The Securities Industry/Regulatory Council on Continuing Education (Council) recently released its Firm Element Needs Analysis Quarterly Highlights (formerly known as Firm Element Advisory) to assist industry participants with the identification of potential topics to include in Firm Element training plans. The Council has identified the topics from a review of the industry, regulatory and self-regulatory organization (SRO) announcements, and publications of significant events.
The Council suggests that firms use the FE Training Ideas Firm Element Needs Analysis Quarterly Highlights as an aid in evaluating and prioritizing their Firm Element needs and developing written training plans. However, firms are reminded not to rely on the report as a comprehensive list of all areas they should consider. This article summarizes the Council’s complete guide and strictly focuses on the “New” material that was listed in the recent Firm Element Advisory (FEA).
Book & Records
(New) FINRA Reminds Member Firms of Net Capital, Recordkeeping and Financial Reporting Requirements in Connection with Revenue Recognition Practices
Through its examinations of member firms, FINRA has observed instances of non-compliance with SEA Rule 15c3-1, SEA Rule 17a-3 and SEA Rule 17a-5 resulting from misapplication of the Financial Accounting Standards Board’s Accounting Standard Codification 606, Revenue from Contracts with Customers (“ASC 606”). This Notice provides guidance regarding potential compliance issues with respect to these rules that may result from the misapplication of ASC 606.
FINRA Reminds Member Firms of Net Capital, Recordkeeping and Financial Reporting Requirements in Connection with Revenue Recognition Practice
Cyber Security and Technology Governance
(New) Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure
The Commission is adopting new rules to enhance and standardize disclosures regarding cybersecurity risk management, strategy, governance, and incidents by public companies that are subject to the reporting requirements of the Securities Exchange Act of 1934. Specifically, the SEC is adopting amendments to require current disclosure about material cybersecurity incidents. The SEC is also adopting rules requiring periodic disclosures about a registrant’s processes to assess, identify, and manage material cybersecurity risks, management’s role in assessing and managing material cybersecurity risks, and the board of directors’ oversight of cybersecurity risks. Lastly, the final rules require the cybersecurity disclosures to be presented in Inline extensible Business Reporting Language (“Inline XBRL”).
The amendments became effective September 5, 2023.
Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure
Reporting
(New) FINRA Adopts FINRA Rule 3110.19 (Residential Supervisory Location) and FINRA Rule 3110.18 (Remote Inspections Pilot Program), and Announces End of Temporary Relief Related to Updates of Office Information on Forms U4 and BR
FINRA is issuing this Notice to announce the effective dates of two new supplementary materials under FINRA Rule 3110 (Supervision) as follows:
- Rule 3110.19 (Residential Supervisory Location) becomes effective on June 1, 2024; and
- Rule 3110.18 (Remote Inspections Pilot Program) becomes effective on July 1, 2024.
FINRA expects to publish additional guidance outlining in greater detail operational processes for compliance with the data and information requirements of Rules 3110.18 and 3110.19.
In addition, FINRA is announcing May 31, 2024, as the end date of the regulatory relief set forth in Regulatory Notice 20-08 (March 2020) (Notice 20-08 Relief) with respect to the obligation of firms to maintain current information for employment addresses and branch offices on specified uniform registration forms. In light of these changes, firms are encouraged to consult with FINRA’s Membership Application Program (MAP) Group as they consider the materiality of any potential increase in the number of offices or locations.
Complex Products
(New) Special Purpose Acquisition Companies, Shell Companies, and Projections
The SEC is adopting rules to enhance investor protections in SPAC IPOs and de-SPAC transactions. The rules include disclosure requirements on compensation, conflicts of interest, dilution, and the board’s determination on the transaction’s advisability. The SEC is also setting a minimum dissemination period for security holder communication materials, re-determining SRC status, clarifying the safe harbor for forward-looking statements, deeming de-SPAC transactions as securities sales, and amending financial statement requirements. Additionally, the SEC provided guidance on underwriters, projections, and SPACs’ status under the Investment Company Act of 1940.
Special Purpose Acquisition Companies, Shell Companies, and Projections (Final Rule)
Regulation Best Interest
(New) FINRA Highlights Available Guidance and Resources Related to Regulation Best Interest
This Notice highlights the SEC’s Staff Bulletins on standards of conduct for broker-dealers and investment advisers, focusing on account recommendations, conflicts of interest, and care obligations under Regulation Best Interest (Reg BI). FINRA encourages members to review these Bulletins and other guidance to ensure compliance with their best interest obligations. The Notice itself does not create new requirements or interpretations.
FINRA Highlights Guidance and Resources Related to Regulation Best Interest
