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FINRA’s Board of Governors Approved Two New Rule Proposals, Previewed Draft of FINRA Annual Financial Report

May 23, 2018
Volume 21

  • Information Notice

Upcoming Deadlines and Effective Dates
  • FINRA Requests for Comment
  • SEC Request for Comment

Education and Compliance Programs

The 2018 FINRA Annual Conference concluded today with nearly 2,000 online and in-person participants. Highlights included a Q&A with FINRA President and CEO Robert Cook and a fireside chat with U.S. Securities and Exchange Commission Chairman Jay Clayton. Recordings of conference sessions will be available in the coming weeks and posted on

Registration is now open for the 2019 FINRA Annual Conference, which takes place May 15 – 17 in Washington, D.C. Join leaders of firms of all sizes, compliance professionals, securities attorneys, government officials, FINRA senior leaders and representatives from other securities regulators for a three-day event dedicated to the most important issues affecting the securities industry.

Reduced rates are available for the first 100 in-person registrants through October 1, 2018. Register today.

The FINRA Investor Education Foundation announced the recipients of two higher-education awards created to recognize outstanding analysis by researchers-in-training using data from the FINRA Foundation’s National Financial Capability Study (NFCS). “Although NFCS studies have been widely used by tenured academics and seasoned researchers in many peer-reviewed articles and white papers, this award recognizes important contributions by the next generation of researchers whose work will help shape our understanding of financial capability for years to come,” said Gerri Walsh, President of the FINRA Foundation. Read more online.

FINRA’s Board of Governors, which held its second meeting of 2018 on May 9-10, approved two new rule proposals and previewed a draft of the FINRA Annual Financial Report. FINRA staff provided the Board with various operational updates, including progress reports on the ongoing FINRA360 organizational improvement initiative and the consolidation of FINRA’s Enforcement Department, and updates on FINRA’s high-risk registered representative examination program and cross-market surveillance program.


Enhancements to FINRA’s Disclosure Review Process Relating to Public Financial Records

FINRA is making enhancements to its disclosure review process that will permit firms to rely on FINRA’s verification process for purposes of compliance with the requirement to conduct a search of public records relating to bankruptcies, judgments and liens. Specifically, beginning on July 9, 2018, FINRA will conduct a public records search within 15 calendar days from the date of an applicant’s Form U4 (Uniform Application for Securities Industry Registration or Transfer) and provide member firms any information resulting from such a search if such information is different from what was reported in the applicant’s Form U4. These enhancements are likely to: (1) reduce the costs to firms associated with conducting these public records checks, which often involve finding and hiring a vendor; (2) result in more timely reporting of disclosure information to the benefit of regulators, investors and firms; and (3) result in a significant reduction of late disclosure fees related to judgments and liens. See Information Notice 5/18/18.

 Upcoming Deadlines and Effective Dates

FINRA Requests for Comment

FINRA has four open requests for comment:

  • FINRA is conducting a retrospective review of the rule governing carrying agreements to assess its effectiveness and efficiency. Regulatory Notice 18-10 outlines the general retrospective rule review process and seeks responses to several questions related to firms’ experiences with this specific rule. Comments are due today.
  • Regulatory Notice 18-16 seeks comment on proposed rule amendments that would impose additional restrictions on member firms that employ brokers with a history of significant past misconduct. These brokers, while relatively small in number, may present heightened risk of harm to investors, and any misconduct by them also may undermine confidence in the securities markets as a whole. The rule proposals would strengthen the existing controls FINRA has applied to such brokers to further promote investor protection and market integrity. The new proposals are one part of FINRA’s initiatives to confront high-risk brokers. Comments are due June 29, 2018.
  • FINRA is conducting a retrospective review of Rule 3110 (Supervision), governing annual compliance meetings to assess its effectiveness and efficiency. Regulatory Notice 18-14 outlines the general retrospective rule review process and seeks responses to several questions related to firms’ experiences with this specific rule. Comments are due June 25, 2018.
  • FINRA seeks comment on proposed rule amendments that would revise the quantitative suitability obligation under FINRA Rule 2111 (Suitability) to more effectively address instances of excessive trading in customers’ accounts. The proposed rule amendments would remove the element of control that currently must be proved to demonstrate a violation, but would not change the obligations to prove that the transactions were recommended and that the level of trading was excessive and unsuitable in light of the customer’s investment profile. See Regulatory Notice 18-13 for more information. Comments are due June 19, 2018.

SEC Requests for Comment

  • The SEC requests comment on FINRA’s proposal to amend FINRA Rule 6433 (Minimum Quotation Size Requirements for OTC Equity Securities) to adopt as permanent the minimum quotation sizes for OTC equity securities currently operating on a pilot basis. The comment period expires May 29, 2018. See the Federal Register notice.
  • The SEC requests comment on FINRA’s proposal to amend FINRA Rules 12500 and 12501 of the Code of Arbitration Procedure for Customer Disputes (Customer Code) and FINRA Rules 13500 and 13501 of the Code of Arbitration Procedure for Industry Disputes (Industry Code and together, Codes), to charge a $100 per-arbitrator fee to parties who request cancellation of a prehearing conference within three business days before a scheduled prehearing conference. The proposed rule change would also amend FINRA Rules 12214(a) and 13214(a) of the Codes to create a $100 honorarium to pay each arbitrator scheduled to attend a prehearing conference that was cancelled within three business days of the prehearing conference. The comment period expires June 8, 2018. See the Federal Register notice.

Special Election to Fill a FINRA Large Firm Governor Vacancy
FINRA is conducting a special meeting of large firm members to elect one individual to fill a vacant Large Firm Governor seat on the FINRA Board of Governors. Eligible individuals who have not been nominated by FINRA’s Nominating Committee may be included on the ballot for the election of governors by following the petition procedures described in Election Notice 4/20/18. Petitions for candidacy are due June 4, 2018.

FINRA’s 2018 Risk Control Assessment (RCA) launched recently, when each firm's executive representative and their designated assistant received an email linking to their firm's unique RCA survey. The RCA is an important part of FINRA's risk-based surveillance and examination programs. FINRA uses it to better understand the risks associated with the business activities in which individual member firms engage, the products and services they offer, and the kinds of clients and counterparties with which they deal. In addition, the RCA helps FINRA identify and assess the integrity of the controls intended to manage those attendant risk exposures.

Firms are asked to complete the survey by June 8, 2018.


 Education and Compliance Programs

Register today for the new FINRA Disclosure Reporting, Monitoring and Registration Conference. The one-day event is designed to bring together compliance, supervision, and registration staff from broker-dealers and third-party vendors to discuss regulatory reporting requirements and industry practices related to firm registrations, including FINRA’s Membership Application Program (MAP), individual registrations, customer complaints and disclosures. Discounted rates available for the first 50 to register through July 27.

Phone-In Workshop and WebEx Presentation: Markup/Markdown Analysis Report

FINRA is hosting a phone-in workshop and WebEx presentation on Thursday, June 14, 2018, from 4 p.m. – 5 p.m. ET, to preview the new TRACE Markup/Markdown Analysis Report and demonstrate its features. The report displays a firm's markup and markdown behavior compared to the industry and provides the underlying details used to calculate the markup or markdown. FINRA is introducing the new TRACE Markup/Markdown Analysis Report on the Report Center this summer.

To participate,
register on FINRA’s website. Dial-in and WebEx information will be provided to registrants in advance of the presentation.

District compliance events are designed for compliance and legal professionals at FINRA member firms, and offer an opportunity to hear about current regulatory issues while engaging with District Office staff. Review the list of upcoming events being held in the Chicago, Denver, Dallas, Woodbridge, New Orleans, Kansas City, Los Angeles and Boston districts.

FINRA has several Half-Day Compliance Boot Camps coming up soon.

Review the compliance calendar to see a complete list of events that may be in your area.

Also coming up:

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