Chapter 9 SRO Regulatory Requirements Flashcards
What are the Membership Qualifications for SROs?
-Abide by FINRA rules
- Abide by Federal & State laws
- Current updates within 30 days
- Pay dues
What does a principal do?
Person involved in the management of the firms business activities and must carry out written supervisory procedures (WSP)
When does a WSP be reviewed?
Annually
What are some potential red flags for an RR?
- Churning
- Blanket recommendations
- Similar customer complaints
- Improper suitability
What is the FINRA requirement for an RR to open an account at another firm?
All associated persons receive written consent from their broker dealer before opening an account
- Must get prior written consent if there is any beneficial interest
- Must notify the carrying firm once opened & send duplicate account opening statements
What security transactions are exempt from the account opening requirements?
- UIT
- Mutual Funds
- Section 529 plans
What must a principal do when reviewing a U4?
Investigate good character
Reputation
experience verify prior 3 years
Then they must review, sign, and date
What is a U5 form for?
Form to terminate a registered representative, voluntarily or involuntarily and discloses the reason
- Provide a copy to the employee within 30 days
What causes a disciplinary action?
Causes can be if any member includes incomplete, inaccurate, or misleading information
- Failure to disclose any information in a timely manner
What are some causes of Statutory Disqualification?
Theft related to securities
Misdemeanor convictions
Felony convictions from the last 10 years
Injunctions
Expulsions
How long does a member stay subjected to regulation after resignation?
Subject to regulation following the filing of a complaint within 2 years after the effective date of resignation
What are the minimum qualification requirements for registration with FINRA?
- Firm must register their representatives
- Registration must be appropriate to roles
- Must pass exams
What’s the waiting period if you fail a FINRA exam?
30 days 1st & 2nd attempt
180 days after 3rd attempt
What is the regulatory element?
Is a computer based training session administered by FINRA
When are RR supposed to complete their regulatory training?
2nd anniversary of their initial securities registration
Every 3 years after
120 day grace period; if not completed by then they will receive an inactive status
What is the purpose of the annual compliance meetings?
To address compliance issues that directly impact registered personnel. Must keep a record of attendee name
What is Form U4 for?
Application used to register an associated person
What is Maintaining Qualification Program (MQP)?
Allows individuals up to 5 years to re-register with a firm without having to retake associated qualification exams
- Must enroll in MQP within 2 years of termination or resignation
What is FINRA BrokerCheck for?
For anyone who wants to look into FINRA member within the past 10 years
What is not included in FINRA Brokercheck?
Any personal information
- Residence
- Social
-
How long can FINRA retain jurisdiction over one of its members or registered associated persons after they are no longer in the industry?
2 Years
Why does FINRA prohibit outside activity?
Its necessary to prevent misconduct or conflicts of interest that could harm the firm or their customers
If there is any outside activity what must an RR do?
The RR must get written approval from the firm. It is up to the firm to decided if there’s any conflicts of interests
What is the purpose for FINRA Rule 3241?
The rule is stop RR from being a beneficiary or hold a trust position
How can an RR be a beneficiary for one of their customers?
- The customer has to be an immediate family member
- Written permission from the firm
When do you have to notify your supervisor?
Anything that is outside the normal scope of an RR duties
What must happen if an RR gets compensation from a Private securities transaction?
They must record it to the firms books and the member firm is responsible for supervising the RRs participation
Is it okay for a Broker Dealer to sell a security they have control over?
Its only okay if the customer has received proper disclosures and must have written disclosure
What is selling away?
Selling away is when an RR sells investment that a broker dealer does not offer
What is Rule G-37?
it stops Broker dealers from engaging in any municipal securities business with an issuer within 2 years of any contribution
What should an RR do if they receive a customer complaint?
They must give it to their manager immediately and then its up to the manager to resolve the issue
- Sent to FINRA within 30 days
How long is a customer complaint retained for?
4 years
What must an RR do if they care to engage in any for compensation outside business activity?
Provide Prior written notification to their BD
When can an RR share commissions or referrals?
Only if they share the same Broker Dealer
When can an RR receive continuing commissions?
They can only continue to receive commissions if the transaction was conducted during employment and in a written contract between rep and broker dealer
Are you allowed to take additional compensation outside the prospectus?
No
What is the general rule for Sales Contest ?
It is okay as long it doesn’t steer the business towards one product
What is a restricted person?
Basically just someone who you cannot sell shares to
What is the purpose of creating Regulation Best Interest & Customer Relationship Summary Form ?
To provide transparency for retail customers.
What are the 4 Components to Regulation BI?
Disclosure Obligation
Care Obligation
Conflict of Interest
Compliance Obligation
What is the CRS form for?
It describes the relationship between firm and client
