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March 06, 2019 at 04:11 PM
The Financial Industry Regulatory Authority released Wednesday a FAQ on its 529 Plan Share Class Initiative and has extended the compliance dates associated with the initiative.
As noted by Susan Shroeder, FINRA’s enforcement chief, in a recent video message to firms, the broker-dealer self-regulator was contemplating whether or not it needed “to push the dates out because people have had a lot of questions about how to engage in the initiative.”
FINRA states in the 18-question FAQ that in order to allow firms sufficient time to consider the additional information provided in the FAQ and to provide firms more time to review their supervisory systems and procedures with respect to 529 plan sales, FINRA is extending the due dates set forth in Regulatory Notice 19-04.
Participating firms must provide FINRA Enforcement notice of their self-report by April 30, 2019, and then must confirm their eligibility by submitting the additional information specified in Regulatory Notice 19-04 by May 31, 2019.
The previous deadline required broker-dealers to self-report 529 plan share class violations by April 1, with May 3 being the deadline for a firm to submit requested information covering the disclosure period, January 2013 through June 2018.
FINRA launched the program on Jan. 28, explaining in Regulatory Notice 19-04 that over the past several years, some firms have failed to reasonably supervise brokers’ recommendations of multi-share class products.
One question asks whether FINRA is asking firms to review all of their 529 plan sales and to identify unsuitable transactions.
FINRA’s response: No. Firms that choose to participate in the initiative should review how they have supervised sales of 529 plan shares since January 2013. Firms should assess for such matters as: whether their procedures require that appropriate supervisory personnel review share class suitability and obtain the information necessary to do so; whether they actually conducted reviews for share class suitability; and whether the firm provided training to its registered representatives so that they could make suitable recommendations.
FINRA has observed firms that: were unable to review 529 plan transactions for suitability because they failed to keep records of those transactions or failed to capture information relevant to the suitability determination, such as the age of the beneficiary and the number of years until the funds are needed for the beneficiary’s qualified education expenses.
Another question asks: If a firm identifies a potential issue in its supervision but has not concluded that its overall supervision was unreasonable, can it participate in the initiative?
FINRA’s response: Yes. FINRA encourages firms to self-report potential supervisory issues, so that FINRA staff and the firm can discuss the potential issue and whether it requires remediation. If it does require remediation, the firm will be eligible for a fine waiver if applicable. If it does not, no additional steps will be necessary.
— Check out FINRA’s Top Fine Categories in 2018 on ThinkAdvisor.
