FINRA took action on rules involving broker misconduct, continuing education in 2021

On Behalf of | Dec 2, 2021 | FINRA Compliance

The Financial Industry Regulatory Authority adopted or modified several rules during 2021 as part of its ongoing mission to help keep investors and their investments safe. Four of the rules were highlighted recently in a report by ThinkAdvisor as being among the most significant during the past year. They involved continuing education, so-called “restricted firms”, trade reporting, and private placements.

  1. FINRA adopted changes to its continuing education (CE) and registration rules, including a requirement that those registered with FINRA complete continuing education requirements annually instead of every three years. Registered individuals will also be required to annually complete the Regulatory Element, which focuses on regulatory requirements and industry standards, beginning on Jan. 1, 2023. Individuals who terminate any of their representative or principal registration categories will have the option of maintaining their qualification for any terminated registration categories by completing annual CE through a new program, the Maintaining Qualifications Program
  2. A new rule adopted by FINRA in 2021 pertained to so-called Restricted Firms, those that have a significant history of misconduct. Rule 4111 requires these firms to deposit cash or qualified securities in a segregated, restricted account and adhere to other specified conditions or restrictions that are in the public interest. The rule is designed to help protect investors from the risks presented by broker-dealers who have a history of misconduct and employ a high percentage of brokers with disciplinary problems. If a firm does not comply with the Restricted Deposit Requirement, FINRA will be authorized to issue a notice directing that member firm to suspend all or a portion of its business.
  3. As of Sept. 1, FINRA amended its rule book to phase out its Order Audit Trail System (OATS). It has been replaced by the Consolidated Audit Trail (CAT) as mandated by the Securities and Exchange Commission. In announcing the move in Regulatory Notice 21-21, the authority said “FINRA has determined that the accuracy and reliability of the CAT meet the standards approved by the SEC and has determined to retire OATS.”
  4. FINRA adopted changes to Rules 5122 (Private Placements of Securities Issued by Members) and 5123 (Private Placements of Securities), which became effective Oct. 1, 2021. Under the changes, members will be required to file with FINRA any retail communications that promote or recommend private placement offerings that are subject to those rules’ filing requirements.

At Lewitas Hyman, we regularly monitor SEC, FINRA and other self-regulatory organization rule-making activities to help ensure that our clients are aware of any new policies, while assisting them in implementing any recommended changes. Our clients include broker-dealers, RIAs, banks, investment companies and hedge funds, along with registered representatives and other individuals participating in the securities industry.

If your firm is facing an investigation from a regulatory agency, please contact us at (888) 655 6002 or through our online contact form.

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