These guiding principles, together with numerous litigated decisions and the facts and circumstances of any particular case, inform the determination of whether the communication is a recommendation for purposes of FINRA's suitability rule. Order Processing Assistant Representatives would not be considered to have passed the SIE examination because of the limited scope of the Order Processing Assistant Representative (Series 11) examination. C01020025, 2004 NASD Discip. Public Consultation Document: Crypto-Asset Reporting Framework and Amendments to the Common Reporting Standard, Page 4. Further, another member may request a waiver of your qualification requirements upon your return to the industry, provided that all of the other conditions of the program have been satisfied (e.g., you have completed the required Regulatory Element of Continuing Education while working for your insurance affiliate). Why Do Brokers Ask Investors for Personal Information? FINRA guides critical anti-fraud measures and their implementation through cybersecurity and identity verification controls that governed entities must implement. 343, 344 n.1 (1995), aff'd, 89 F.3d 845 (9th Cir. Yes. The immediate supervisor reports to a branch manager who is registered as a General Securities Principal. FDIC Law, Regulations, Related Acts., Investopedia requires writers to use primary sources to support their work. FINRA is proposing to adopt NASD Rule 3110(c)(4) as FINRA Rule 4512(c), without material change. TRANSACTIONS WITH CUSTOMERS . Harry Gliksman, 54 S.E.C. LEXIS 30, at *1112 (NAC December 29, 2006); Dep't of Enforcement v. Puma, No. Books and Records Requirements for Brokers and Dealers Under the Securities Exchange Act of 1934., Financial Industry Regulatory Authority. 2001); see also Pinchas, 54 S.E.C. Report a concern about FINRA at 888-700-0028, Securities Industry Essentials Exam (SIE), Financial Industry Networking Directory (FIND), Section 1: Former, Current and Future Registrants, Section 3: Financial Services Affiliate Waiver Program, Section 4: Principal Financial Officer and Principal Operations Officer, Section 5: Registered Persons Functioning as Principals for a Limited Period. "); Paul C. Kettler, 51 S.E.C. FINRA reiterates that a recommendation-by-recommendation analysis and consideration of a customer's investment portfolio are not mutually exclusive concepts. While the responsibilities of a designated FINOP or Introducing Broker-Dealer Financial and Operations Principal (Introducing FINOP) are more specific in nature (e.g., the designated FINOP is required to supervise individuals who assist in the preparation of financial reports) than those of a Principal Financial Officer or Principal Operations Officer, nothing in FINRA Rule 1220(a)(4) would prohibit the designated FINOP or Introducing FINOP from also carrying out the responsibilities of a designated Principal Financial Officer and Principal Operations Officer. Report a concern about FINRA at 888-700-0028, Securities Industry Essentials Exam (SIE), Financial Industry Networking Directory (FIND), Additional Guidance on FINRAs New Suitability Rule, New Implementation Date for and Additional Guidance on the Consolidated FINRA Rules Governing Know-Your-Customer and Suitability Obligations, SEC Approves Consolidated FINRA Rules Governing Know-Your-Customer and Suitability Obligations. Several statutory and regulatory provisions, and related rules of the securities self-regulatory organizations (SROs), impose AML obligations on broker-dealers. New FINRA Rule 2111 generally is modeled after former NASD Rule 2310 (Suitability) and requires that a firm or associated person "have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer, based on the information obtained through the reasonable diligence of the member or associated person to ascertain the customer's investment profile. 58737, 2008 SEC LEXIS 2459, at *21 (October 6, 2008) (explaining that whether a communication "constitutes a recommendation is a 'facts and circumstances inquiry to be conducted on a case-by-case basis'"), aff'd in relevant part, 592 F.3d 147 (D.C. Cir. The penalty assessed against Bitcoin mixer Larry Dean Harmon for violating anti-money laundering laws. U.S. Securities and Exchange Commission. 2.4 Our firm is considering employing an individual who was formerly registered as a Registered Options Principal and a General Securities Principal with another member. 2.5B Can our firm permissively register or maintain the registration as representative or principal of an individual who is performing a function that is in direct furtherance of our firms investment banking and securities business, but who is working for, or employed by, our non-broker-dealer parent company or other affiliate? 2.10 Our firm plans to permissively maintain the General Securities Principal registration of one of our sales representatives who is registered as a General Securities Representative. However, these benefits also present challenges in preventing money laundering. Alternatively, you may permissively maintain both of his registrations if you instead hire him to work in your compliance department. The new rule would not apply, for instance, to implicit recommendations to hold securities that are transferred into an account. at *2021 & n.10 (citing Smith v. Petrou, 705 F. Supp. It requires banking and non-banking financial institutions to conduct a thorough review of a new customer before accepting that customer as a new client. Is our parent company considered to be an entity regulated by the SEC for purposes of the financial services affiliate waiver program? We are designating our Chief Executive Officer and President as our Principal Financial Officer and Principal Operations Officer. This would be the case for the initial designation and any subsequent designation(s) during the seven-year period. The same would be true if a firm were to designate its Chief Financial Officer as its Principal Financial Officer and its Chief Operations Officer as its Principal Operations Officer, both of whom were already listed on Schedule A of Form BD. These rules are effective October 1, 2018. However, individuals who are permissively registered are considered associated persons, as well as registered persons, and subject to all FINRA rules, to the extent relevant to their activities. Our securities activities are limited solely to transactions involving mutual funds and variable contracts. If the staff denies a firms waiver request, the firm may appeal the staffs decision pursuant to FINRA Rule 9630. The experience requirement in FINRA Rule 1210.04 is narrow in scope. 14Id. 22See FINRA Rules 2111.04 and 2111.05(a). Is our designated Principal Operations Officer nonetheless required to have primary responsibility for such functions? (b) The customer-specific obligation requires that a member or associated person have a reasonable basis to believe that the recommendation is suitable for a particular customer based on that customer's investment profile, as delineated in Rule 2111(a). 2.9 For purposes of compliance with FINRA Rule 1210.02, how often is the assigned registered supervisor required to contact the permissively-registered individuals day-to-day supervisor? A correspondent bank is a financial institution authorized to provide services on behalf of another financial institution. As noted above, the new rule requires a broker to attempt to obtain and analyze a broad array of customer-specific factors. 10See Michael Frederick Siegel, Securities Exchange Act Release No. It is not sufficient, for example, that an institutional customer affirmatively indicates that it is exercising independent judgment in evaluating recommendations. 4.4 Is an individual deemed to be a control person for purposes of Schedule A solely based on having the title of Principal Financial Officer or Principal Operations Officer and performing the responsibilities specified under FINRA Rule 1220(a)(4)(B)? Yes. Information on Complying with the Customer Due Diligence (CDD) Final Rule.. As stated in Regulatory Notice 17-30, to be eligible for the waiver program, FINRA requires individuals to start working for a members financial services affiliate promptly and in no event later than 30 calendar days after the member has terminated the individuals registration. Can we permissively maintain the individuals registration as a Corporate Securities Representative while the individual is working for our parent company? The operational responsibilities of a Principal Operations Officer specified in FINRA Rule 1220(a)(4)(B)(ii) are illustrative of the type of responsibilities that are operational in nature. FINRA enables investors and firms to participate in the market with confidence by safeguarding its integrity. FINRA IS A REGISTERED TRADEMARK OF THE FINANCIAL INDUSTRY REGULATORY AUTHORITY, INC. Reasonable-basis suitability requires a broker to have a reasonable basis to believe, based on reasonable diligence, that the recommendation is suitable for at least some investors. In early 2021, FinCEN proposed that cryptocurrency and digital asset market participants submit, maintain, and verify customers' identities. The reasonableness of a broker-dealer's efforts in this regard will depend on the facts and circumstances of the particular case. Further, individuals designated as Principal Financial Officers and Principal Operations Officers of exempt firms are not required to be qualified and registered as FINOPs or Introducing FINOPs.5 It should be noted that individuals designated as Principal Financial Officers and Principal Operations Officers of exempt firms would be required to be qualified and registered as principals, such as General Securities Principals, given the scope of their responsibilities. For more information about the rulebook consolidation process, see Information Notice, 3/12/08 (Rulebook Consolidation Process). Organisation for Economic Co-operation and Development. 4.5 Our firm is an introducing broker-dealer. ", Financial Crimes Enforcement Network. With the exception of individuals who were registered solely as Foreign Associates, individuals whose registrations as representatives were terminated between October 1, 2016, and September 30, 2018, will not be subject to any additional qualification requirements with respect to those registrations, provided they reregister as a representative within two years from the date of their last registration.2. A promissory note is a form of debt that companies and individuals sometimes use, like loans, to raise money. However, members are not required to make any specific changes to their existing supervisory practices, systems, policies or procedures to address such permissive registration. (a) General financial and investment information, including (i) basic investment concepts, such as risk and return, diversification, dollar cost averaging, compounded return, and tax deferred investment, (ii) historic differences in the return of asset classes (e.g., equities, bonds, or cash) based on standard market indices, (iii) effects of inflation, (iv) estimates of future retirement income needs, and (v) assessment of a customer's investment profile; (b) Descriptive information about an employer-sponsored retirement or benefit plan, participation in the plan, the benefits of plan participation, and the investment options available under the plan; (c) Asset allocation models that are (i) based on generally accepted investment theory, (ii) accompanied by disclosures of all material facts and assumptions that may affect a reasonable investor's assessment of the asset allocation model or any report generated by such model, and (iii) in compliance with NASD IM-2210-6 (Requirements for the Use of Investment Analysis Tools) if the asset allocation model is an "investment analysis tool" covered by NASD IM-2210-6; and. The Act also introduced the need for certain financial institutions to have CIP for new customers. 1.1 Our firm is considering whether, on or after October 1, 2018, to reregister as representatives several individuals whose registrations were last terminated prior to October 1, 2018. The BSA requires each bank to establish a BSA/AML compliance program. With respect to the supervision of individuals who are functioning in a registered capacity and who are also permissively maintaining another registration, members are required to have adequate supervisory systems and procedures reasonably designed to ensure that such individuals do not act outside the scope of their assigned functions. Yes. In general, what constitutes reasonable diligence will vary depending on, among other things, the complexity of and risks associated with the security or investment strategy and the firm's or associated person's familiarity with the security or investment strategy. A member's or associated person's reasonable diligence must provide the member or associated person with an understanding of the potential risks and rewards associated with the recommended security or strategy. File a complaint about fraud or unfair practices. 3.4 I have been operating as a one-person firm for the past 15 years and hold multiple principal- and representative-level registrations. Schedule A requires firms to list the name and the title or status of an individual with similar status or functions to, among others, a Chief Financial Officer or a Chief Operations Officer. You are not required to retain a record of their permissive-only registration status. You may continue to maintain the branch auditors registrations in a permissive-only status. 2.11 Our firm requires branch auditors who work in our compliance department to pass the General Securities Representative (Series 7) and General Securities Principal (Series 24) examinations. Criminals see cryptocurrency as a vehicle to launder money and as a result, governing bodies are looking for ways to impose KYC on cryptocurrency markets. 2.6 In January 2019, our firm plans to permissively register several individuals who are currently working in a non-branch location. For the best experience, please use a Windows laptop or desktop. His registrations were terminated on July 1, 2017. 3.2 An individual who has been registered with our firm as an Investment Company and Variable Contracts Products Representative for the past 10 years will be fully transferring to our banking affiliate in California in January 2020. For additional guidance regarding the obligations of FINOPs and Introducing FINOPs who work part-time, work off-site or hold multiple registrations, please see Notice to Members 06-23 (May 2006). For purposes of this Rule, facts "essential" to "knowing the customer" are those required to (a) effectively service the customer's account, (b) act in accordance with any special handling instructions for the account, (c) understand the authority of each person acting on behalf of the customer, and (d) comply with applicable laws, regulations, and rules. Firms that self-clear or provide clearing services to other broker-dealers must designate separate individuals to function as Principal Financial Officer and Principal Operations Officer (i.e., the same individual may not function in both capacities). (b) A member or associated person fulfills the customer-specific suitability obligation for an institutional account, as defined in NASD Rule 3110(c)(4), if (1) the member or associated person has a reasonable basis to believe that the institutional customer is capable of evaluating investment risks independently, both in general and with regard to particular transactions and investment strategies involving a security or securities and (2) the institutional customer affirmatively indicates that it is exercising independent judgment in evaluating the member's or associated person's recommendations. The customer is also made aware of the need to comply with all the laws, regulations, and rules of the securities industry. 1. The lack of such an understanding when recommending a security or strategy violates the suitability rule. Also, does the individual need to be qualified and registered as a FINOP or an Introducing FINOP? Prohibited Conditions Relating to Expungement of Customer Dispute. As noted in Answer 2.1, a firm may permissively register or maintain the registration(s) of individuals engaged in the investment banking or securities business of a foreign securities affiliate or foreign securities subsidiary of the firm.
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