Quest Compliance Education Solutions

Over the coming year as the former NYSE & NASD rules are consolidated, the Qualifications Department of FINRA will update the Securities examinations outlines to reflect this rule consolidation and any changes to current regulations.  This will be done in several phases, the first of which had an effective date of December 15, 2008.

In accordance with this change, FINRA has published new study outlines that reflect the first phase of this implementation with regards to the qualification exams.  In this phase, only new rule number citations have been changed in the study outlines and the question banks will not be significantly changed.  Students should not expect any significant changes in qualification exams based on these new outlines.  Although a rule number may be cited in a FINRA qualification exam it is unnecessary to know the rule number to correctly answer a question.  SEC rules are independent of FINRA rules and will not be changing because of this consolidation.

Throughout the next 12 months the SEC will approve numerous new regulations related to the consolidation of the former NYSE/NASD rules.  During this process, the Qualifications Department of FINRA will update the outlines and phase in new questions in a non-disruptive fashion.

The Federal Trade Commission (FTC) has enacted rules called the “Red Flag Rules,” that are aimed at reducing identity theft. The FTC delayed enforcement of the rules until May 1, 2009, due to confusion over their scope and applicability. This new compliance deadline is fast approaching. Financial institutions and businesses that extend or arrange for consumer credit that are subject to the rules should, if they are not currently in compliance with the Red Flag requirements, promptly develop and implement a comprehensive, written identity theft prevention program in order to avoid the penalties for noncompliance.

The Red Flag Rules apply to “financial institutions” and “creditors” that offer or maintain “covered accounts.” Under the rules, these terms are very broadly defined and include entities that in the past have not been required to comply with similar FTC rules in other contexts. Consequently, even enterprises that have not previously been under the mandates of the FTC’s data security rules should immediately evaluate whether Red Flag compliance is required and respond accordingly. If covered, each financial institution and creditor must develop a written identity theft prevention program that identifies and detects the relevant warning signs or “red flags” of identity theft. The program must be in effect on or before the May 1, 2009 deadline.

For more information or to demo Quest’s new Anti-Money Laundering Red Flag Rules online course, contact Marcy Kalat at mkalat@questce.com or call 1-877-593-3366.

Overview

On February 27, 2009, the Financial Industry Regulatory Authority (FINRA) filed a proposed rule change with the Securities and Exchange Commission (SEC) to create a new category under NASD Rule 1032 for representatives of member firms whose activities are limited to investment banking. The new category will ultimately enable professionals whose work is limited to certain investment banking activities to register as limited representatives by passing a more focused and relevant investment banking examination, rather than the more comprehensive Series 7 exam.

Limited Representative-Investment Banking

NASD Rule 1031 requires that each person who functions as a representative of a member firm must be registered in a category appropriate to the function they perform. The rule defines the term “representative” to mean a person associated with a member firm who is “engaged in the investment banking or securities business for the member including the functions of supervision, solicitation or conduct of business in securities or [related training].” NASD Rule 1032 requires that a person who functions as a registered representative pass the General Securities Representative (Series 7) examination or certain equivalent examinations. However, if the representative’s activities are sufficiently limited in scope such that the person qualifies to register for a certain “limited representative” category, then they may be able to satisfy the examination criteria by passing a more focused test.

For more information on FINRA Securities License Exam Preparation courses for prospective agents and representatives, contact Marcy Kalat at mkalat@questce.com or call 1-877-593-3366.

FINRA’s proposed Rule 1032(i) would establish a new limited representative category for persons, whose activities are limited to investment banking, including those who work on the equity and debt markets and syndicate desks. Thus, the proposed registration category will cover those associated persons whose activities primarily involve:

•    Advising on or facilitating debt or equity securities offerings through a private placement or a public offering, including, but not limited to, origination, underwriting, marketing, structuring, syndication and pricing of such securities and managing the allocation and stabilization activities of such offerings; or

•    Advising on or facilitating mergers and acquisitions, tender offers, financial restructurings, asset sales, divestitures or other corporate reorganizations or business combination transactions, including, but not limited to, rendering a fairness, solvency or similar opinion.

Persons whose investment banking work is limited to public (municipal) finance offerings would not be covered by the new category. Additionally, persons whose investment banking work is limited to direct participation program offerings or private securities offerings also would not be covered.

Examination Requirements

Representatives qualifying for the new Limited Representative - Investment Banking category will be required to take a new qualification examination in lieu of the Series 7 exam. However, any person whose activities extend beyond those proposed for the Limited Representative - Investment Banking registration category will be required to separately qualify and register in the category or categories covering those additional activities.
Certain persons would be grandfathered and not required to take the new qualification exam, including representatives:

•    Who hold a Series 7 registration;

•    Who have passed a comparable United Kingdom (Series 17) or Canadian (Series 37/38) Module of the Series 7 exam; or

•    Who hold a Limited Representative - Corporate Securities (Series 62) registration.

If these representatives are engaged in investment banking activities when proposed Rule 1032(i) is implemented, they will have six months to opt in to the new Limited Representative - Investment Banking registration while still retaining their Series 7 status. After the initial six-month period, any individual holding a Series 7 registration who wishes to engage in investment banking activities will be required to pass the Limited Representative - Investment Banking exam.

Transition Period

For six months after the rule’s implementation, persons in the process of qualifying for the new registration category when the rule becomes effective will have the option of taking either the Series 7 exam or the new exam. The proposed rule also provides a two-year exemption for employees in firm training programs where their activities may fall within the proposed definition of a Limited Representative - Investment Banking.

On March 9, the Financial Industry Regulatory Authority (FINRA) issued its annual communication to member firms outlining its 2009 Examination Priorities. FINRA’s 2009 letter highlights a number of issues that have gained significance in the current market environment. This year’s letter addresses almost twice as many topics as did last year’s letter. Although some topics appear every year such as supervision and seniors, others make their debut or are substantially expanded upon including, alternative investments, cash alternatives, protection of customer information, Exchange Act Rule 15c3-3 (the customer protection rule), the key theme is that member firms should get back to basics: know your business, know your products, know your customers, and create supervisory systems and controls tailored to your firm’s business mix and the current market environment.

For more information or to demo Quest’s new SEC Customer Protection Rule 15c3-3 and Federal Reserve Board Regulation T online course, contact Marcy Kalat at mkalat@questce.com or call 1-877-593-3366.

FINRA’s letter stresses the importance of strong compliance, supervision, and risk management, and advises member firms to carefully consider the impact of headcount reductions in non-income-producing areas such as compliance, finance, operations, and other control functions to determine whether they are proportionate to reductions in the relevant business areas. Also, as member firms look for new income streams, the letter reminds them to review new products and business activities in terms of both supervisory procedures and communications made to customers.

Additionally, FINRA describes its expectations for member firms with respect to updating written supervisory procedures to reflect the consolidated FINRA rulebook resulting from the consolidation of the NASD and NYSE member regulatory functions. The letter states that as a priority, member firms should keep abreast of consolidated rules and periodically review and update their WSPs to reflect the new rule requirements. Changes to rule citations in WSPs may wait until the member firm’s next scheduled update.

The topics addressed in FINRA’s 2009 letter can be classified into three broad categories: sales practice issues, enterprise control functions, and financial and operational controls. Below are several of the most significant issues in each category.

Sales Practice Issues

•    Cash Alternatives - The 2009 letter expands on a key issue raised by both the SEC and FINRA in the wake of the failure of the auction rate securities market: the representation of such securities as cash alternatives or equivalents. Thus, FINRA advises member firms that they should have a reasonable basis for characterizing an investment as a cash alternative as inappropriate representations may implicate FINRA’s advertising rules. FINRA also advises firms to have procedures in place to continually monitor developments to ensure that the investment retains its characterization as a cash alternative. FINRA also reminds firms to perform a suitability analysis before recommending cash alternatives to particular customers.

•    Bank Sweeps - FINRA observed that in 2008 it saw member firms increase use of bank deposit programs as sweep vehicles for free credit balances. This increase has caused FINRA to continue to focus on sales practice issues associated with sweep vehicles, including disclosures made to customers of the terms and conditions of bank sweep programs, the differences between SIPC protection and FDIC insurance, and the methodology for calculating interest rates on swept balances. FINRA also indicates that it will review disclosure of compensation earned by broker-dealers and banks operating the sweep programs, as well as the registered representatives who may offer these programs to customers. FINRA also notes that its examiners will focus on documentation and reconciliation issues relating to the bank where the account is held and any intermediary banks involved in the bank sweep arrangement.

Enterprise Control Functions

•    Anti-Money Laundering (AML) - FINRA’s approach in the letter mirrors allegations in a recent enforcement action against a member firm in that it cautions firms to focus broadly on suspicious activities related to securities transactions rather than solely on money movements. One size does not fit all as far as AML compliance programs are concerned; instead, each firm should tailor these programs to its own business model, risk profile, and volume of transactions, as well as the allocation of AML responsibilities between introducing and clearing firms.

For more information or to demo Quest’s new Anti-Money Laundering Red Flag Rules online course, contact Marcy Kalat at mkalat@questce.com or call 1-877-593-3366.

•    Foreign Corrupt Practices Act (FCPA) - FCPA has been a significant area of SEC enforcement, with recent announcements of settlements in the hundreds of millions of dollars. Additionally, the New York State Banking Department has indicated that it may make FCPA a new area of compliance focus. FINRA reminds members of their obligation to comply with the FCPA, to maintain accurate books and records, and to implement internal controls to properly record transactions that may implicate FCPA.

•    Protection of Customer Information and IT Security - Following in the wake of several SEC enforcement actions arising from online account intrusions, including one action against a firm for allegedly failing to implement safeguards despite its awareness that it had insufficient controls to protect customer information, FINRA advises members offering online customer access to assess their internal surveillance and institute methods for dealing with account intrusions. Firms should also review account activity to monitor for any indications of suspicious activity. On a related topic, FINRA reminds firms to develop and implement a written identity theft program pursuant to the FTC’s Red Flags Rule, which the FTC will begin to enforce on May 1, 2009. (See Regulatory Notice 08-69 (www.finra.org/notices/08-69)).

•    Outsourcing - FINRA previously stated in Notice to Members 05-48 (www.finra.org/ntm/05-48) that while broker-dealers may outsource certain functions, they may not outsource supervision and oversight. In the 2009 letter, FINRA provides illustrations of how member firms may satisfy their supervision and due diligence obligations for outsourcing arrangements by (1) requiring vendors to meet measurable performance standards, (2) meeting frequently with vendor personnel, and (3) assigning qualified personnel to monitor, review, and supervise the service provider’s activities. Additionally, FINRA reminds members to consider the risks of activities outsourced to vendors that operate in foreign jurisdictions to determine the impact that outsourcing arrangements may have on business continuity plans. Member firms should expect FINRA examiners to look for written procedures addressing these issues.

•    Information Barriers - FINRA has been conducting an ongoing enforcement sweep with respect to the control of the flow of nonpublic material information within member firms. In the 2009 letter, FINRA reminds members that they must have information barrier procedures that are tailored to their business activities and organizational structures, as well as procedures addressing the use of restricted and watch lists, monitoring systems, supervision, review of proprietary and employee trading, review of questionable activities, and recordkeeping requirements.

•    Rumors - Both the SEC and FINRA have undertaken enforcement sweeps relating to the circulation of rumors, and the SEC has recently sent out a sweep letter to broker-dealers that asks about controls relating the prevention of rumors, including monitoring electronic communications such as employees’ Internet access, including access to chat rooms and other websites. In the 2009 letter, FINRA again reminds member firms to review their internal controls, procedures, and surveillance practices with respect to rumors in order to promptly discover and review any misconduct. Although FINRA has warned about spreading false rumors through public statements, its proposed a new rule on the topic (see Regulatory Notice 08-68 (www.finra.org/notices/08-68)) raised many questions, including how to distinguish “rumors” from market commentary.

For more information or to demo Quest’s new Spreading of False Rumors and Market Manipulation online course, contact Marcy Kalat at mkalat@questce.com or call 1-877-593-3366.

Financial and Operational Controls

Noting that the “failure and /or merger of several large firms in 2008 reinforces the significance of the customer protection rules,” member firms can expect FINRA to take a deeper dive in the Financial and Operations Principal (FINOP) exams. In general, when firms are reviewing compliance and supervisory structures, they should focus on areas where they have noted material weaknesses or where they have had past compliance issues. The requirements that FINRA mentions in the letter include the following:

•    Customer Protection Rule - FINRA reminds members of multiple factors to consider when computing their reserve formula under Exchange Act Rule 15c3-3. FINRA also reiterates several steps that clearing firms should take to maintain possession and control of customer funds and securities and that introducing firms should review procedures to ensure that they generally are not receiving customer funds and securities.

•    Excess SIPC Protection - FINRA states that it will review firms’ disclosures to customers with respect to excess SIPC insurance. Firms should make sure that they accurately describe to customers how any excess SIPC protection functions.

•    Inventory and Collateral Valuations - Concern about valuations has been an area of high importance for FINRA for the past year. According to FINRA, firms should have adequate controls to independently value inventory and collateral positions, especially with respect to complex and less liquid positions. Specifically, FINRA expresses concern about relying on traders’ valuation and the valuation of collateral for reverse repo and securities borrowed transactions and cautions firms and senior management to maintain resources and support for product controllers and other independent valuation groups.

•    Funding and Liquidity - FINRA reminds firms to evaluate the quality and reliability of funding sources, liquidity stress tests, and contingency funding plans, in order to address lessons learned from recent market events.

•    Counterparty Credit Risk - According to FINRA, firms are expected to evaluate and manage counterparty credit risk emanating from their trading activities, including with respect to derivative transactions, especially factoring in stressed market conditions.

For insurance license holders in the state of North Dakota this is a reminder that April 30, 2009, is the renewal deadline. According to North Dakota there is no grace period or late renewal. The state has also said that if the licenses and appointments are not renewed on time, they will be cancelled on May 1, 2009.

Public Act 574 of 2008, which became law on January 15, 2009, provides for a change in all Continuing Education (CE) Review Dates.  This change will take effect on January 1, 2010.  The new review date is based on producer’s month of birth.  Odd year dates of birth (DOBs) will have CE due every two years in all odd years and even year DOBs will have CE due every two years in all even years.

Examples:

• DOB   June 6, 1973      New CE review date is first day of June of each odd year
• DOB   June 6, 1974      New CE review date is first day of June of each even year

Early compliance of CE prior to December 31, 2009 MAY exempt producers from the first round of compliance under the new DOB review date.

Quest CE has been advised by several states of an increase in auditors assigned to audit instructor-led ce sessions.  The states want to ensure their regulations and requirements are being followed by all instructors and make certain their licensed agents are receiving quality continuing educational programs from the instructor.

To make sure you survive an audit, we want to remind you of a few basic rules to follow:

1.    Start your session on time.  The states are notified of your starting time and schedule their auditors accordingly.  If you are not presenting as scheduled, there could be issues.

2.    Keep control of your audience.  The states expect all attendees to give you their full attention during your ce presentation.  This means, no newspapers, no cell phones, no computers, etc.  For a person to receive credit for attending your course, they must attend the full session and be attentive.

3.    CE is to be educational – not entertainment.  Many states frown on the idea of a free lunch.  If you are serving a lunch as part of your meeting, try to serve it before or after your presentation.  A distraction caused by food could result in credit being denied for the course.

4.    Follow the course outline.  The course you are presenting was filed and approved by the state.  Part of the filing was a course outline.  When an auditor shows up, they will have a copy of the outline as approved by the state.  This is their point of reference and must be followed by you.  If you are unsure if you have the correct course outline, please contact Quest CE or your Program Administrator.

5.    State Auditors are required to announce themselves prior to you starting your course.  Don’t panic – you have received the required material for your offering from Quest – you know the material – your audience views you as the expert.  Proceed with your presentation.  Most auditors will discuss any issues with you prior to departing.

6.    Lastly - If you are ever audited, we are requesting you advise Quest CE or your Program Administrator immediately after the seminar.  The sooner we know of an audit, the better prepared we can be for our required response.

If you have questions or need additional information on this topic, please contact Quest CE and ask to speak with Mike Kufahl, Vice President of Client Relationship Management.

Allow our professional course writers to create your courses for you. As experts in the financial services industry, we will ensure that all of your training and business objectives are met.

The Most Experienced Team You’ll Find - Outsourcing your custom course development needs to Quest CE brings you services from a veteran team of writers.  With over 20 years of industry experience, we understand the financial markets and the ever-changing array of products and services offered today.

We Understand Your Needs - Sometimes you want a high-production-value course; other times you need your content delivered quickly and on a tight budget. Sometimes your source material is organized as existing course content that’s been delivered in traditional, instructor-led classes, on videotape or as paper-based training.  Sometimes you only have an idea.  That’s what “custom course development” is all about…listening to your needs, and ensuring your learners and your organization gain the benefits of delivering your courses.

Our goal is the same as yours: a successful Learning solution.  We consistently achieve your goals by following a planning and development process that was forged from our experience and provides the direction and visibility needed for every step of the process.

Quest CE is your partner for success. We deliver custom courses that:

•    Meet Your Objectives
•    Are Instructionally Sound
•    Are Creative and Engaging
•    Are On Time and On Budget!!!

To find out more about Quest’s Solution, email us at sales@questce.com or call one of our Sales Associates at 877-593-3366.

Quest CE is pleased to announce a strategic partnership with Sales Pro Insider, Inc. “We’re always looking for new avenues through which we can provide value-added services for our clients,” says Alan Krenke, President and CEO of Quest. “The partnership with Sales Pro Insider gives us the opportunity to provide a  new line of products and services geared to help our customers by offering training in the following areas:

• Consultative and Relationship Selling Skills
• Sales Coaching
• Targeted Interview and Selection of Successful Sellers
• Goal Setting to Build Confidence and Consistency of Sales Results”

“We are pleased to be partnering with Nancy Bleeke, sales expert and founder of Sales Pro Insider, Inc.”  Nancy will share timely and relevant information on sales through articles and tips in our Quest CE newsletter. For more information on Nancy and her company, read below.

About Sales Pro Insider

Sales Pro Insider, Inc. (SPI) is a training and consulting firm committed to helping you “Build your performance, profits and people in sales, service and leadership.”  President Nancy Bleeke says, “Our goal is to help you maximize your human capital!”

“Since 1998 we have worked alongside clients such as RW Baird, MassMutual, and BC Ziegler with solutions for Training, Assessments, and HR Consulting.

Our clients benefit from having access to our proven methodologies and tools that:

• Increase sales 5-25% in six weeks or less
• Increase customer loyalty which increases profitability and market share
• Strengthen employee retention and productivity
• Develop teamwork to develop superior sales and service results

Nancy is a featured author of sales articles on sales expert websites such as Salesopedia and Sales Gravy as well as a member of Top Sales Experts – an international group of sales gurus offering sales advice and tools.  Her Recession Proof Your Sales article was selected as a Top 10 Sales Article earlier this year.

SPI offers relevant information through free resources for sales managers and sales professionals:

• Timely Tips ezine – Useful business and management ideas and tips sent to your Inbox!   Sign up at www.salesproinsider.com and receive our EBook, 10 Timely tips to Recession Proof Your Sales when you register.
• Timely Tips for Sales Managers – Our EBook bursting with results-producing ideas!  Download your copy at www.salesproinsider.com.
• The SalesProInsider Sales Blog - Explore “What’s in it for THEM” with this community resource full of encouraging and practical ideas for professionals who understand the more we give, the more we get.  Join the discussion at www.salesproductivityinsider.com.

We look forward to a long and productive partnership with Quest CE and encourage you to utilize the resources and experience we offer.

Want to contact Nancy directly?  You can reach her at 414.235.3064 or email Nancy@salesproinsider.com.

Industry Leading Seminar Program Administration Tool

Quest CE’s questtrak application is used by insurance and mutual fund wholesalers and sales support professionals who host continuing education events for financial advisors. questtrak offers an array of scheduling, tracking, and reporting capabilities allowing firms to more effectively manage their value-added insurance and designation CE programs.

questtrak version 3.0 includes an improved calendaring system allowing CE instructors and administrators to schedule, view, edit, and cancel events on a month-by-month basis.  It offers increased intelligence in preventing an invalid course offering from being set-up and a series of reports that can be uploaded directly to a firm’s CRM system for follow-up by an internal sales desk. Information that can be reported on includes:

•    Attendee Name
•    Company
•    Address
•    Email Address
•    Phone Number
•    Seminar Attended (date/location)

All of Quest CE’s clients receive access to questtrak as an included feature of the Quest program.  questtrak can also be licensed on a stand-alone basis by company’s who administer their programs internally. If you are handling the administration of your company’s continuing education program in-house, questtrak will help you streamline the process and take your program to the next level.

A few of the questtrak Functional Enhancements include:

•    Certificates Available Online for Students - MyQuest
•    Class Materials Email notice to Instructors and/or Program Administrators
•    New Seminar Status Messages sent to Instructors and/or Program Administrators
o    Materials Sent | Change Requested | Completed
•    Reason for Changes and Cancellation Requests Reports for Program Administrators
•    Date Range Search of Seminars Presented
•    All Attendees Report – ability to run activity reports for your instructors
•    Instructor / Seminar Attendance Report - great tool for marketing follow-up
•    FedEx QT Update for shipment tracking

To find out more about questtrak, click here or call 877-593-3366 and ask to speak with one of our Sales Associates.