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FINRA's New Competency Exams a 'Significant' Event for Some BDs

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Broker-dealers have been flooding the Financial Industry Regulatory Authority with questions about the restructuring of the self-regulator’s competency exam program, which takes effect Oct. 1.

FINRA released in mid-September FAQ guidance on its qualification and registration requirements as set forth in Rules 1210 through 1240.

The broker-dealer regulator is creating a Securities Industry Essentials (SIE or Essentials) exam and revising the rep-level exams.

FINRA announced last July that the Securities and Exchange Commission approved the rule change, intended to streamline competency exams to, in part, facilitate opportunities for professionals seeking to enter or re-enter the securities industry.

Robert Cook, FINRA’s president and CEO, said last year that the new exam approach “would give individuals seeking to enter the securities industry the opportunity to demonstrate a fundamental knowledge of regulatory requirements prior to joining a firm, potentially providing firms a larger pool of qualified candidates.”

He added that the new structure “would also provide enhanced flexibility and efficiency in our qualifications programs, while maintaining important standards and investor protections.”

Jon Henschen of the broker-dealer recruiting firm Henschen & Associates, told IA at press-time in mid-September that the new exam regime “will be a significant event for those broker-dealers that are training grounds for new advisors such as wirehouses, captive insurance broker-dealers, Edward Jones and Ameriprise.”

The new exams will be “less of an issue” for independent broker-dealers, Henschen continued, “due to their not being much of a training ground but rather an environment for advisors with an already established book of business.”

New advisors coming into the business, he added, “would be children entering the business as part of the advisors succession plan or assistants getting licensed — later becoming producers.”

What’s Required As FINRA explains, during the transition period, those applying for registration as a rep prior to Sept. 30 will be required to pass the current rep-level exam “appropriate to that registration category, not the revised version.”

Further, those individuals will not be required to pass the SIE in order to register.

However, if such individuals fail to pass the current rep-level exam and the next eligibility date for retaking the exam is on or after Oct. 1, they will be required to pass the SIE and the revised rep-level qualification exam in order to register.

FINRA’s FAQ is broken into five sections: Former, Current and Future Registrants; Permissive Registrations; Financial Services Affiliate Waiver Program; Principal Financial Officer and Principal Operations Officer; and Registered Persons Functioning as Principals for a Limited Period.

Clarifying New Principal Designations Jon Hurd, CEO of Asgard Regulatory Compliance Services in Bohemia, New York, told IA that his firm has had several conversations with FINRA’s general counsel, and has written two regulatory briefs for clients, regarding the new Principal Financial Officer and Principal Operations Officer designations.

The conversations with FINRA’s general counsel have been to “ensure that those small [FINRA] members that are exempt from having to employ or register a Financial and Operational Principal (FINOP) continue to be afforded that benefit” under the new designations, Hurd said.

A FINOP is responsible for the maintenance of the broker-dealer’s books and records and accuracy of the financial statements, compliance with the SEC’s net capital rules as well as timely submission of all financial regulatory reports, Hurd explained.

“Most [broker-dealer] firms we spoke with intended to have either the chief executive officer/president fill these roles. However, they mistakenly thought they only needed the Series 99,” Hurd continued.

“Many firms do not realize that the PFO and POO MUST be registered with a Series 27/28 and a Series 99.”

FINOPs, he said, “need to be mindful of the added responsibilities of these roles and should evaluate the impact to their respective firms with their chief compliance officers.”

Hurd said that he believes “these added responsibilities will materially impact outsourced FINOPs and the small broker-dealers they service. Outsourced FINOPs provide valuable cost effective accounting and finance support services at a reasonable cost to small member firms. In my view, it is logical for an outsourced FINOP to act in the PFO role. However, since they most often times conduct their roles from a remote location, it would be challenging to take on the Principal Operations Officer role.”

Washington Bureau Chief Melanie Waddell can be reached at [email protected].


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