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2018 SILA National Education Conference

FINRA Registration & Disclosure

Testing and Continuing Education

Agenda

o Exam Restructuring, the SIE Exam and Registration Rule Consolidation

oCE Program enhancements under consideration by the CE Council

Copyright 2018 FINRA 1

The Securities Industry Essentials Exam is now available.

The representative-level qualification exams have been restructured – most are now shorter in length.

The registration rules have been consolidated into the FINRA Rule 1200 Series.


October 1, 2018 Rollout


Revised Rep-level Exam Structure

Essentials Exam

Series6

Series 7

Series 22

Series 52

Series 57

Series 79

Series 82

Series 86/87

Series 99

oHow many questions? 75

oHow long do I have? 105 minutes

oHow long is it good for? 4 years

oCan I take it even if I do not work for a firm? Yes

oHow much does the SIE cost? $60

oWhat is the passing score? 70


SIE – Answers to ‘Essential’ Questions

oContent areas covered:

• Knowledge of capital markets

• Understanding products and their risks

• Understanding trading, customer accounts and prohibited

activities

• Overview of the regulatory framework


SIE – ‘Essential’ Facts


Top-offs – ‘Essential’ Facts

oAs of October 1, 2018, FINRA no longer offers the following exams:• Series 11• Series 17/37/38• Series 42 • Series 62• Series 72

oCandidates for these exams whose 120-day window opened prior to October 1, 2018, will be able to take these exams after October 1, 2018, until their windows close.


Other Features of the Restructuring

oMost current registrants have received credit for the Essentials Exam, and it will be valid for 4 years upon leaving the industry. CRD reflects this.

oRegistrants who return between 2 and 4 years later will not need to take the Essentials Exam, only the top-off exam for the registration position.

oRegistrants who return more than 4 years later will need to take both the Essentials and the top-off exam.


Effect on Current Registrants

oIndividuals who applied for registration on or before September 30 will take their exam under the old format (i.e., the 250-question Series 7), even though their exam appointment date is on or after October 1. If they pass, they will receive credit for the SIE.

oIndividuals who apply for registration on or after October 1 will take the SIE and the revised qualification exam (i.e., SIE + revised 125-question Series 7).


Overlap Period of Old and New Exams

oAccess enrollment system from finra.org

oInitially need to create an account to enroll and pay

oAccess direct link to Prometric appointment scheduling from

enrollment system

oWill receive score report at test center

oCan also view result in enrollment system

oCan pay for exam with credit card or by redeeming voucher


Essentials Exam Enrollment for Individuals

oThrough Web CRD®, there are two options for a firm to request an

enrollment for the Essentials Exam:

• Form U4: request a rep-level registration (e.g., GS request opens

SIE and S7 exam enrollments)

• Non-Form U4: enrollment system

o Group – upload a list of candidates

o Purchase vouchers – used by candidates to enroll for the SIE


Essentials Exam Enrollment Options for Firms

oWeb CRD has an option for firms to enroll non-registered individuals for the SIE and pay the exam fees from the firm’s Flex-Funding Account.


Non-U4 SIE Enrollment


Non-U4 SIE Enrollment (cont.)

oFirms can use the downloadable templates to create the CSV file and then select for upload.



oSIE enrollments uploaded and paid for by the firm will be added to the Individuals Enrolled for SIE list.

• Once an individual sits for the exam, the same list will be updated with the exam result and score (if applicable).



oFirms also have the option to purchase SIE vouchers (up to 100 at a time) to provide to individuals who can enroll themselves for the SIE.


Non-U4 SIE Enrollment – Vouchers

oAfter vouchers are purchased, firms can download a spreadsheet to obtain the list of voucher codes and track their redemption.



oNon-U4 SIE Enrollment Reminders

• Enrolling an individual for the SIE outside of Form U4 does not by itself create a CRD number for them. A CRD number will be assigned when a filing is made for the individual in CRD.

• Non-U4 SIE exam results can be seen in the “SIE Enrollment/Results” link and can also be viewed via the existing Pre-Registration Search feature. However, they will not immediately be part of the individual’s CRD record.

• When an SIE-only individual becomes registered, their SIE “Pass” result will then be posted to their CRD record.



oFirms that pay the Essentials Exam fee are able to view the individual’s result.

oIf an individual pays the Essentials Exam fee, the firm will ONLY be able to view the result when:

• Conducting a pre-registration search or

• Filing a Form U4 requesting a registration.


Viewing SIE Results

oThe Pre-Registration Search has been enhanced to display individuals who have passed the SIE outside of Form U4.


Pre-Registration Search

oAs of October 1, 2018, CRD shows the following:

• For passing test results – indicates that the individual passed the exam but does not display the test score.

• For failing test results – indicates that the individual failed the exam and displays the test score.

• Once an individual passes the exam, the failing results will no longer be displayed. Only the passing result will be displayed.


Change in CRD Display of Exam Results

oWhy was this change made?

• CRD maintains registration information.

• FINRA qualification exams determine whether a person has demonstrated minimum proficiency to act in a registered capacity.

• Exam score is not intended to predict how well a person will perform in a position (i.e., a person who scores 90 will not necessarily perform better than a person with a score of 75).

• Test scores are not stored in CRD.


Change in CRD Display of Exam Results (cont.)


Revised Test Center Exam Results Report – Pass


Revised Test Center Exam Results Report – Fail

oExam Results• Scores are no longer posted to CRD for Passing test results.

• Exam History and Reports display non-passing exam results (e.g., Fail, No Show) and scores only until an exam result of Pass is received. After that, all prior non-passing results for that exam will not be displayed in CRD.

oExam Validity• Exam History has a new field that indicates if a passed/waived exam is still valid

for registration purposes, including a future expiration date (if applicable).

oSIE Credit• SIE exam credit has been automatically granted to individuals registered within

the last 4 years, and displayed in Exam History.

(See sample screenshots on the following slide…)


CRD Exam Views

o Exam History Sampleso #1 – Currently registered individual

o #2 – Not currently registered, but exams still valid

o #3 – Out of the industry


Exam History

Copyright 2018 FINRA

FINRA REGISTRATION RULE CONSOLIDATION

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oFINRA Rule 1200 Series has replaced the NASD and incorporated NYSE registration rules.

oRequires firms to designate a Principal Financial Officer and a Principal Operations Officer (can be same person at non-clearing firms)

oIf not already listed on Schedule A of Form BD with another title, the Principal Financial Officer and/or Principal Operations Officer must be added.


Consolidated Registration Rules

oChief Compliance Officers (CCOs) now have a FINRA Compliance Officer registration requirement - CR (Series 14 exam).

oPersons with a General Securities Representative and General Securities Principal (S7 GS and S24 GP) registration can register as a Compliance Officer without taking the Series 14 exam.

oOn October 1 FINRA automatically granted CR registration to persons with a GS/GP who were listed as the CCO on Schedule A of Form BD.


Chief Compliance Officer

New Principal PositionsoInvestment Banking Principal (BP) – S79 + S24

oPrivate Securities Offering Principal (PO) – S82 + S24

oGeneral Securities Principal (GP) is now limited to S7 + S24

oOn October 1, FINRA automatically granted the BP to persons holding the IB (S79) and GP registrations.

oOn October 1, FINRA automatically granted the PO to persons holding the PR (S82) and GP registrations.


New Principal Positions (cont.)oSample screenshot of individual automatically granted the BP, and

GP automatically terminated:


Permissive RegistrationoAllows permissive registration of persons engaged in a bona fide

business purpose of a member (i.e., an associated person)

oExpands current NASD rule allowing for permissive registration of persons performing certain limited functions (e.g., legal, compliance, internal audit)

oSuch persons will be subject to a level of supervision commensurate with their status.


Financial Services Affiliate Waiver Program (FSAWP)

FSAWP allows an individual working for a financial services affiliate

of a member to receive a waiver of a qualification exam

requirement upon returning to the member for up to seven years,

provided the firm and the individual satisfy certain criteria.


oFirm files Form U5 for individual and emails FINRA requesting FSA eligibility (must meet 10/5/1 rule).

oFSAWP eligibility request email must include email address for individual.

oFINRA notifies individual via email of his/her FSA eligibility and individual’s responsibilities to maintain eligibility, including CE requirement.

oRecommended that individual establish a Financial Professional Gateway account

oFINRA notifies individual via email of each upcoming CE requirement with a link to enrollment page.


Overview of FSAWP Process

oWhen individual returns, firm files Form U4 and an FSAWP exam waiver request.

oFINRA processes waiver request within 30 days.

oIndividual who has successfully maintained eligibility is granted an unconditional exam waiver.


Overview of FSAWP Process (Continued)

oSR-FINRA-2017-007

oRegulatory Notices 17-30 and 18-27

oEssentials webpage: finra.org/industry/essentials-exam

oExam Restructuring webpage: finra.org/industry/exam-restructuring


Resources

CE Program Enhancements under Consideration by the CE CouncilCall for Comments


oThe CE Council is seeking feedback on aspects of the industry’s Continuing Education program.

oThe CE Council has published a document on the CE Council website (cecouncil.com) that includes a combination of specific ideas under consideration and general areas of inquiry.

oProviding comments:o FINRA Regulatory Notice 18-26oMSRB Notice 2018-21oCboe and NYSE are directing potential commenters to the FINRA regulatory

notice.

oThe comment period ends on November 5.

Program Enhancements Under Consideration

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oCommunicating regulatory developments to the industry via the Regulatory Element in a timely fashion

o Improving coordination between firm and regulatory training programs

oAllowing for diverse instructional formats that facilitate the learning of a variety of content

o Identifying and reducing redundancy among training requirements and programs

o Ensuring all registered professionals in the industry receive adequate training

o Enabling previously registered individuals to maintain their qualification status by satisfying continuing education requirements while out of the industry

oConsidering more defined minimum standards of CE for the industry

Program Review Goals

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oIncreased Relevance:• Narrowing focus of Regulatory Element to current rule changes and industry-wide

regulatory issues• Limiting an individual’s Regulatory Element session to topics directly pertinent to

the individual’s current registrations

oImproved Timeliness: Shorter CE session required annually

oSystem Enhancements:• Improved reporting and tracking in CRD• Potential for automated notifications in Financial Professional Gateway

oSynergy with Firm Element: Communication of Regulatory Element topics

Considerations for Regulatory Element

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oCouncil Resources:• Perceived value of current CE Council resources (e.g., Firm Element Advisory)• Suggestions for additional resources that the CE Council should provide

oTypical Firm Element: Amount and variety of training included

oOther Training Conducted:• Additional training requirements that firms manage• Common credentialing programs with CE requirements that firms support

oAccess to Firm Element Content:• Typical mix of firm-developed and third-party materials used for Firm Element• Value of creating a centralized multiple-provider content catalog

Considerations for Firm Element

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oThe CE Council is exploring a recommendation to allow previously registered individuals to maintain qualification status while away from the industry.

oProgram Considerations:• Annual Regulatory Element plus additional CE comparable to Firm Element• Administered and tracked through FINRA systems• CE content targeted to individual’s terminated registrations

oEligibility and Program Duration Considerations:• Eligibility requirements: Minimum registration period and good standing• Maximum program participation before needing to requalify

oAccess to “Catch-Up” CE could replace two-year termination provision.

Maintaining Qualification Status

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Q A

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©2018 Financial Industry Regulatory Authority (FINRA). All rights reserved. Materials may not be reprinted or republished without the express permission of FINRA. Individuals, firms and data mentioned in these materials are fictitious and presented exclusively for the purpose of illustration or example.

FINRA Registration & Disclosure


RAD Systems, Renewal Program and Disclosure Initiatives


Agenda

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o 2018 RAD Program Roadmapo Recent RAD System Highlightso 2019 Renewal Programo Proposed Future Enhancements

Q3-Q4 2018 RAD Roadmap


Q4 2018

Public Disclosure programs

Registration programs

Transformation Initiatives

Web CRD, IARD & PFRD Release (September 29, 2018)• Implement

consolidated FINRA registration rules and qualifications exam restructure (effective October 1, 2018)

• Introduce Securities Industry Essentials (SIE) exam

• Reformat SRO Registrations section of Form U4

BrokerCheck Release(TBD)• BrokerCheck usability

enhancements (TBD)

Entitlement Platform Migration (TBD)• Replace login

platform and implement security enhancements

Q3 2018

New CRD (July 28, 2018)• Add export feature to

Activities List for firm users

Web EFT Platform Migration (TBD)• Begin migrating Web

EFT service to fileX platform

Financial Professional Gateway Release (October 5, 2018)• Introduce U5 email

notifications for registered reps

Web CRD, IARD & PFRD Release (TBD)• Activate Form ADV

Item 5 completeness checks on Other-than-Annual Amendments (tentative)

• Minor bug fixes

New CRD (TBD)• Introduce new Branch

& Individual profile views for firm users


Recent RAD System Enhancements

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Form U4 SRO Registrations

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o In connection with the October 1, 2018, exam restructuring, Section 4 of Form U4 has been reformatted to make selecting SRO registration categories more intuitive.

o Section 4 is now divided into the following three sub-groups:1. Representative Level Registration Categories

a) Including retired representative registrations2. Principal Level Registration Categories

a) Including retired principal-level registrations3. Exchange Specific Registration Categories

a) Registrations not recognized by FINRA

(See sample screenshots on the following slides…)


Form U4 SRO Registrations (cont.)

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Registered representative registration categories:



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Principal registration categories:



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Online Form U4 filers will have the option to have Web CRD® auto-select registration categories based on the individual’s registration history.

The auto-select feature does not apply to filings uploaded via Web EFTTM.



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Registration categories not recognized by FINRA now have their own section on the form, and are not available for auto-selection.

o The Form U4 Allow Rep Edits feature now includes instructions for accessing the filing via FinPro.

o Firms can copy and paste the instructions into communications that they send to their representatives.


Allow Rep Edits


2019 Renewal Program

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Detailed information is available at: www.finra.org/renewalso Preliminary Statements become available on Monday, November 12, 2018

o Full payment is due Monday, December 17, 2018


2018 Renewal Program


Proposed Future Enhancements

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Web EFT Migration to fileX

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o What is fileX?• A replacement for the current file transfer mechanism for Web EFT (FSG).

o Features• Multiple user accounts for a single firm.• New options for file transfer (SFTP, REST).• Consolidated location for all FINRA file transfer needs.

o Considerations• Filing XML structure and report content/layout are not expected to change.• A dedicated user interface is not currently planned.

o Timeline• Initial launch and onboarding beginning Q4 2018 or Q1 2019 (tentative).


Q A

59


Agenda

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o Individual and Broker Disclosures o Forms U4 & U5 Customer Complaint Questions

• Disclosure Reporting Page (DRP) 4530 checkboxo Enhanced Public Records Reviewo Additional Disclosure Reporting Reminderso Forms U4 & U5 Filing Tips

• Form U5 Disclosure Certification Checkbox


Individual and Broker-Dealer Disclosures

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o Uniform Form Types• Form U4 to register an individual • Form U5 to terminate an individual’s registration• Form U6 filed by a regulator to report a regulatory action• Form BD to register an entity as a broker-dealer

o All uniform forms must be amended within 30 days of an event or proceeding that renders a previous response inaccurate or incomplete. Exception: Events triggering Statutory Disqualification must be reported, via an amended Form U4, within 10 days.

o Form BD Disclosure questions also apply to control affiliates and control persons.

o Certain events are reportable on Forms U4 and U5 but are not reportable on Form BD. Examples include a Wells Notice, customer complaints and arbitration claims.


Forms U4 & U5 Customer Complaint Questions

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o “Subject of” an arbitration/civil litigation – RRs are required to report sales practice related claims that do not name them as a party but whose conduct was the cause of the claim.

o All complaints involving forgery, theft, misappropriation or conversion of funds or securities are reportable, regardless of the dollar amount.

o If a written customer complaint does not allege a specific dollar amount, it must be reported unless the firm can determine that the damages are less than $5,000.

o Verbal customer complaints are only reportable if they result in settlement of $15,000 or more.

o Settlement is the total amount paid to the customer to resolve a dispute – not just the RR’s contribution.


Disclosure Reporting Page (DRP) 4530 checkbox

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Allows firms to apply the disclosure towards satisfying its 4530(a)(1) reporting obligation

Confidential | Copyright 2018 FINRA

Enhanced Public Records Review

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o On July 1, 2015, FINRA Rule 3110(e) went into effect requiring firms to validate the information reported on Form U4.

o The validation requires, at minimum, a search of public records to be conducted by the member or third-party vendor (the fingerprint process validates the criminal disclosure questions).

o In late 2014, through the use of a vendor, FINRA conducted financial public record searches to validate the bankruptcy, judgment and lien question on Form U4.

o Since FINRA was already performing the financial public record searches, FINRA announced that it would perform these searches on behalf of the industry upon submission of Form U4 (see Information Notice dated May 18, 2018).

o This process, which officially kicked off on July 9, 2018, provides a huge savings to the industry, since they no longer have to contract third-party vendors to perform these financial public record searches.


Additional Disclosure Reporting Reminders

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o Criminal• Arrest vs. Charge• “Have you ever…”

o Investigation• Defined term

o Regulatory• Documents required • Multiple “yes” answers can apply

o Financial• Reportable if ever outstanding while RR was

registered • Compromise with creditor

Image courtesy of Stuart Miles at FreeDigitalPhotos.net


Form U4 and U5 Filing Tips

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o Firms should check their queues in CRD regularly as disclosure obligations may be triggered by events occurring away from the firm (i.e., U5 or U6)

o If a determination is made that a 4530(d) filing does not meet the criteria for reporting on U4/U5, firms should enter a comment (e.g., not U4/U5 reportable) in the 4530 notation field as this will eliminate unnecessary CRD inquiry letters

o Track and follow-up on disclosures with “pending” dispositions (Individual - Disclosure Download Report)



Form U4 and U5 Filing Tips

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o Safeguarding Personal and Sensitive Information –Do not put customer names or Social Security Numbers (or other personal or sensitive information) on Disclosure Reporting Pages (DRPs), except for those fields designated (these fields are suppressed from appearing in BrokerCheck®)

o When providing explanations for reasons for terminations on Form U5, firms must provide enough information so the reader can understand the conduct that led to the RR’s termination and answer all disclosure questions accurately

o Disclosure events that evolve should be on a single DRP

o Sign up for email notifications



Form U5 Disclosure Certification Checkbox

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o By checking the box, the firm certifies that:• There is no additional information to be reported at this time. • Firm acknowledges it will update information, as appropriate.


Enhanced Public Records Review

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o Uniform Forms (U4/U5 and Explanation of Terms): http://www.finra.org/file/explanation-terms-crd-forms

o Forms U4 and U5 Interpretive Questions & Answers (as of 03/05/15)http://www.finra.org/CRD/u4u5faq/

o U4/U5 Revisions: Reg. Notice 09-23 http://www.finra.org/Industry/Regulation/Notices/2009/P118706

o Electronic Filing Requirements for Uniform Forms: Reg. Notice 09-40 http://www.finra.org/Industry/Regulation/Notices/2009/P119432

o U5 Obligations: Reg. Notice 10-39http://www.finra.org/Industry/Regulation/Notices/2010/P122041

o Regulatory Notice 15-05http://www.finra.org/industry/notices/15-05

o Information Notice – 05-18-18http://www.finra.org/industry/information-notice-051818

o Financial Professional Gatewayhttp://www.finra.org/industry/finpro

o Protecting Personal Information in Registration Form Filings http://www.finra.org/crd/protectdata


Q A

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FINRA Registration & Disclosure and RAD Technology

New CRD System Capabilities, Firm Benefits and Registered Representative Interface

A New CRDA modern, cost efficient registration system that allows FINRA to be responsive to change, support proactive compliance, enable an ecosystem and delight all of its users.

72Copyright 2018 FINRA

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Outreach and feedback

Part of our DNAoDozens of sessions held this year.

Thank you!o Feedback driving features and

priority

12Regulators

62Firms

“FINRA staff are clearly interested in understanding our problems, needs and business drivers. This feels like a different experience and big opportunity for our firm.”


New CRD landing page for firmso All “classic” queues now available in a

single inbox with sophisticated filtering

o Customizable quick linkso Customizable favorite reports listo Export

Financial Professional Gatewayo U5 Notificationso Enhanced support for rep editing

Infrastructureo Establish the foundation for moving

to the cloud and new functionality

What have we done since last year?

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1,500New CRD visits

35,000FinPro reps


Let’s take a closer look…


What’s next?

• Activities dashboard• New views of individuals,

firms and branches• Quick edits• Improved form experience• Notifications• Bulk actions

Firms• New CRD landing page

for states• Activities dashboard• New views of individuals,

firms and branches

State Regulators

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• Enhanced Public Records review support

• Criminal history review automation

FINRA


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FinPro: The Representative’s Home

Today individuals can:• Access their own information• Collaborate with their firm on updates• Complete continuing education• See Form U5 (if applicable)

In the future firms can allow:• Signing filings• Initiating registration requests• Receiving notifications and alerts• Attestation of information• Managing required documentation• Paying FINRA fees directly


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U5 available via FinPro

An email notification

is sent when a new U5 is

available


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U4 rep edit available via FinPro


No need to send

reference numbers to

reps!

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Easy access to continuing education

Single sign-on


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Rep-initiated updates

Firms control access to FinProfeatures


Scenario:A rep wants to update her outside business activities


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We need your help!

How should we move forward? • What sort of reporting and data

access do you need?• How can we simplify working with

CRD and FINRA? • How do we support your efforts to

automate?• How can we enhance FinPro to ease

the compliance burden?

In short, how can we make this transformation effort a leap forward for you?


Q A

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To provide feedback, keep up-to-date on developments and for further outreach, visit finra.org/newcrd.



http://www.finra.org/newcrd

Thanks for listening!
