Regulatory Events Reporting

Regulatory Obligations and Related Considerations

Regulatory Obligations

FINRA Rule 4530 (Reporting Requirements) requires member firms to promptly report to FINRA, and associated persons to promptly report to firms, specified events, including, for example, findings of violations of securities laws and FINRA rules, certain written customer complaints, and certain disciplinary actions the firm takes. Member firms must also promptly report to FINRA certain internal conclusions of violations, and must report quarterly to FINRA statistical and summary information regarding certain written customer complaints. In addition, FINRA Rule 4530 requires member firms to file with FINRA copies of specified criminal actions, civil complaints and arbitration claims.

Related Considerations

  • Does your firm provide periodic reminders or training on such requirements, and what consequences does your firm impose on those persons who do not comply?
  • How does your firm monitor for red flags of unreported written customer complaints and other reportable events?
  • How does your firm confirm that it accurately and timely reports to FINRA written customer complaints, including ones that associated persons reported to your firm’s compliance department?
  • Does your firm look for trends in events and written customer complaints required to be reported pursuant to FINRA Rule 4530? How is information on trends raised to relevant business and compliance management?
  • Do your firm’s procedures for reporting internal conclusions of violations:
    • clearly identify the person(s)—or, if applicable, the members of a committee—responsible for determining whether a violation has occurred, and whether it is of a nature that requires reporting under FINRA Rule 4530(b), as well as the level of seniority of such person(s) (e.g., general counsel, chief compliance officer or a senior staff committee); and
    • provide protocols for escalating violations and potential violations to such person(s), as well as for reporting internal conclusions of violations to FINRA within 30 calendar days after your firm has concluded, or reasonably should have concluded, that a violation has occurred?

Guidance for Form U5 Filings

FINRA reminds firms that they are required to provide timely, complete and accurate information on Forms U5 (Uniform Termination Notice for Securities Industry Registration):

  • Each question on the Form U5 stands on its own, and firms should carefully read each question on the form and respond appropriately to each question.
    • For example, when reporting information relating to the reason for full termination, firms must separately consider and respond to Section 3 of the form (Full Termination) and all of the disclosure questions in Section 7.
    • Additionally, reporting the reason for termination in Section 3 does not abrogate the requirement that a firm answer the questions in Section 7 timely, completely and accurately—including, in particular, Questions 7B (Internal Review Disclosure) and 7F (Termination Disclosure).
      • When firms provide an affirmative response to Question 7B, they also complete the Internal Review Disclosure Reporting Page (DRP). As a reminder, when a firm indicates on that DRP that the internal review is pending, the firm is required after concluding the internal review to file a Form U5 amendment and provide resolution details.
    • In this regard, with respect to factual situations that would cause a reasonable person to answer affirmatively a disclosure question in Form U5, a firm may not parse through the questions in a manner that would allow the firm to avoid responding affirmatively to the question.
  • A firm must provide sufficient detail when responding to Form U5 questions such that a reasonable person may understand the circumstances behind the reason for termination.
    • For example, Form U5’s Question 7F asks whether the individual who is the subject of the Form U5 voluntarily resigned, or was discharged or permitted to resign, after allegations were made that accused the individual of certain types of misconduct.
    • If a firm is required to answer Question 7F, they must answer it in the affirmative, irrespective of whether or not the firm is the entity making the allegations of misconduct.
  • For additional guidance, please see Regulatory Notice 10-39 (Obligation to Provide Timely, Complete and Accurate Information on Form U5).

Findings and Effective Practices

Findings

  • No Reporting to the Firm: Associated persons not reporting written customer complaints, judgments concerning securities, commodities or financial-related insurance civil litigation and other events to the firms’ compliance departments because they were not aware of firm requirements.
  • Inadequate Surveillance: Firms not conducting regular email and other surveillance for unreported events and written customer complaints.
  • No Reporting to FINRA: Failing to report to FINRA written customer complaints that associated persons reported to the firms’ compliance departments.
  • Incorrect Rule 4530 Product/Problem Codes: As part of the statistical reporting to FINRA, failing to use codes that correlated to the most prominent product or the most egregious problem alleged in the written customer complaints, but instead reporting less prominent or severe codes or other codes based on the firms’ investigations or other information.

Effective Practices

  • WSPs: Maintaining procedures that address how associated persons should report customer complaints they receive and how the compliance department should proceed when associated persons report such customer complaints (e.g., routing the complaint to the personnel responsible for FINRA Rule 4530 reporting).
  • Compliance Questionnaires: Developing detailed annual compliance questionnaires to verify the accuracy of associated persons’ disclosures, including follow-up questions (such as whether they are the subject of any pending lawsuits or arbitration claims, or have received any written customer complaints).
  • FINRA Risk Monitoring Reports Cards: Reviewing the quarterly reports provided by the FINRA Customer Complaints and Sales Practice Complaint Reports.
  • Surveillance of Communications Channels: Conducting surveillance of firm-approved communications channels (e.g., email, messaging apps) targeted to identify unreported written customer complaints (by, for example, including complaint-related words in their keyword lexicons, reviewing for unknown email addresses and conducting random email checks).
  • Review of Registered Representatives’ Financial Condition: Identifying expenses, settlements and other payments that may indicate unreported events by conducting periodic reviews of their associated persons’ financial condition, including background checks and credit reports.
  • Review of Publicly Available Information: Conducting periodic searches of associated persons’ names on web forums, court filings and other publicly available databases, including reviewing for any judgments concerning securities, commodities or financial-related insurance civil litigation and other reportable events.
  • Assessing Disclosure Timeliness: Monitoring trends in disclosure-reporting timeliness and reviewing the FINRA 4530 Disclosure Timeliness Report Card.
  • Training: Providing training, periodic reminders or both to associated persons related to compliance with FINRA Rule 4530, including guidance for assessing and escalating potential customer complaints received by e-communications channels other than firm-approved email.

Additional Resources

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