Chapter 13 - FINRA Registration Flashcards
All of the following statements are true regarding statutory disqualification EXCEPT
A) A firm must amend a U-4 form within 10 days of learning of a statutory disqualifying event
B) It can apply to both firms and representatives
C) A statutory disqualification can prevent a person from becoming registered
D) Persons subject to statutory disqualification are barred from working in the securities industry for a minimum of two years
D) Persons subject to statutory disqualification are barred from working in the securities industry for a minimum of two years
Answer Explanation
Not all persons subject to statutory disqualification are barred from the industry, because firms may request relief from eligibility if they wish to sponsor a person subject to statutory disqualification. If an exemption is not available, the person may be disqualified for 10 years. Statutory disqualification may disqualify a firm or individual from the securities industry. When a firm learns of a statutory disqualifying event, it must update the U-4 within 10 days.
Textbook Reference
Please see textbook section 13.3.7
The Firm Element of Continuing Education must be completed
A) Every quarter.
B) Every month.
C) Every day.
D) Every year
D) Every Year
Answer Explanation
The Firm Element of Continuing Education must be completed on an annual basis.
Textbook Reference
Please see textbook section 13.3.8.2
In administering Regulatory Element Continuing Education, a broker-dealer is required by FINRA to do all of the following EXCEPT
A) Restrict CE inactive persons from performing prohibited activities
B) Designate a contact person to receive Regulatory Element email notifications
C) Review quarterly Regulatory Element performance reports to determine topics where additional training may be needed
D) Develop an annual needs analysis and training program
D
Answer Explanation
FINRA does not require firms to develop their own Regulatory Element programs. Regulatory Element CE is administered and delivered by FINRA. This requirement applies to Firm Element. On an annual basis, a broker-dealer is required to conduct a needs analysis and training plan for the delivery of Firm Element training.
Textbook Reference
Please see textbook section 13.3.8.1
A large adviser is defined as one with
A) 50 or more clients
B) 250 or more clients
C) More than $50 million of AUM
D) More than $100 million of AUM
D
Answer Explanation
Most advisers with more than $100 million in AUM are considered large advisers, and they are required to register with the SEC.
Textbook Reference
Please see textbook section 13.5.1
All of the following enforce MSRB Rules EXCEPT
A) The Financial Industry Regulatory Authority
B) The Federal Deposit Insurance Corporation
C) The MSRB
D) The Comptroller of the Currency
C) The MSRB
Answer Explanation
The Federal Reserve Board, Comptroller of the Currency, and Federal Deposit Insurance Corporation are all enforcers of MSRB rules within bank dealers. The MSRB has no enforcement power over the rules it establishes.
Textbook Reference
Please see textbook section 13.1.2
U.S. securities dealers are required to be members of which self-regulatory organization?
A) FINRA
B) MSRB
C) NYSE
D) CFA
A) FINRA
Answer Explanation
Headquartered in Washington, FINRA is one of the largest and most powerful SROs in the U.S. Securities industry. FINRA was formed in 2007 when the NASD merged with the securities enforcement arm of the New York Stock Exchange.
Textbook Reference
Please see textbook section 13.1.1
A college sophomore has recently completed the SIE Exam. This individual
A) Must pass an additional qualification exam in order to become fully registered in the securities industry.
B) Must complete an additional qualification exam prior to graduating from college.
C) May begin selling securities immediately.
D) Must pass an additional oral exam prior to becoming fully registered
A
Answer Explanation
Passing the SIE alone does not qualify an individual to conduct a securities business. An additional exam must be completed prior to becoming fully registered. The SIE credential is valid for four years.
Textbook Reference
Please see textbook section 13.3.3.1
Which of the following regulators enforce the MSRB rules for securities firms?
A) Federal Reserve.
B) FINRA.
C) Comptroller of the Currency.
D) FDIC.
B
Answer Explanation
The MSRB creates rules, but does not enforce its own rules. The MSRB rules are enforced by FINRA for securities firms. Within banks, they are enforced by the Federal Reserve, Comptroller of the Currency, and the FDIC.
Textbook Reference
Please see textbook section 13.1.2
The Regulatory Element of Continuing Education must be completed within how many days of an individual’s registration anniversary date?
A) 30
B) 90
C) 60
D) 120
D) 120
Answer Explanation
The Regulatory Element of Continuing Education must be completed within 120 days of the registration anniversary date. The relevant dates are the second registration anniversary, and every third year thereafter. This means Year 2, 5, 8, 11 , 14 etc.
Textbook Reference
Please see textbook section 13.3.8.1
The Regulatory Element of Continuing Education must be completed
A) With 120 days of passing the FINRA qualification exam
B) Two years after initial registration and three years thereafter
C) Three years after initial registration and every two year thereafter
D) Two years after initial registration and every three years thereafter
D
Answer Explanation
The Regulatory Element of Continuing Education must be completed two years after initial registration and every three years thereafter.
Textbook Reference
Please see textbook section 13.3.8.1
A person must take a new qualification exam if they have not been registered with a member firm for a period of
A) 2 years
B) 1 year
C) six months
D) 3 years
A) 2 Years
Answer Explanation
Any person whose registration has not been registered with a member firm for a period of two or more years is required to re-register by passing a Qualification Examination.
Textbook Reference
Please see textbook section 13.3.5.1
A registered representative is found to be in violation of FINRA rules. FINRA may impose which of the following?
I. Fine of $10,000
II. Revoke Series 79 registration
III. Bar the representative from associating with any other member firm for 10 years
A) III only
B) I and III only
C) I only
D) I, II, and III
D) I, II, and III
Answer Explanation
FINRA is authorized to impose virtually any penalty deemed appropriate for a violation of securities rules and regulations, with the exception of a jail sentence. It can revoke or cancel a representative’s registration, impose a fine or bar the representative from associating with any member firm. Rep’s have a right to request a hearing with FINRA for violations that could lead to such a penalty. That decision can then be appealed to the SEC and federal courts.
Textbook Reference
Please see textbook section 13.3.7
When completing a U-4 Form, a candidate for registration intentionally omits information about a previous securities related misdemeanor when he worked in the securities industry 7 years ago. The employing firm becomes aware of this information when performing a background investigation. This omission
I. is not material because it is a misdemeanor
II. must be reported to FINRA
III. may be grounds for statutory disqualification
IV. is not grounds for statutory disqualification since it is a misdemeanor and not a felony
A) II and III
B) I and IV
C) I and II
D) II and IV
A) II and III
Answer Explanation
A misdemeanor involving securities within the past 10 years must be reported on a Form U-4. An intentional omission is grounds for statutory disqualification, and must be reported to FINRA as soon as the firm is aware of it.
Textbook Reference
Please see textbook section 13.3.7
When a person does not complete the regulatory portion of their ongoing qualification requirements they are said to be
A) Exempt
B) Statutory disqualified
C) CE Inactive
D) Disobedient
C) CE Inactive
Answer Explanation
If a rep does not complete Regulatory Element Continuing Education on time, the rep is said to be CE Inactive. While CE Inactive, a rep cannot function or be paid as a registered person.
Textbook Reference
Please see textbook section 13.3.8.1
Thomas Smith works for an RIA firm, soliciting and negotiating investment advisory services. How should he be registered?
A) As an RIA, with the SEC
B) As an RIA, with the state in which he works
C) As an IAR, with the SEC
D) As an IAR, with the state in which he works
D
Answer Explanation
Investment Adviser Representatives (IARs) are individuals who work for RIA firms in activities such as managing portfolios for a fee and soliciting investment advisory services. They are not registered by the SEC, but most states require registration of IARs.
Textbook Reference
Please see textbook section 13.5.1
State securities laws are sometimes referred to as
A) Green Grass Laws
B) Blue Sky Laws
C) All State Laws
D) Home State Laws
B) Blue Sky Laws
Answer Explanation
The state securities laws are also known as the Blue Sky Laws.
Textbook Reference
Please see textbook section 13.4
In what capacity is a Registered Investment Adviser (RIA) required to put clients’ interest first and adhere to duties of loyalty and care?
A) Brokerage
B) Custody
C) Clearing
D) Fiduciary
D) Fiduciary
Answer Explanation
RIAs act as fiduciaries who must put clients’ interests first at all times, including ahead of their own interests. RIAs also must adhere to fiduciary duties of loyalty and care. Any conflicts of interest with clients must be eliminated or fully disclosed as to all material facts.
Textbook Reference
Please see textbook section 13.5
Which of the following statements regarding statutory disqualification are TRUE?
I. An individual or firm may be subject to a statutory disqualification
II. Certain persons may re-enter or continue in the securities industry following a statutory disqualification
III. Disqualifying events can include bars, injunctions suspensions and expulsions from certain activities, SROs and exchanges
IV. Once it becomes aware of a statutory disqualifying event a member is obligated to report the event to FINRA
A) I, II, III and IV
B) I and IV only
C) I and III only
D) II and III only
A) I, II, III and IV
Answer Explanation
A statutory disqualification occurs when an individual or member firm has violated securities regulations and has been barred, suspended, expelled, enjoined, fined or possibly jailed for the activity for a period of time. Whenever a member firm becomes aware of a statutory disqualification it is required to report the event to FINRA. Certain persons or firms may be allowed to continue in the securities industry following a statutory disqualification but only with written approval from FINRA and heightened supervision.
Textbook Reference
Please see textbook section 13.3.7
A representative fails to complete the Regulatory Element when required. The broker-dealer must
I. Report the representative to FINRA for possible disciplinary action
II. Restrict the representative from activities that require registration
III. Terminate the representative
IV. Discontinue payment of compensation to the representative for activities that require registration
A) II and IV
B) I and IV
C) II and III
D) I and III
A) II and IV
Answer Explanation
If a representative fails to complete Regulatory Element continuing education when required, the broker-dealer must restrict the representative from activities that require registration and discontinue payment of compensation for those activities.
Textbook Reference
Please see textbook section 13.3.8.1
All of the following could result in statutory disqualification of a registered representative EXCEPT
A) Conviction of a misdemeanor related to activities in the mortgage business 8 years ago
B) A failure to supervise violation in the past 5 years
C) Suspension from all trading activities on the Philadelphia Exchange 6 years ago
D) A felony drug charge 15 years ago
D
Answer Explanation
Statutory disqualification can result from any felony or a misdemeanor involving securities within the past ten years. Any failure to supervise violation or suspension, bar, expulsion, or injunction by an exchange, SRO, or any other regulator could result in statutory disqualification.
Textbook Reference
Please see textbook section 13.3.7
Decisions rendered in a securities industry arbitration case
A) must be approved by the FINRA Arbitration Committee.
B) may not be appealed, unless either party disagrees with the final decision.
C) may be appealed to the FINRA Arbitration Board.
D) are final and binding on all parties.
D
Answer Explanation
All decisions rendered in an arbitration case are considered final and binding on all parties. Customers must consent in writing to the use of arbitration as a means of resolving disputes.
Textbook Reference
Please see textbook section 13.3.1.1
The primary purpose of BrokerCheck is to
A) Provide background information on registered representatives and broker-dealers
B) Resolve customer disputes
C) Enable a broker-dealer to become registered with FINRA
D) Verify that a broker-dealer meets all minimum standards to conduct a securities business.
A
Answer Explanation
BrokerCheck is a public access service that provides background information on registered representatives and broker-dealers.
Textbook Reference
Please see textbook section 13.3.6
A registered representative has sold her primary residence for less than the outstanding mortgage balance owed to the lender. Consequently, the bank has accepted less than the full repayment of the mortgage. Which of the following statements is true?
A) A portion of the rep’s salary must be withheld with the funds placed in an escrow account, until the rep is able to complete the full payoff of her mortgage.
B) The rep must serve a mandatory 30 -day suspension.
C) This is an example of a short sale of a mortgage which will negatively impact the credit status of the rep and must be reported to the compliance department of the broker-dealer.
D) The rep has engaged in an illegal act and must be terminated from the firm.
C) This is an example of a short sale of a mortgage which will negatively impact the credit status of the rep and must be reported to the compliance department of the broker-dealer.
Answer Explanation
In an instance such as the short sale of a home, the rep must notify her compliance department of this negative credit event. There are no other punitive measures that must be taken. This topic is not explicitly covered in the textbook, but as long as you review this rational for this question you will be covered for exam purposes.
Textbook Reference
Please see textbook section 13.3.4
Under most circumstances a general securities firm is required to have a minimum of
A) Two principals
B) Five principals
C) One principal
D) Three principals
A
Answer Explanation
FINRA generally requires that general securities firms have a minimum of two principals. They must also have access to a Financial and Operations Principal.
Textbook Reference
Please see textbook section 13.3.3.3