The Securities Industry/Regulatory Council on Continuing Education (Council) recently released its Q1 2022 Firm Element Advisory (FEA) to highlight current regulatory and sales practice topics for possible inclusion in Firm Element training plans. The Council has identified the topics from a review of industry, regulatory and self-regulatory organization (SRO) announcements, and publications of significant events.
It’s recommended that firms use the FEA as an aid in evaluating and prioritizing their Firm Element needs and developing written training plans. However, firms are reminded to not rely on the FEA 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).
ANTI-MONEY LAUNDERING (AML)
New – U.S Imposes Sanctions on Russian Entities and Individuals
The U.S. government has imposed sanctions in response to Russia’s actions in Ukraine. FINRA is issuing this Notice to provide member firms with information about these recent actions. FINRA encourages member firms to continue to monitor the Department of Treasury’s Office of Foreign Asset Control (OFAC) website for relevant information.
BUSINESS CONTINUITY PLANNING
New – Retrospective Rule Review Report
The COVID-19 pandemic, beginning in early 2020, caused unprecedented regulatory and operational impacts on member firms and other market participants, as well as regulators. During the pandemic, business continuity plans were implemented as member firms adapted swiftly to prioritize the health and safety of firm personnel and investors, while maintaining the public’s access to capital markets. In Regulatory Notice 20-42, FINRA sought feedback from firms about their experiences in a range of areas, including how member firms’ operations and business models may have changed during the public health crisis and may potentially evolve if the crisis persisted. FINRA further requested comment on whether it should consider changes to its rules, operations or administrative processes to address lessons learned during the pandemic or to respond to the anticipated long-term impacts of the pandemic on member firms and investors.
New – Alerts and Identified Risks
FINRA Alerts Firms to “Log4Shell” Vulnerability in Apache Log4j Software FINRA is alerting firms to a recently identified vulnerability in Apache Log4J software, which is an open-source, Java-based logging utility widely used by enterprise applications and cloud services. The “Log4Shell” vulnerability presents risk for member firms because they may be using this software in internal applications, or the software may be embedded in third-party software packages. In addition, many applications written in Java are potentially vulnerable.
DUTIES AND CONFLICTS
New – Market Order Timeliness
In light of the increasingly automated markets for NMS stocks, FINRA is issuing this Notice to remind member firms of their obligation to execute marketable customer orders fully and promptly. FINRA also reminds firms of their obligation to ensure that their supervisory systems are reasonably designed to achieve compliance with this obligation.
FINANCIAL AND OPERATIONAL RULES
New – Security-Based Swaps
FINRA has adopted amendments to its rules to clarify the application of FINRA rules to security-based swaps (SBS):
- FINRA has adopted a new Rule 0180 (Application of Rules to Security Based Swaps. The new rule replaces the expiring temporary Rule 0180 and generally applies FINRA rules to members’ activities and positions with respect to SBS, with limited exceptions.
- FINRA has amended its financial responsibility and operational rules to conform to the SEC’s SBS-related capital, margin and segregation requirements.
- FINRA has adopted a new SBS-specific margin rule, which replaces the expiring interim pilot program establishing margin requirements for credit default swaps (CDS).
Effective Dates: February 6, 2022 (Rules 0180, 4120 and 9610) and April 6, 2022 (Rules 4210, 4220 and 4240)
New – SEC Financial Responsibility Rules
FINRA is updating the imbedded text of Securities Exchange Act (SEA) financial responsibility rules in the Interpretations of Financial and Operational Rules to reflect the effectiveness of amendments the SEC adopted. The updated imbedded text relates to SEA Rules 15c3-1, 15c3-1a, 15c3-1b, 15c3-1d, 15c3- 1e, 15c3-3, 15Fi-1 through 15Fi-5, 17a-3, 17a-4, 17a-5, 17a-11 and 18a-3. FINRA is also making available related updates of the Interpretations of Financial and Operational Rules that have been communicated to FINRA by the staff of the SEC’s Division of Trading and Markets. The updated interpretations relate to SEA Rules 15c3-1, 17a-3, 17a-4 and 17a-5.
REGISTRATION AND DISCLOSURE
New – Continuing Education Program Transformation
FINRA has adopted important changes to its continuing education (CE) and registration rules to train registered persons more effectively while accommodating registered persons, particularly women and underrepresented minorities, whose personal circumstances take them away from the industry for a time. The changes to Rules 1210 and 1240: (1) provide eligible individuals who terminate any of their representative or principal registration categories the option of maintaining their qualification for any terminated registration categories by completing annual CE through a new program, the Maintaining Qualifications Program (MQP); (2) require registered persons to complete CE Regulatory Element annually for each representative or principal registration category that they hold; and (3) expressly allow firms to consider other required training toward satisfying an individual’s annual CE Firm Element and extend the Firm Element requirement to all registered persons.
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