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Saturday, April 15 2017

Proposed Rule Changes for Registration and Continuing Education

As disclosed on a recent FINRA filing of Securities and Exchange Commission (“SEC”) Form 19b–4, there are proposed rule changes filed regarding registration and Continuing Education (“CE”) requirements:

  • To restructure current representative-level qualification examinations and creates a general knowledge examination and specialized knowledge examinations.
  • To Amend the CE requirements.

Each person engaged in the investment banking or securities business of a member must be registered with FINRA as a representative or principal in each category of registration appropriate to his or her functions and responsibilities.

Each member, except a member with only one associated person, shall have at least two officers or partners who are registered as General Securities Principals provided that a member that is limited in scope of its activities may instead have two officers or partners who are registered in a principal category that corresponds to the scope of the member’s activities. In addition to this requirement, an applicant for membership or existing member will need at least one person registered as a Financial and Operations Principal or an introducing Broker-Dealer Financial and Operations Principal. And if the nature of its business so requires, the applicant must also have at least one person registered as an Investment Banking Principal, a Research Principal, a Securities Trader Principal and/or a Registered Options Principal.

Consistent with the requirements of Rule 3110, members must have adequate supervisory systems and procedures reasonably designed to ensure that individuals with permissive registrations do not act outside the scope of their assigned functions.

Before registration of a person as a representative or principal can become effective, the person will need to pass the Securities Industry Essentials (“SEI”) and an appropriate representative or principal qualification exam. If the job functions of a registered representative changes so as to require the person to register in another rep category, the person would not be required to pass the SIE again they would only need to pass an appropriate representative qualification exam. All associated persons (and not associated persons) will be eligible to take the SIE. Passing the SIE alone does qualify an individual for registration with FINRA. To be eligible for registration with FINRA, an individual must also pass an applicable representative or principal qualification exam. Just as today, all registered persons, and those individuals who maintain permissive registrations will need to satisfy the Regulatory Element of continuing education as specified in Rule 1240(a).

SEC Form 19b-4 also provides language providing exam waivers, requirements for registered persons functioning as Principals for a limited period, waiting periods for retaking failed exams, lapses of registration, expiration of the SIE and provisions for persons serving in the armed forces of the United States.

If you are unsure about the status of compliance in your firm, contact a professional to help. Red Oak is here to help you every step of the way.