All posts by Michael Schaps

FINRA Restructures Qualification Examination Program

The Financial Industry Regulatory Authority’s (‘FINRA”) restructured qualification examination program will become effective on October 1, 2018, and it will then require that all new representative-level applicants be required to take a general knowledge examination (the “SIE examination”) and a tailored, specialized knowledge examination (a revised representative-level qualification examination) for their particular registered role.   As part of … Continue reading FINRA Restructures Qualification Examination Program

FINRA Requires Principal Financial Officer and Principal Operations Officer

Financial Industry Regulatory Authority (FINRA) Regulatory Notice 17-30 noted that the Securities and Exchange Commission (SEC) had approved new registration and qualification rules for FINRA, including that members are required to designate a Principal Financial Officer and a Principal Operations Principal, effective October 1, 2018.  The position of Principal Financial Officer will have primary responsibility … Continue reading FINRA Requires Principal Financial Officer and Principal Operations Officer

SIPC / FINRA Streamline Broker/Dealer Reporting Process

The Securities Investor Protection Corporation (SIPC) and the Financial Industry Regulatory Authority (FINRA) recently announced a joint services agreement that was designed by the agencies to ease the reporting burdens and compliance costs for FINRA member firms by allowing the firms to file just once with FINRA.  It is hoped that the new, simplified filing process, … Continue reading SIPC / FINRA Streamline Broker/Dealer Reporting Process

FINRA’s Adopts Electronic Form 211 for FINRA Rule 6432 Compliance

The Financial Industry Regulatory Authority (FINRA) has adopted a new electronic Form 211 for purposes of compliance with FINRA Rule 6432 (Compliance with the Information Requirements of SEA Rule 15c2-11).  FINRA member firms must begin using the electronic Form 211, in place of the current paper form, beginning on October 23, 2017, but they may … Continue reading FINRA’s Adopts Electronic Form 211 for FINRA Rule 6432 Compliance

PCAOB Adopts New Rules for Audit Reports

The Public Company Accounting Oversight Board (PCAOB) has adopted new rules and amendments to auditing standards (collectively, the “proposed rules”) to make the auditor’s report more informative and relevant to investors and other financial statement users. The text of the proposed rules appears in Exhibit A to the SEC Filing Form 19b-4 and is available … Continue reading PCAOB Adopts New Rules for Audit Reports

FINRA Updates Private Placement Filer Form

In an attempt to collect more information on private placement activity, the Financial Industry Regulatory Authority (“FINRA”) has updated the private placement filer form that member firms must use to file offering documents and information pursuant to FINRA Rules 5122 (Private Placements of Securities Issued by Members) and 5123 (Private Placements of Securities) (the “Filer … Continue reading FINRA Updates Private Placement Filer Form

FINRA Gives Additional Guidance on Contingency Offerings

The Financial Industry Regulatory Authority’s  (FINRA) review of securities offering documents has revealed a large number of instances in which broker-dealers have not complied with requirements of Rules 10b-9 and 15c2-4 under the Securities Exchange Act of 1934 (SEA) as they relate to contingency offerings.  FINRA published Regulatory Notice 16-08 to provide guidance regarding the … Continue reading FINRA Gives Additional Guidance on Contingency Offerings

FINRA Releases New Written Supervisory Procedures Checklist

FINRA has released an updated Written Supervisory Procedures Checklist to reflect new FINRA rules. The Written Supervisory Procedures Checklist (“WSP Checklist”) is an outline of selected key topics representative of the range of business activities typically proposed by applicants seeking approval to become FINRA members or to expand their existing securities business under NASD Membership … Continue reading FINRA Releases New Written Supervisory Procedures Checklist

SEC Approves FINRA Rule 2272 – Governing Sales of Securities on Military Installations

The SEC approved the adoption of FINRA Rule 2272 (Sales and Offers of Sales of Securities on Military Installations) to govern sales and offers of sales of securities by firms on the premises of any military installation to members of the U.S. Armed Forces or their dependents. The rule becomes effective March 30, 2016. The … Continue reading SEC Approves FINRA Rule 2272 – Governing Sales of Securities on Military Installations

FINRA Issues Liquidity Risk Management Guidance

FINRA believes that effective liquidity management is a critical control function at broker-dealers and across firms in the financial sector. Failure to manage liquidity has contributed to both individual firm failures and, when widespread, systemic crises.  To address this, FINRA has recently provided guidance on effective practices that senior management and risk managers at firms … Continue reading FINRA Issues Liquidity Risk Management Guidance

Net Capital Deficiency Costs Charles Schwab Millions

The Financial Industry Regulatory Authority (FINRA) a has censured and fined Charles Schwab & Co., Inc. $2 million for net capital deficiencies and for related supervisory failures. The net capital deficiencies occurred on three separate dates in 2014, and ranged from $287 million to $775 million. FINRA found that on three occasions between May 15, … Continue reading Net Capital Deficiency Costs Charles Schwab Millions

FINRA Announces New Electronic Subordinated Loans System

FINRA has announced that later this year, it will transition the subordinated loan submission process to an electronic platform, via the Firm Gateway.  The online system will simplify the submission and review of subordinated loan requests and eliminate the manual steps now utilized. After the launch of the new system, all firms must submit their … Continue reading FINRA Announces New Electronic Subordinated Loans System

FINRA Updates the Interpretations of Financial & Operational Rules

In Regulatory Notice 15-25, FINRA released updates to interpretations in the Interpretations of Financial and Operational Rules that have been communicated to FINRA by the staff of the SEC’s Division of Trading and Markets (SEC staff). The updated interpretations relate to the effectiveness of amendments that the SEC adopted to Securities Exchange Act (SEA) Rules 15c3-1 … Continue reading FINRA Updates the Interpretations of Financial & Operational Rules

Background Investigations Now Required by FINRA

FINRA Rule 3110(e) (Responsibility of Member to Investigate Applicants for Registration) is effective as of July 1, 2015. The new rule requires, prior to registration, that broker-dealers conduct an investigation of the background of all potential applicants for verification of the information on the Form U4, with the goal to ascertain, by investigation, the good … Continue reading Background Investigations Now Required by FINRA

No-Action Guidance on Prompt Forwarding of Customer Funds with Subscription-Way Securities

In a major shift in policy with respect to the processing of customer checks by broker-dealers in subscription-way securities, the United States Securities and Exchange Commission (“SEC”) issued a No Action Letter on March 12, 2015 to NYLIFE Securities, Inc. stating that the Staff in the SEC’s Division of Trading and Markets would not recommend … Continue reading No-Action Guidance on Prompt Forwarding of Customer Funds with Subscription-Way Securities

Amendment to FINRA Rule 8311 Approved

FINRA Notice to Member 15-07 noted that the amendments to FINRA Rule 8311 will be effective August 24, 2015.  In general, while the amendments to FINRA Rule 8311 eliminate duplicative provisions in NASD IM-2420-2, the most significant impact is that it clarified  the scope of the rule on payments by member firms to persons subject … Continue reading Amendment to FINRA Rule 8311 Approved

New Proposed AML Customer Due Diligence Requirements

The Financial Crimes Enforcement Network (FinCEN) is proposing new rules under the Bank Secrecy Act (BSA) to clarify and strengthen customer due diligence (CDD) requirements for banks, broker-dealers, mutual funds, and futures commission merchants and introducing brokers in commodities. The proposed rules would address CDD elements related to identifying and verifying the identity of beneficial … Continue reading New Proposed AML Customer Due Diligence Requirements

Treasury Regulations Implemented to Address FATCA Impact Broker-Dealers and Investment Advisers

Overview The Foreign Account Tax Compliance Act (“FATCA”) has resulted in significant changes in the reporting and withholding requirements of financial institutions, including broker-dealers and investment advisers that represent foreign investors. One impact on all broker-dealers and investment advisers with foreign clients is the finalization of new U.S. Treasury Regulations (“Treasury Regulations”) related to reporting, … Continue reading Treasury Regulations Implemented to Address FATCA Impact Broker-Dealers and Investment Advisers

FINRA Announces Proposed Rules for Limited Corporate Financing Broker Category

Overview In late February, the Financial Industry Regulatory Authority (“FINRA”) released Regulatory Release 14-09, and requested public comment on the proposed rules (the “LCFB Rule Set”) for a new category of broker-dealer called the Limited Corporate Financing Brokers (“LCFB”). The LCFB Rule set will be comprised of new FINRA rules 010 to 1000. The comment … Continue reading FINRA Announces Proposed Rules for Limited Corporate Financing Broker Category

New Regulatory Guidance Challenges: Business Continuity Planning for the Financial Industry

Based upon the wide spread devastation caused by Hurricane Sandy, and the numerous other natural disasters such as tornadoes, flooding and wildfires that have occurred in the last few years, the Securities and Exchange Commission’s Office of Compliance Inspections and Examinations (“SEC”), the Financial Industry Regulatory Authority (“FINRA”), and the Commodity Futures Trading Commission’s Division … Continue reading New Regulatory Guidance Challenges: Business Continuity Planning for the Financial Industry

Amendments to Financial Responsibility Rules for Broker-Dealers Impact Net Capital Rules

Implementation On July 31, 2013, the Securities and Exchange Commission (SEC) announced amendments to Financial Responsibility Rules for Broker-Dealers (Release No. 34-70072; File No. S7-08-07). The amendments impact the net capital rule, customer protection, books and records, and notification rules for broker-dealers. In the 300 plus page release, the SEC stated that the amendments were … Continue reading Amendments to Financial Responsibility Rules for Broker-Dealers Impact Net Capital Rules

FINRA Rules Governing Communications With the Public Undergo Major Reorganization

The rules governing communications with the public have undergone significant changes with the approval of FINRA Rule 2210 (“Rule”) by the Securities and Exchange Commission (“SEC”). The Rule was submitted to the SEC by the Financial Industry Regulatory Authority (“FINRA”) and replaces NASD Rule 2210 (“Old Rule”). The Rule is effective February 4, 2013, and … Continue reading FINRA Rules Governing Communications With the Public Undergo Major Reorganization

FINRA Rule 4524 Increases Reporting Obligations For Member Firms

Reporting Obligations For FINRA Member Firms Increase Due to FINRA Rule 4524  FINRA Rule 4524 Despite concerns of membership, the Financial Industry Regulatory Authority (FINRA) has laid down yet another mine field for compliance professionals. With the approval of FINRA Rule 4524 (the Rule), starting September 30, 2012, FINRA member firms will now be required to file … Continue reading FINRA Rule 4524 Increases Reporting Obligations For Member Firms

Update on FINRA Financial Rules

Annual Audited Financial Report Submission The Financial Industry Regulatory Authority (FINRA) announced in Regulatory Notice 11-46 that commencing November 8, 2011, member firms having a fiscal year end on or after September 30, 2011 are required to file their annual audited financial reports electronically through the firm’s FINRA Gateway. The filings must include the signed … Continue reading Update on FINRA Financial Rules

Investment Banking Qualifications Re-Clarified by FINRA

The Financial Industry Regulatory Authority (FINRA) recently issued a Frequently Asked Questions (FAQ) release on the qualifications necessary to engage in investment banking activities, and it is apparent that membership clearly failed to ask the right questions when FINRA proposed Rule 1032 (i) (Limited Representative – Investment Banking) (the “Rule”) and the Series 79 exam … Continue reading Investment Banking Qualifications Re-Clarified by FINRA

FINRA Implements the Operations Professional Designation

After substantial debate and comments between FINRA and its membership, FINRA recently issued Notice to Members 11-33 and notified membership that covered persons will have to qualify and register as an Operations Professional, pursuant to FINRA Rule 1230(b)(6) (“The Rule”), effective October 17, 2011. “Covered persons” include: (i) senior management with direct responsibility over covered … Continue reading FINRA Implements the Operations Professional Designation

SEC Extends Broker-Dealer Reliance on CIPs of Investment Advisers

The SEC has recently issued a No-Action Letter that extends the ability for a broker-dealer to treat an investment adviser as if it were subject to an Anti-Money Laundering Program (AML Program) and rely on the investment adviser to perform some or all of its customer identification program (CIP) obligations under rule 31 CFR 103.122.  However, … Continue reading SEC Extends Broker-Dealer Reliance on CIPs of Investment Advisers

FINRA Posts Policy for Annual Financial Audit Extension Requests

Most of the posted FINRA policy related to the granting of extensions for the filing of annual financial audits contains nothing surprising; however, it is clear that FINRA has had a significant shift in its policy with respect to the length of extension that it will grant. Historically, it was not unusual to request, and receive, … Continue reading FINRA Posts Policy for Annual Financial Audit Extension Requests

FINRA Issues New Outside Business Activity Rule

New FINRA Rule 3270 (the Rule) will replace NASD Rule 3030, effective December 15, 2010. This change will have a significant impact on the compliance efforts related to outside business activities for member firms of the Financial Industry Regulatory Authority (FINRA).  NASD Rule 3030 currently requires a registered person to provide notice whenever he or she … Continue reading FINRA Issues New Outside Business Activity Rule

Retail Off-Exchange FOREX Registration Deadline Immanent

As a result of amendments to the Commodity Exchange Act (“CEA”), the Commodity Futures Trading Commission (“CFTC”) has issued final, foreign exchange (forex) rules which become effective on October 18, 2010.  Prior to the passage of the CFTC Reauthorization Act of 2008 (”CRA”), the CEA only allowed financial institutions, SEC registered broker-dealers, insurance companies, financial … Continue reading Retail Off-Exchange FOREX Registration Deadline Immanent

Private Placement Due Diligence and FINRA Anti-Fraud Enforcement

The Financial Industry Regulatory Authority (FINRA) has recently noted significant market abuses in the sale of private placements by member firms. These abuses include fraud and sales practices directly related to the marketing of Regulation D offerings, including the delivery of private placement memoranda and sales materials to investors that contained inaccurate statements or omitted information … Continue reading Private Placement Due Diligence and FINRA Anti-Fraud Enforcement

FINRA Rule 3270 Provides Guidance On Outside Business Activities

FINRA Rule 3270 Provides Guidance On Outside Business Activities of Associated Persons As part of the process of developing a new consolidated rulebook, FINRA proposed to adopt NASD Rule 3030 (Outside Business Activities of an Associated Person) as FINRA Rule 3270 (Outside Business Activities of Registered Persons) (the “Proposed Rule”). Pursuant to the requirements of … Continue reading FINRA Rule 3270 Provides Guidance On Outside Business Activities

FINRA Renews Focus on Intercompany Expense Sharing Agreements

FINRA Renews Focus on Intercompany Expense Sharing Agreements  In October 2003, FINRA issued NASD Notice to Members 03-63 (the Notice to Members) in which the SEC issued guidance on the treatment of expenses and liabilities to broker-dealers utilizing expense sharing agreements pursuant to SEC Rules 15c3-1, 17a-3, and 17a-4. Since that time, expense sharing agreements … Continue reading FINRA Renews Focus on Intercompany Expense Sharing Agreements

Time Runs Out On PCOB Deadline

Time Runs Out On the Public Company Accounting Oversight Board DeadlineThe Public Company Accounting Oversight Board (“PCAOB”) was established by the Sarbanes-Oxley Act, of 2002 (the “Act”). The purpose of the Act was to oversee the audit of public companies that are subject to the securities laws to protect the interests of investors and further … Continue reading Time Runs Out On PCOB Deadline

FINRA Comment Letter – Rule 2040 – Payments to Non-Registered Persons

FINRA Comment Letter – Rule 2040 – Payments to Non-Registered Persons On December 2,2009, the Financial Industry Regulatory Authority (FINRA) published Regulatory Notice 09-69 (Regulatory Notice) seeking comments on its proposal to amend its rules governing payments to unregistered persons through a proposed FINRA Rule 2040 (Proposed Rule).  As stated by FINRA in the Regulatory Notice, … Continue reading FINRA Comment Letter – Rule 2040 – Payments to Non-Registered Persons