After Public Input, Proposal to Expand Testing, Continuing Education to be Filed With SEC
The Financial Industry Regulatory Authority (FINRA) today issued a Regulatory Notice soliciting comments on a rule proposal designed to enhance oversight of broker-dealers’ “back-office” operations by expanding registration requirements to individuals engaging in, or supervising, activities related to sales and trading support, and handling of customer assets.
Traditionally, FINRA’s long-standing registration requirements have applied to individuals who provide advice to customers and effect securities transactions, such as brokers, investment bankers and traders. The new proposal would extend registration, testing and continuing education beyond the frontline sales force to certain operations staff who support broker-dealers’ businesses. These employees perform an integral role inside the firms, and their actions can have meaningful connections to the safety of customer funds, accounts and transactions, and the overall integrity of firm books and records.
Firm employees who may be required to register under the new proposal include individuals responsible for the development and approval of valuation models; employees who manage trade confirmations, account statements, trade settlement and margin; or employees who oversee stock loan/securities lending, prime brokerage, receipt and delivery of securities, and/or financial regulatory reporting.
The proposal would provide reasonable assurance that these individuals understand their professional responsibilities, including key regulatory and control themes, as well as the importance of identifying and escalating red flags that may harm a firm, its customers, or the integrity of the marketplace or the public. The Securities and Exchange Commission (SEC) has previously indicated its support for the establishment of a qualification examination for back-office staff to heighten awareness of operating in a regulated environment and to demonstrate a basic understanding of the securities industry.
Testing for the new registration category would be composed of three segments: professional conduct and ethics, essential product and market knowledge, and knowledge associated with operational activities. The examination would test for general securities industry knowledge and awareness of the fact that the securities industry is heavily regulated. The continuing education components associated with the new registration category would provide competency training specific to the work performed by operations staff that support broker-dealer’s business.
The proposal includes an exception for back-office employees who currently maintain certain other FINRA registrations or have maintained one during the two years immediately prior to registering as an operations professional.
Before becoming effective, a proposed rule change must be approved by the SEC.
For additional information on other FINRA registrations, see: www.finra.org/brokerqualifications/examrequirements.
FINRA is the largest non-governmental regulator for all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services.
FINRA touches virtually every aspect of the securities business – from registering and educating all industry participants to examining securities firms, writing and enforcing rules and the federal securities laws, informing and educating the investing public, providing trade reporting and other industry utilities, and administering the largest dispute resolution forum for investors and registered firms. For more information, please visit www.finra.org.