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Confusion About New FINRA Rule Requiring Back-Office Staff Exams—Compliance Watch

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Broker-dealers and their advisors are trying to get up to speed with the Financial Industry Regulatory Authority’s (FINRA) new rule 1230(b)(6) requiring operations personnel at their firm to register with FINRA and pass a qualifications exam. Two areas that are creating confusion are exactly which personnel must take the exam and which exam they will take.

Richard Ketchum, CEO of FINRA, said in a recent speech that the Securities and Exchange Commission (SEC) recently approved the rule and that FINRA would be issuing a regulatory notice “shortly” announcing the rule’s effective date.

richard ketchumKetchum (left) said that FINRA had recently clarified that “covered persons” under the rule “do not necessarily need to be the most senior managers at the firm.” Instead, he said, “the rule dictates that those who must register are the most senior managers with delegated direct responsibility for the covered functions in the rule.” FINRA has also clarified the level of managers below senior management who would be covered, he explained. “Our filing indicates that those individuals designated as a supervisor or manager for the covered functions would be covered.”

Nancy Lininger, a compliance consultant and founder of The Consortium, says that the rule basically applies to back-office personnel. While “sales people have always taken exams, now operations people have to take exams because they are handling money,” she says.

Holly Smith, a partner at the law firm Sutherland in Washington, says the new exam requirement under Rule 1230(b)(6) “will be harder for some firms to implement than others.” She says it will “particularly impact broker-dealers that are part of large financial services firms where individuals wear multiple hats for different business lines.” Firms, she continues, “are going to need to do a lot of prep work to determine who needs to take the new exam.”

But which exam must be taken? A FINRA spokersperson says that “all the possible exam alternatives (and there are many)” are covered in the rule.

With respect to introducing firms, Ketchum went on to explain that FINRA’s expectation is that “the scope of covered persons would be limited, given that the clearing firm would often be responsible for most if not all of the covered functions for the introducing firm.” Therefore, he said, “the introducing firms might register a limited number of persons overseeing the relationship with the clearing firm, perhaps solely” the financial operations, or FinOp.

Ketchum also said that the rule, as proposed, allows a 120-day grace period to pass a qualifying exam for clearing and non-clearing firms that hired covered persons after the effective date of the rule.


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