own account as well as the accounts of their customers.


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