SEC Approves Amendments Relating to Web-based Delivery of the Regulatory Element of Continuing Education
Effective Date: October 1, 2015
|Referenced Rules and Notices
FINRA Rule 1250
FINRA Rule 2010
FINRA Rule 4530
NASD Rule 1043
Section 4(f) of Schedule A to the FINRA By-Laws
SEA Section 3(a)(39)
FINRA CE Online System™
Rules of Conduct
The SEC approved amendments to FINRA rules to provide a Web-based delivery method for completing the Regulatory Element of the Continuing Education (CE) requirements, and to establish the fee for it.1 The amendments become effective on October 1, 2015.
The amended rule text is attached as Appendix A.
Questions regarding this Notice should be directed to:
Background and Discussion
The CE requirements under FINRA Rule 1250 (Continuing Education Requirements) include a Regulatory Element2 and a Firm Element.3 The Regulatory Element applies to registered persons4 and consists of periodic computer-based training on regulatory, compliance, ethical and supervisory subjects, and sales practice standards, which must be completed within prescribed time frames.5 Currently, the Regulatory Element may be administered in a test center or in-firm subject to specified procedures,6 but most registered persons complete the Regulatory Element in a test center.
Web-based Delivery (CE Online)
Because of the costs and other concerns regarding the test center delivery method, FINRA has amended Rule 1250(a)(6) to provide that the Regulatory Element program will be administered through Web-based delivery or such other technological manner and format as specified by FINRA.
The new Web-based delivery method, which will be called CE Online and administered through the FINRA CE Online System, will provide registered persons with the flexibility to complete the Regulatory Element at a location of their choosing, including their private residence, at any time during their 120-day window for completion of the Regulatory Element.7
Authentication Process and Rules of Conduct
CE Online will include safeguards to authenticate the identity of the CE participant. For instance, prior to commencing a CE Online session, the participant will be asked to provide a portion of his or her Social Security number (either first five or last four digits) and date of birth.8
In addition, before commencing a CE Online session, FINRA will require that each participant agree to the Rules of Conduct for CE Online. Among other things, the rules of conduct require each participant to attest that he or she is in fact the person who is taking the CE session. The rules of conduct further require that each participant agree that the Regulatory Element content is the intellectual property of FINRA and that the content cannot be copied or redistributed by any means.
If FINRA discovers that a participant has violated the rules of conduct, the participant will forfeit the results of the CE Online session and may be subject to disciplinary action by FINRA.9 Violation of the rules of conduct will be considered conduct inconsistent with high standards of commercial honor and just and equitable principles of trade, in violation of FINRA Rule 2010 (Standards of Commercial Honor and Principles of Trade).10
FINRA is rolling out the CE Online program in two phases. FINRA will launch the first phase of CE Online, which will include the S106, S201 and S901 Regulatory Element programs, on October 1, 2015; FINRA will launch the second phase of CE Online, which will include the S101 Regulatory Element program in a more personalized format, on January 4, 2016.11
In addition, FINRA is phasing out test-center delivery by no later than six months after January 4, 2016. Registered persons will continue to have the option of completing the Regulatory Element in a test center until the phase-out of the test center delivery method, but they will be required to use the FINRA CE Online System after that date.
FINRA is also phasing out in-firm delivery of the Regulatory Element now offered through Pearson VUE. FINRA will phase out in-firm delivery on a rolling basis as each Regulatory Element program becomes available for CE Online. Firms will not be able to establish new in-firm delivery programs after October 1, 2015. Moreover, firms that currently offer in-firm delivery programs will not be able to use that delivery method for the S106, S201 and S901 Regulatory Element programs after October 1, 2015. However, such firms may continue to use their in-firm delivery system for the S101 Regulatory Element program until January 4, 2016.
The current fee for test-center and in-firm deliveries is typically $100 per session.12 In conjunction with the amendment to Rule 1250(a)(6), FINRA has amended Section 4(f) of Schedule A to the FINRA By-Laws to establish a fee of $55 for each participant who completes the Regulatory Element via CE Online.13
FINRA has eliminated NASD Rule 1043 relating to the registration of proctors for in-firm delivery. FINRA will automatically terminate the proctor registration category in the CRD system on January 4, 2016, which, as noted above, is the launch date of the second phase of CE Online.
For additional information regarding the transition to CE Online, including the phase-out dates for test-center and in-firm deliveries, please visit the CE Online Web page, which provides details and information that firms and participants need to know. FINRA will regularly update the Web page with any new information.
1See Securities Exchange Act Release No. 75581 (July 31, 2015) (Order Approving File No. SR-FINRA-2015-015).
2See FINRA Rule 1250(a) (Regulatory Element).
4 For purposes of the Regulatory Element, a "registered person" is defined as any person registered with FINRA as a representative, principal, assistant representative or research analyst. See FINRA Rule 1250(a)(5) (Definition of Registered Person).
5 Pursuant to FINRA Rule 1250(a), each registered person is required to complete the Regulatory Element initially within 120 days after the person's second registration anniversary date and, thereafter, within 120 days after every third registration anniversary date. Any registered person who has not completed the Regulatory Element program within the prescribed time frames will have his or her FINRA registrations deemed inactive and designated as "CE inactive" on the Central Registration Depository (CRD®) system until such time as the requirements of the program have been satisfied. A CE inactive person is prohibited from performing, or being compensated for, any activities requiring registration, including supervision. See also Notice to Members 95-35 (Continuing Education Program Update: Regulatory Element Questions and Answers) (May 1995). Moreover, if a registered person is CE inactive for a two-year period, FINRA will administratively terminate the person's registration status with FINRA. The twoyear period would be calculated from the date the person becomes CE inactive. If a registered person becomes CE inactive but is not registered with a member when the two-year period ends, FINRA will nevertheless update the CRD system to reflect that the person did not satisfy the Regulatory Element program. In either case, such person must reapply for registration and requalify (or obtain a waiver of the applicable qualification examination(s)) to be eligible to register again.
In addition, a registered person is required to retake the Regulatory Element in the event such person is: (1) subject to a statutory disqualification as defined by Section 3(a)(39) of the Securities Exchange Act of 1934; (2) subject to a suspension or imposition of a fine of $5,000 or more by a self-regulatory organization (SRO) or securities governmental agency; or (3) ordered to do so as a sanction in a disciplinary action by an SRO or a securities governmental agency.
6 The in-firm delivery procedures require, among other things, that the in-firm sessions be administered by a proctor who will be responsible for ensuring compliance with the required procedures and for monitoring the participants. See FINRA Rule 1250(a)(6) (In-Firm Delivery of the Regulatory Element). NASD Rule 1043 (Proctors of In-Firm Delivery of Regulatory Element) addresses the registration requirements for proctors. The rule requires that an associated person designated as a proctor by a firm for the purposes of the in-firm delivery of the Regulatory Element be registered as a proctor with FINRA through the filing of a Form U4 (Uniform Application for Securities Industry Registration or Transfer); provided that an associated person who is already registered with FINRA in another registration category, such as a General Securities Representative, may be designated as a proctor by a firm without having to register as a proctor with FINRA.
7 While the amendment provides such flexibility, firms may choose to impose their own conditions based on their supervisory and compliance needs. For instance, a firm that wishes to have registered persons complete CE on the firm's premises can do so by having the registered person access CE Online from a firm device and location. Moreover, firms would have to update their written policies and procedures regarding the Regulatory Element to reflect the transition to CE Online and communicate the update to registered persons.
8 Individuals who do not have a Social Security number will be required to provide their date of birth and another unique identifier, such as their CRD number or Form U10 (the Uniform Examination Request for Non-FINRA Candidates) identification number, to validate their identity.
9 For instance, for cheating on the Regulatory Element, FINRA's Sanction Guidelines recommend a bar. See FINRA Sanction Guidelines at 40 (2013).
10 Further, an associated person who assists another associated person in violating the rules of conduct will also be considered to have violated FINRA Rule 2010. Firms must also consider whether they have an obligation to report violations of the rules of conduct to FINRA. For instance, FINRA Rule 4530.01 (Reporting of Firms' Conclusions of Violations) requires a firm to report, among other things, if it concludes that an associated person has engaged in multiple instances of any violative conduct.
11 The S106 is for Investment Company and Variable Contracts Representatives, the S201 is for registered principals and supervisors, the S901 is for Operations Professionals and the S101 is for all other registration categories.
12 In-firm deliveries receive a three dollar rebate per session. There are also additional fees for taking the session outside the United States, failing to appear on time for an appointment or cancelling or rescheduling an appointment. See Section 4 of Schedule A to the FINRA By-Laws.
13 The total reduction in fees is estimated to be approximately $1 million in 2015, $9 million in 2016, and $11 million in 2017 compared to the fee structure of the test-center delivery.
Amended Rule Text
New language is underlined; deletions are in brackets.
By-Laws of the Corporation
Schedule A to the By-Laws of the Corporation
Assessments and fees pursuant to the provisions of Article VI of the By-Laws of the Corporation shall be determined on the following basis.
Section 1 through Section 3 No Change.
IM-Section 4(b)(1) and (e) Exemption from Certain Registration and Membership Application Fees for Certain NYSE and NYSE Alternext US LLC Member Organizations
Section 5 through Section 14 No Change.
1200. REGISTRATION AND QUALIFICATION
1250. Continuing Education Requirements
This Rule prescribes requirements regarding the continuing education of certain registered persons subsequent to their initial qualification and registration with FINRA. The requirements shall consist of a Regulatory Element and a Firm Element as set forth below.
[Members]The continuing education Regulatory Element program will be [permitted to] administered [the continuing education Regulatory Element program to their registered persons by instituting an in-firm program acceptable to] through Web-based delivery or such other technological manner and format as specified by FINRA.
[The following procedures are required:]
[[Name of member] has established procedures for delivering Regulatory Element continuing education on its premises. I have determined that these procedures are reasonably designed to comply with SRO requirements pertaining to in-firm delivery of Regulatory Element continuing education, including that such procedures have been implemented to comply with principal/officer in-charge, supervision, site, technology, proctors, and administrative requirements.]
[Title [Must be signed by a Principal Executive Officer (or Executive Representative) of the firm]]