This guide provides an overview of regulatory requirements for SRO registrations and firm’s continuing education (CE) programs to keep their members aware of recent law changes. It’s an essential topic from the SIE exam perspective because 3 to 5 questions will be asked in the final exam.
SRO Qualifications & Registration Requirements
Persons or firms involved in securities business must be licensed by the Financial Industry Regulatory Authority (FINRA). Individuals registered with FINRA are registered representatives (RR) or associated persons. They could be the firm’s salespersons, partners, directors, or others.
FINRA conducts various certification exams, and candidates must pass them to be involved in their respective business activities.
For example, candidates qualified for the Series 7 exam can purchase and/or sell all securities products, including corporate securities, municipal fund securities, options, direct participation programs, investment company products, and variable contracts.
Similarly, candidates who qualified for the Series 99 exam can be involved in customer onboarding, collection, maintenance, reinvestment, disbursement of funds, stock loan/securities lending, etc.
The member firm must ensure employee registration and not allow non-qualified persons in securities business activities. Certain individuals are exempt from FINRA registration. These individuals are known as non-registered persons, and their functions are solely and exclusively clerical or ministerial, such as providing necessary forms to customers or office work.
The registration process has some requirements:
- Background Check: FINRA supervision rules strongly recommend firms to investigate the background of associated persons before submitting their applications for registration. It ensures that individuals meet legal and ethical standards, protecting investors and maintaining industry integrity.
- Form U4: Form U4, the Uniform Application for Securities Industry Registration or Transfer, is a key document for FINRA registration. It collects the personal, employment, disciplinary, and criminal history of individuals seeking registration with broker-dealer firms. It is used for initial registration, transfers, and amendments.
- Fingerprinting: Fingerprinting is a crucial part of FINRA registration and is used to verify the identity and background of applicants. Fingerprints are collected electronically or via traditional methods by FINRA and forwarded to the FBI for a background check. Fingerprints of associated persons should be submitted to FINRA within 30 days of submitting Form U4.
Under Section 3(a)(39) of the SEC Act. 1934, FINRA is authorized for statutory disqualification of a candidate’s registration if they have engaged in certain types of misconduct. These include felony convictions within the past 10 years, specific misdemeanors related to financial misconduct within the same period, regulatory actions barring association with broker-dealers, violations of securities laws, and other serious misconduct.
State Registration Requirements (Blue-Sky Laws)
State Registration Requirements, or Blue-Sky Laws, are state-level regulations to protect investors from fraud. These laws mandate the registration of securities offerings and sales within each state, requiring issuers to disclose essential information and comply with anti-fraud provisions.
Broker-dealers and agents must also register with the state, ensuring they meet professional standards. The candidates must pass the Series 63 exam to sell securities in that state. Each state’s requirements can vary, but compliance generally involves filing, review, and approval by state regulators. Series 63 exam is not mandatory in Colorado, the District of Columbia, Florida, Louisiana, Maryland, or Puerto Rico.
Continuing Education
Continuing Education (CE) is essential to maintaining registration and professional standards for securities professionals. The purpose of continuing education is to keep securities professionals updated on regulatory changes, industry developments, and ethical standards.
It consists of two main components:
- Regulatory Element: FINRA administers a training session that is due within 120 days of the second anniversary of a registered representative’s initial registration date and every three years thereafter.
- Firm Element: Annually, member firms must conduct a formal Firm Element training session to ensure their registered representatives stay updated on current laws and regulations.
Continuing education (CE) can be delivered online, in person, or through self-study. Firms must track compliance, and failure to complete CE can result in inactive registration status and potential penalties.