4 Big FINRA Rule Changes in 2021

Slideshow November 29, 2021 at 03:20 PM Share & Print

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Robert Cook, president and CEO of the Financial Industry Regulatory Authority, said recently that the broker-dealer self-regulator is “focused on updating our rule book to reflect what we’ve learned during COVID” and is mulling an update to its complex product rules.

In 2021, the broker-dealer regulator has adopted new rules intended to crack down on risks posed by broker-dealers with a significant history of misconduct and to impose more stringent continuing education requirements.

See the gallery above for four rules adopted or changed by FINRA in 2021.

Melanie Waddell

@Think_MelanieW

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1. Continuing Education

On Nov. 17, FINRA adopted changes to its continuing education and registration rules, which include, among other measures, requiring those registered with FINRA to complete CE requirements yearly instead of every three years.

Beginning on Jan. 1, 2023, registered persons must also now complete the Regulatory Element, which focuses on regulatory requirements and industry standards, annually by Dec. 31 of each year that they are registered. The amended rules also require registered persons to complete Regulatory Element content for each representative or principal registration category that they hold.

The new CE rules also extend the annual Firm Element requirement to all registered persons, including individuals who maintain solely a permissive registration consistent with Rule 1210.02, beginning Jan. 1, 2023, and offers a new Maintaining Qualifications Program beginning on March 15, 2022.

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2. Restricted Firms

On Sept. 29, FINRA adopted new rules to crack down on risks posed by broker-dealers with a significant history of misconduct, including firms with a high concentration of individuals with a similar history.

FINRA’s plan, approved by the Securities and Exchange Commission in late July, adopts Rule 4111, Restricted Firm Obligations, which uses criteria to decide whether to designate BDs as “restricted firms.” The new rules and amendments become effective on Jan. 1, 2022.

The rule sets up a multistep, annual process through which FINRA will determine whether a member firm raises investor protection concerns substantial enough to require that it be designated (or redesignated) as a restricted firm and subject to additional obligations, including a “restricted deposit requirement,” FINRA explained.

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3. OATS Retired

Effective Sept. 1, FINRA amended its rule book to eliminate the Order Audit Trail System (OATS) rules as its members have switched to the new Consolidated Audit Trail (CAT) for trade reporting.

FINRA states in Regulatory Notice 21-21 that the accuracy and reliability of the CAT meet the standards approved by the Securities and Exchange Commission and that it has determined to retire OATS, which includes FINRA Rule 7400 Series and FINRA Rule 4554 (Alternative Trading Systems — Recording and Reporting Requirements of Order and Execution Information for NMS Stocks).

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4. Private Placements

Effective Oct. 1, FINRA’s changes to Rules 5122 (Private Placements of Securities Issued by Members) and 5123 (Private Placements of Securities) became effective.

Rule 5122 requires the broker-dealer to provide prospective investors with a private placement memorandum (PPM), term sheet, or other offering document that discloses the intended use of the offering proceeds, the offering expenses and the amount of selling compensation that will be paid to the member and its associated persons.

BDs must also file the offering document with the FINRA Corporate Financing Department at or prior to the first time it is provided to any prospective investor.

Rule 5123 requires BDs to file with FINRA any PPM, term sheet or other offering document, including any material amended versions thereof, used in connection with a private placement of securities within 15 calendar days of the date of first sale.

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