Quest CE

Effective, March 25, 2010

Rule 9550 Series provides a procedural mechanism for FINRA to address certain types of misconduct in an accelerated timeframe. The rule series allows firms and associated persons to request a hearing that often results in a stay of the action.

The amendments shorten the time within which a hearing must be held from 60 days after a hearing request to 30 days after the request in relation to the following FINRA rules:

•    Rule 9551 (Failure to Comply with Public Communication Standards);
•    Rule 9552 (Failure to Provide Information or Keep Information Current);
•    Rule 9553 (Failure to Pay FINRA Dues, Fees and Other Charges);
•    Rule 9554 (Failure to Comply with an Arbitration Award or Related Settlement);
•    Rule 9555 (Failure to Meet the Eligibility or Qualification Standards or Prerequisites for Access to Services).

Additionally to modifying the timing of hearings, the amendments shorten the period before a suspension automatically turns into an expulsion or bar under Rule 9552.

That rule generally allows FINRA to suspend a firm or associated person for failure to provide any information requested or required to be filed pursuant to the FINRA By-Laws or rules. Under Rule 9552, FINRA may provide written notice to such firm or person specifying the nature of the failure and stating that failure to take corrective action within 21 days after service of the notice will result in suspension. The rule previously provided that a firm or person suspended under the rule who fails to request termination of the suspension within six months is automatically expelled or barred.

The recently approved amendments shorten that timeframe from six months to three months.

The amendments modify Rule 9554, which contains expedited procedures for failures to comply with FINRA arbitration awards, to also explicitly permit FINRA to take expedited action for failures to comply with FINRA orders of restitution or FINRA settlements providing for restitution. In general, restitution is a remedy used to restore victims to their position before the wrongful conduct occurred and to compensate them for unjust losses or injury suffered as the result of another’s wrongdoing.

The amendments also harmonize the remedy for an individual’s failure to comply with an arbitration award in Rule 9554 with the remedy for the same misconduct in Article VI, Section 3(b) of the FINRA By-Laws. Specifically, the amendments limit the remedy available in such actions to suspensions.

A reverse convertible is a structured product that typically consists of a high-yield, short-term note of the issuer that is linked to the performance of an unrelated reference asset, usually common stock, a basket of stocks, an index or another instrument.

Reverse convertibles are complex investments that often involve terms, features and risks that can be difficult for retail investors and registered representatives to evaluate.

Firms that sell reverse convertibles are reminded to ensure that their promotional materials or communications to the public regarding these products are fair and balanced, and do not understate the risks associated with them. Firms are also reminded to ensure that their registered representatives understand the risks, terms and costs associated with these products, and that they perform an adequate suitability analysis before recommending them to any customer.

Effective Date – February 8, 2010

FINRA Rule 4521(d) governs filing requirements for customer margin accounts and became effective on February 8, 2010. The rule, adopted as part of the new consolidated financial responsibility rules, replaces Incorporated NYSE Rules 421(2) and 421.40 and applies to all FINRA members that carry customer margin accounts.

FINRA Rule 4521(d) provides that, unless otherwise permitted by FINRA in writing, each member carrying margin accounts for customers is required to submit, on a settlement date basis, as of the last business day of the month: (A) the total of all debit balances in securities margin accounts; and (B) the total of all free credit balances in all cash accounts and all securities margin accounts.

Please note: members must submit three separate data points, as the free credit balance total for cash accounts and the free credit balance total for securities margin accounts are two separate items.

If a member has no information to submit, it should note that on the report. Reports are due as promptly as possible after the last business day of the month, but in no event later than the sixth business day of the following month. In connection with this requirement, members should note:

•    The data in the member’s report should reflect the status of all accounts on a settlement date basis, as of the last business day of each month.
•    Each member must submit a single combined report (including all domestic and foreign main offices and branches).
•    Customer balances in the account(s) of guarantors and in the related guaranteed accounts should not be combined.

Rule 4521(d) requires that a member must only include free credit balances in cash and securities margin accounts in the report. Balances in short accounts and in special memorandum accounts (see Regulation T of the Board of Governors of the Federal Reserve System) are not considered free credit balances. Members should note:

•    “Balances in short accounts” refers to balances derived from the proceeds of short sales.
•    Credit balances in cash accounts and securities margin accounts are considered free (withdrawable) when the firm has no lien or claim against them, nor has imposed any other encumbrance, irrespective of whether the same customer has offsetting debits in another account.

Lastly, Rule 4521(d) requires that reported debit or credit balance information not include the accounts of other FINRA members, or of the associated persons of the member submitting the report where such associated person’s account is excluded from the definition of “customer” pursuant to Exchange Act Rule 15c3-3.

The use of social media sites continues to grow at an increasing rate over time.  Over the past 3 years, the use of social media sites has increased by 500%.  With this new form of communication available today, it is critical to ensure that investors are protected from false and misleading claims.  Firms are responsible to appropriately supervise their employee’s participation in the use of these mediums.  It is recommended that firms focus on the following areas:

•    Recordkeeping
•    Suitability
•    Supervision
•    Third-Party Posting

The use of social media sites such as Facebook, Linkedin and Twitter has grown tremendously in recent years.  Each of these are becoming an ever-popular way of communicating.

FINRA’s rules regarding communicating with the public apply to social media sites that are sponsored by a firm or its registered representatives.  Although utilizing these various forms of communicating presents tremendous opportunities, it also presents unique challenges, especially in regard to recordkeeping and investor protection.

Recordkeeping

One of the primary concerns for using social media sites for communication is recordkeeping.  Just like all other forms of public communication, firms are required to retain records of its business related communications made through social media sites.  This requirement covers everything that is posted on these sites about a firm’s business.  This includes messages on a customer’s wall in Facebook or comments on a blog.

If a firm communicates through these sites or permits employees to use these sites for business, it must ensure that it can retain the records of those communications under all applicable FINRA and SEC rules.

Suitability

Suitability is another area that needs to be considered when using social media sites.  According to FINRA’s suitability rule, “any recommendation to buy or sell a security must be suitable for the customer”.  Firms are required to ensure that a recommendation is suitable for every investor to whom it’s made.  This needs to be kept in mind when using blogs and social networking sites because these communication tools can easily make content widely available.  Many of these sites include options to limit access to content.  Firms are however, still required to take great care to identify the entire potential audience of a communication and make sure any recommendations made through them are suitable for every single audience member.  Whether a particular communication constitutes a recommendation depends on its fact and circumstances.  To make this determination FINRA Notice to Members 01-23 describes guidance about suitability focusing on the content, context and the manner of presentation.

Supervision

Firms are also required to supervise the use of social media sites, especially when recommendations about specific investment products are being made.  These communications are required to comply with the suitability and recordkeeping rules.  They are also required to include additional disclosures like those required by the Federal Securities Laws.

Firms are responsible to adopt policies and procedures that are reasonably designed to address these communications.  Many firms prohibit representatives from using any interactive electronic communications to recommend or mention a specific investment product unless a registered principal has previously approved the content.  Firms should also maintain a database of previously approved communications that employees can use as a template.

Social networking sites can include interactive communications as well as static communications.  This may require a different kind of communication.  Unscripted communication in an interactive forum like a chat room or online seminar is considered a public appearance.

These are subject to FINRA communications rules but unscripted remarks do not require prior principal approval.  However, static posting are often times considered advertisements and do require documented prior principal approval.  This presents a challenge as each firm may be required to supervise blogs differently based upon how they are constructed and used.

If a blog is used by a firm or representative to engage in real-time interactive communications, it would be considered as an interactive communications forum that require supervision but not prior principal approval.  Static posts by a blogger are considered advertisements which require documented prior pre-approval by a registered principal.

Social networking sites like Facebook, Linkedin and Twitter also include both static and interactive content.  Static content like profile and background information must be treated as an advertisement.  However, non-static, real-time communications such as interactive Facebook comments and Twitter Tweets constitute an interactive electronic forum.  It is important to keep in mind that regardless of whether the communication is interactive or static, supervision is required to ensure that communications through social media sites do not include any misleading statements or claims and comply with FINRA’s communications rules.

Firms are allowed to use risk-based rules to determine how much review of its incoming and outgoing and internal electronic communications is necessary for the proper supervision of its business.  Risk-based-principles can take into account the firm’s business model, size, location, number and types of transactions as well as other factors.  Based upon your firms unique risk profile, you may be required to obtain principal review for some or even all interactive electronic communications prior to use.  This is true even if the type of communication does not require prior principal approval under FINRA rules.

To ensure compliance and proper supervision, your firm may place restrictions on which of its personnel are permitted to establish a social media site.  Regardless of the type of supervisory system a firm utilizes, it must also have policies and procedures in place for supervisory review of all electronic communications regarding certain areas such as customer complaints and order errors.

Firms should prohibit any unsupervised use of social media sites for any business communications and require proper training for those individuals that do engage in such communications.  Additionally, your firm may restrict or prohibit the use of social media sites by employees who have presented compliance risk historically.  If a firm discovers any problems with the way that social media sites are being used, it should make sure to take appropriate disciplinary action.

Third-Party Postings

Third-party content does not generally constitute communications with the public by a firm.    However, if a firm is involved with preparing the content of a third-party post, or explicitly or implicitly endorses or approves the content, a firm may be held responsible for the content and may be required according to FINRA rules to archive and supervise the content.  It is suggested that firms consider a disclaimer on its site that informs customers that third-party posts do not reflect the views of the firm and have not been reviewed by the firm.  This type of disclaimer is not required, however, it would be considered as a part of the facts and circumstances in a FINRA compliance analysis.  Disclaimers can be a factor based upon how prominently or consistently they are displayed.

If a firm currently utilizes, or is considering utilizing social media site, it is imperative that your policies and procedures include the necessary steps to comply with all appropriate regulatory requirements.

If you would like more information regarding this topic or training tools to ensure that you and your firm comply, contact our Sales Department at 877-593-3366 or sales@questce.com.

Simply go to our learning site, learn.questce.com and enter the promotional code “SPRING10” to take advantage of this great offer!

To demo one of our online courses for free, click HERE.

Recently, Quest hosted two training webinars discussing the opportunities and advantages of conducting professional designation continuing education seminars/training through the use of webinar technology.  To view a recording of this innovative approach for providing value-added continuing education via webinar, click HERE.

For more information on how you can set up a CE Training Program utilizing webinar technology, contact Michael Kufahl at 877-593-3366 or mkufahl@questce.com.

What is it?

Quest’s new Online Reservation/RSVP System allows insurance companies and investment management firms to send out continuing education (CE) meeting invitations to potential attendees. Attendees fill out an electronic form, they get a unique confirmation number and event instructions via an automatic email confirmation response. Responses are tabulated, providing valuable information to the meeting organizer.

Additionally, contact information is compiled in a database that can be utilized for personalized email blasts prior to the event and also allows for post-event follow-up.

What can it do for me?

•    Increase your continuing education training attendance
•    Allows you to market the training event in advance
•    Reduce the number of no-shows for training
•    Collect valuable data for future marketing
•    Automate getting data directly to your internal database system.

Quest’s Event RSVP system can also handle event registration with multiple “events”.  For example, set up your multi-day CE training seminar and configure the system to handle registration for each meeting that is taking place through one simple meeting invitation.

The RSVP System automatically sends out a reminder email to attendees reminding them of the event. You decide when it goes out and what the content is!

For more information about Quest’s new RSVP system or to schedule a demo, contact Michael Kufahl at 877-593-3366 or mkufahl@questce.com.

South Carolina law now requires producers to renew their license and pay a $25 license renewal fee every two years. The first deadline is May 1, 2010, which coincides with the deadline for compliance with the state’s insurance continuing education (CE) requirements.

All producers licensed in South Carolina as of June 2, 2009 are required to renew their producer license and pay a $25 license renewal fee by May 1, 2010. The $25 license renewal fee is payable as a part of the online producer license renewal process. Producers receiving a CE exemption are still required to renew their license and pay the $25 license renewal fee by May 1, 2010.

The Texas Department of Insurance (TDI) has adopted rules to implement legislation passed by the Texas Legislature. The legislation relates to certification and CE requirements for the sale of annuities.

Annuity Producers Initial Certification Training

All Texas resident licensees who were actively licensed before April 1, 2010, may continue offering, soliciting or selling annuities to Texas residents until the time of his or her license expiration date. Initial annuity certification training must be completed before the license expiration date in order for the agent to continue offering, soliciting or selling annuities to Texas residents.

All new Texas resident licensees who become licensed on or after April 1, 2010, must complete four hours of Department certified annuity training prior to offering, soliciting or selling an annuity to a Texas resident.

Licensees may count the hours required for the initial certification training and CE toward the completion of the continuing education requirements otherwise prescribed in the Insurance Code for the licensee.  Licensees who may qualify for the longevity exemption (20 years or more continuous licensed) are NOT exempt from the provisions of the rules to market or sell annuities.

Course Information

Quest has recently authored an online course that will comply with the new Texas Annuity Suitability Training requirements.  For more information contact our Sales Department at 877-593-3366 or sales@questce.com.

Quest’s new ACQ Platform, helps organizations streamline the way they collect feedback from registered reps. Quest’s new ACQ Platform offers:

•    Fully web-based, customizable and paperless
•    Flexible question types
•    Advanced survey logic
•    Advanced question and response workflows
•    Custom email invitations
•    View and analyze total score value or score per question
•    Cumulative, audit verifiable reporting
•    View over 50 standard reports, including response summary and cross-tabulation analysis
•    User-defined access rights allow for multiple departments within an organization to respond to different surveys
•    Dramatically reduced administrative time and cost
•    Increased compliance visibility

Quest ACQ Solution offers a web-based, electronic platform for managing the distribution, collection and analysis of your FINRA required annual compliance questionnaires. Our compliance experts work with your firm to develop custom tailored questionnaires specific to your business activities, organization structure and representative needs. Results are collected, compiled and delivered to you in the form of a cumulative report, providing a verifiable audit trail documenting representative completion and compliance actions taken regarding specific red flag notifications.

Quest emphasizes security at every level, employing the latest firewall protection, intrusion detection systems, SSL encryption and proprietary security products. By storing your data in a world-class security infrastructure, Quest’s ACQ Technology Solution meets and surpasses all information security requirements.

For more information about Quest’s ACQ Technology Solutions or any of Quest’s other Compliance Training Solutions, contact Michael Kufahl at 877-593-3366 or email mkufahl@qustce.com.

About Quest Compliance Education Solutions

Over the past 20-plus years, Quest CE has built a reputation of being the premier provider of Compliance Education to the financial services industry. Quest CE serves more than 100 leading insurance carriers, broker/dealers, banks, and other financial institutions. We are a privately held firm which allows us to quickly meet the ever-changing needs of our clients. Our commitment is to provide advanced custom solutions at cost effective rates while providing a level of service that greatly surpasses that of our competitors. Quest provides a single source solution for organizations training and compliance needs, saving you both time and money.