Continuing Membership Guide

 

Introduction

 

FINRA requires firms to file a continuing membership application (CMA) whenever they seek to expand their operations or activities, and for other business events, as indicated in NASD Rule 1017(a) (Continuance in Membership Application or CMA). Firms also must file an application whenever they seek to modify or remove restrictions previously imposed in a membership agreement (a membership agreement change or MAC).

 

FINRA determines whether to approve, deny or approve with restrictions all such applications in accordance with the procedures in Rule 1017. In these applications, the overriding consideration is an applicant's ability to continue to meet the standards for membership contained in NASD Rule 1014 (Department Decision).

If you have questions or suggestions regarding this Guide, contact your firm’s Coordinator, your local District Office or the Sales Practice Policy Group at (202) 728-8221.


 

Expediting the Process

 

NASD Rule 1017(g)(2) requires FINRA to issue a written decision for CMAs “within 30 days after the conclusion of the membership interview or the filing of additional information or documents, whichever is later. If the Department does not require the Applicant to participate in a membership interview or request additional information or documents, the Department shall serve a written decision within 45 days after the filing of the application under paragraph (a)….” However, the biggest factor that causes a delay in processing an application is whether sufficient information is supplied to support the request.

In each case, FINRA is required to verify that the proposed expansion or change meets each of the 14 criteria for membership (see Rule 1014). However, an effort is made to target the inquiry and limit the scope of analysis in each case consistent with FINRA’s obligations under the rules.
Therefore, applicants must be prepared to provide in a timely manner information that addresses how they will satisfy all of the standards for admission and other applicable statutory and regulatory requirements if requested to do so. Firms are encouraged to contact their Coordinator or local District Office before filing a CMA if they have questions about documents and information that should be submitted, since applications containing all of the relevant information when they are first submitted tend to be processed more expeditiously.

Another factor that has historically caused delays is failure to meet the qualifications requirement. Applications should not be submitted until the applicant and employees required to be registered are prepared to satisfy all of the membership and registration requirements necessary to conduct the applicant’s proposed securities activities. Failure to provide information, correct filing deficiencies, successfully complete qualification examinations, among other things, could result in FINRA rejecting the application. It is strongly recommended that qualifications examinations be scheduled as soon as the material change of business is contemplated, whether it’s before or early on in the application process.

Determining sources of capital is a key step in the application process. FINRA takes all reasonable steps to clearly understand the nature and source of capital and the background and relevant disciplinary history of all persons involved in providing such capital. Your application will likely incur delays without supporting documentation of the source of capital. We encourage you to submit any of the following documents when you submit the application in order to assist in reducing delays: copies of canceled checks, deposit slips, monthly bank account statements, securities statements, tax returns and loan documents.

This Guide provides valuable insight into the information that FINRA is likely to consider when evaluating CMAs. These documents are not, however, intended to present a comprehensive list of all conceivable categories of information that may be relevant to an application, nor should they be interpreted to limit FINRA's discretion to request whatever information it determines is relevant to an application. In many cases, FINRA may need to request additional or different information depending on the specific facts and circumstances presented in particular applications in order to verify an applicant’s ability to continue to meet the 14 standards contained in Rule 1014.

The NASD Rule 1010 Series (Membership Proceedings) sets forth standards for admission that must be continually met throughout a firm’s membership. Moreover, the rules define the responsibilities of the parties involved in the CMA and MAC processes and, where appropriate, specify time frames that are attached to the milestones. (See also the Membership Rules Reference.) All specified deadlines for each of the milestones must be met, or the application will be terminated. If the applicant believes it is unable to meet any deadlines, it may request an extension in writing explaining the reason to the FINRA District Office processing the application. The FINRA By-Laws and rules may be amended from time to time. You may consult the FINRA Manual for the most up-to-date version of the rules.

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