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 for financial filings and the related books and records. A Principal Operations Officer will have the primary responsibility for the day-to-day operations of the business, including overseeing the receipt and delivery of securities and funds, safeguarding customer and firm assets, calculation and collection of margin from customers and processing dividend receivables and payables and reorganization redemptions and those books and records related to such activities.
This requirement replaces the current requirement that dual members of FINRA and the NYSE designate a Chief Financial Officer (CFO) and a Chief Operations Officer (COO) and that other FINRA members designate a CFO. The requirement to designate a Principal Financial Officer and a Principal Operations Officer applies to all firms, including those firms that are currently exempt from the requirement to have a Financial and Operations Principal or an Introducing Broker-Dealer Financial and Operations Principal. Additionally, individuals designated as Principal Financial Officers or Principal Operations Officers must qualify and register as Financial and Operations Principals or Introducing Broker-Dealer Financial and Operations Principals, as applicable.
Principal Financial Officers and Principal Operations Officers must also be registered in the CRD system as Operations Professionals because their activities and responsibilities intersect with those of covered persons as specified in FINRA Rule 1220(b)(3). However, individuals designated as Principal Financial Officers and Principal Operations Officers are not required to pass the Operations Professional (Series 99) examination in order to register as Operations Professionals, if they already hold a qualifying registration. Moreover, because Principal Financial Officers and Principal Operations Officers are required to be registered as Financial and Operations Principals or Introducing Broker-Dealer Financial and Operations Principals, they will be eligible to register as Operations Professionals as these registrations qualify for the Operations Professional registration.
Firms that neither self-clear nor provide clearing services may designate the same person as the Principal Financial Officer, Principal Operations Officer and Financial and Operations Principal or Introducing Broker-Dealer Financial and Operations Principal, that is, such firms are not required to designate different persons to function in these capacities. Firms that are clearing and self-clearing must designate separate persons to function as Principal Financial Officer and Principal Operations Officer, though such individuals may also carry out the responsibilities of a Financial and Operations Principal. A clearing or self-clearing firm that is limited in size and resources may request a waiver of the requirement to designate separate persons to function as Principal Financial Officer and Principal Operations Officer.
A FINRA member firm is not precluded from designating multiple Principal Operations Officers, provided that the firm precisely defines and documents the areas of primary responsibility and makes specific provision for which of the officers has primary responsibility in areas that can reasonably be expected to overlap. A firm, however, may not designate multiple Principal Financial Officers, given the importance of having one principal who is responsible for the financial statements of a firm as a whole. Finally, a Principal Financial Officer or a Principal Operations Officer is permitted to delegate his or her day-to-day duties to other principals at the firm with the understanding that ultimate responsibility for the function rests with the Principal Financial Officer and the Principal Operations Officer.
With the above in mind, FINRA member firms should designate a Principal Financial Officer and Principal Operations Officer on the firms respective Form BD, amend the individual’s Form U 4 and update their Supervisory Procedures Manual for said designations, not later than October 1, 2018.