The Securities Industry/Regulatory Council on Continuing Education (Council) recently released its updated 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” and “Updated” material that was listed in the recent Firm Element Advisory (FEA).
Anti-Money Laundering (AML)
NEW – Anti-Money Laundering and Countering the Financing of Terrorism
The Financial Crimes Enforcement Network (FinCEN) has issued the first government-wide priorities for anti-money laundering and countering the financing of terrorism policy, which was mandated by the Anti-Money Laundering Act of 2020. FinCEN also issued a statement to provide covered non-bank financial institutions, including broker-dealers, with guidance on how to approach the AML/CFT Priorities.
FINRA Regulatory Notice 21-36: FINRA Encourages Firms to Consider How to Incorporate the Government-wide Anti-Money Laundering and Countering the Financing of Terrorism Priorities Into Their AML Programs
Duties and Conflicts
NEW – Protecting Investors from Misconduct
FINRA has adopted new rules to address firms with a significant history of misconduct. New Rule 4111 (Restricted Firm Obligations) requires member firms that are identified as “Restricted Firms” to deposit cash or qualified securities in a segregated, restricted account; adhere to specified conditions or restrictions; or comply with a combination of such obligations. New Rule 9561 (Procedures for Regulating Activities Under Rule 4111) and amendments to Rule 9559 (Hearing Procedures for Expedited Proceedings Under the Rule 9550 Series) establish a new expedited proceeding to implement Rule 4111. The new rules and rule amendments become effective on January 1, 2022.
FINRA Regulatory Notice 21-34: FINRA Adopts Amendments to Rule 6432 Regarding Compliance With the Information Requirements of SEC Rule 15c2-11
Financial and Operational Rules
NEW – Supplemental Liquidity Schedule
FINRA has established a new Supplemental Liquidity Schedule (SLS). The new SLS, which members subject to the requirement will need to file as a supplement to the FOCUS Report, is designed to improve FINRA’s ability to monitor for events that signal an adverse change in the liquidity risk of the members with the largest customer and counterparty exposures. FINRA is issuing this Notice to provide further information on the new requirement, which will become effective on March 1, 2022. For members subject to the requirement, the first SLS must be completed as of the end of March 2022 and will be due by May 4, 2022.
FINRA Regulatory Notice 21-31: FINRA Establishes New Supplemental Liquidity Schedule (SLS)
NEW – MSRB Provides Additional Regulatory Relief During COVID-19
The MSRB filed a proposed rule change with the SEC to further extend additional regulatory relief on a temporary basis to brokers, dealers and municipal securities dealers in light of the operational challenges that persist due to the sustained COVID-19 pandemic. In a continued effort to afford regulated entities an opportunity to better manage and allocate resources, the proposed rule change will continue to allow dealers to conduct internal inspections remotely, subject to certain conditions, for calendar year 2022 until June 30, 2022. The proposed rule change was filed for immediate effectiveness on October 26, 2021.
MSRB Regulatory Notice 2021-14: MSRB Provides Additional Regulatory Relief During the COVID-19 Pandemic
NEW – SEC Approves Amendments to Rules G-10 and G-48 Clarifying Notification Requirements for Dealers
On October 5, 2021, the MSRB received approval from SEC for a rule change consisting of amendments to Rule G-10, on investor and municipal advisory client education and protection, clarifying and aligning the requirements for brokers, dealers, and municipal securities dealers to provide required notifications under the rule directly to those customers for whom a purchase or sale of a municipal security was effected in the past year and to each customer who holds a municipal securities position. The SEC also approved an accompanying amendment to Rule G-48, on transactions with sophisticated municipal market professionals (SMMPs), allowing dealers to conditionally excluded SMMPs from the requirements under Rule G-10(a). The rules became effective on October 12, 2021.
MSRB Regulatory Notice 2021-13: SEC Approved Amendments to Rules G-10 and G-48 Clarifying Notification Requirements for Dealers
NEW – MSRB Provides Further Extension of Time to Take the Series 54 Qualification Examination
The MSRB filed a proposed rule change with the SEC to further extend the date by which persons acting in the capacity of a municipal advisor principal are required to become duly qualified with the Series 54 examination. This brief extension of time pushes out the November 12, 2021 compliance date to November 30, 2021, in connection with the MSRB’s efforts to facilitate the remote proctoring of the Series 54 examination. Notably, the extension of time provided for under the proposed rule change generally aligns with the number of days taken to launch the Series 54 examination online. • MSRB
Regulatory Notice 2021-11: MSRB Provides Further Extension of Time to Take the Series 54 Qualification Exam
NEW – Regulation of Inter-dealer Quotation System
On November 8, 2021, FINRA ceased operation of the OTC Bulletin Board (OTCBB)—a FINRA-operated inter-dealer quotation system—and deleted the OTCBB-related rules from the FINRA rulebook.
FIRNA Regulatory Notice 21-38: FINRA Announces Closure of the OTC Bulletin Board
NEW – Compliance with SEC Rule 15c2-11
FINRA adopted amendments to Rule 6432 (Compliance with the Information Requirements of SEA Rule 15c2-11) in light of the SEC amendments to SEC Rule 15c2-11. As amended, Rule 6432 will require a qualified inter-dealer quotation system to submit a modified Form 211 filing to FINRA in connection with each initial information review, and a daily security file to FINRA containing summary information for all securities quoted on its system on each day that it makes a publicly available determination permitted under SEC Rule 15c2-11, among other amendments. The amendments to Rule 6432 became effective on September 28, 2021, in line with the compliance date for the amendments to SEC Rule 15c2-11.
FINRA Regulatory Notice 21-33: FINRA Adopts Amendments to Rule 6432 Regarding Compliance with the Information Requirements of SEC Rule 15c2-11
UPDATED – Disclosure Requirements and Summary Prospectus for Variable Annuity and Variable Life Insurance Contracts
The SEC adopted rule and form amendments intended to help investors make informed investment decisions regarding variable annuity and variable life insurance contracts. The amendments modernize disclosures by using a layered disclosure approach designed to provide investors with key information relating to the contract’s terms, benefits, and risks in a concise and more reader-friendly presentation, with access to more detailed information available online and electronically or in paper format on request.
Rule 498A under the Securities Act of 1933 permits a person to satisfy its prospectus delivery obligations under the Securities Act for a variable annuity or variable life insurance contract by sending or giving a summary prospectus to investors and making the statutory prospectus available online. The rule also considers a person to have met its prospectus delivery obligations for any portfolio companies associated with a variable annuity or variable life insurance contract if the portfolio company prospectuses are posted online.
To implement the disclosure framework, the SEC also amended the registration forms for variable annuity and variable life insurance contracts to update and enhance the disclosures to investors in these contracts, and to implement the proposed summary prospectus framework, and adopting amendments to our rules that will require variable contracts to use the Inline extensible Business Reporting Language (“Inline XBRL”) format for the submission of certain required disclosures in the variable contract statutory prospectus.
To review the Council’s full Firm Element Advisory, click here.