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9522. Initiation of Eligibility Proceeding; Member Regulation Consideration; and Requirements for an Interim Plan of Heightened Supervision

This version was introduced with the filing of SR-FINRA-2020-015, and extended by SR-FINRA-2020-017, SR-FINRA-2020-022, SR-FINRA-2020-042, SR-FINRA-2021-006 and SR-FINRA-2021-019, which were filed for immediate effectiveness. This version is temporary and effective from May 8, 2020, through December 31, 2021, pending any future extensions.
(a) Initiation by FINRA
(1) Issuance of Notice of Disqualification or Ineligibility
If FINRA staff has reason to believe that a disqualification exists or that a member or person associated with a member otherwise fails to meet the eligibility requirements of FINRA, FINRA staff shall issue a written notice to the member or applicant for membership under Rule 1013. The notice shall specify the grounds for such disqualification or ineligibility. FINRA staff shall not issue such written notice to members or applicants for membership under Rule 1013 with respect to disqualifications arising solely from findings or orders specified in Section 15(b)(4)(D), (E), or (H) of the Exchange Act or arising under Section 3(a)(39)(E) of the Exchange Act, unless the member or applicant for membership under Rule 1013 is required to file an application pursuant to a Regulatory Notice entitled "Eligibility Proceedings: Amendments to FINRA Rule 9520 Series to Establish Procedures Applicable to Firms and Associated Persons Subject to Certain Statutory Disqualifications" (the "SD Regulatory Notice").
(2) Notice Regarding a Member
A notice issued to a disqualified member shall state that the disqualified member may apply for relief by filing an application or, in the case of a matter set forth in Rule 9522(e)(1), a written request for relief, within ten business days after service of the notice. If the member fails to file the application or, where appropriate, the written request for relief, within the 10-day period, the membership of the member shall be canceled, unless the Department of Member Regulation grants an extension for good cause shown.
(3) Notice Regarding an Associated Person
A notice issued regarding a disqualified person to a member or applicant for membership under Rule 1013 shall state that such member or applicant for membership may file an application on behalf of itself and such person or, in the case of a matter set forth in Rule 9522(e)(1), a written request for relief, within ten business days after service of the notice. If the member fails to file the application or, where appropriate, the written request for relief, within the 10-day period, the registration of the disqualified person shall be revoked, unless the Department of Member Regulation grants an extension for good cause shown.
(4) Service
A notice issued under this paragraph (a) shall be served by facsimile, electronic mail or pursuant to Rules 9131 and 9134. Service by electronic mail shall be deemed complete upon sending the notice.
(b) Obligation of Member to Initiate Proceeding
(1) A member shall file an application or, in the case of a matter set forth in Rule 9522(e)(1), a written request for relief, with CRED, if the member determines prior to receiving a notice under paragraph (a) that:
(A) it has become a disqualified member;
(B) a person associated with such member or whose association is proposed by an applicant for membership under Rule 1013 has become a disqualified person; or
(C) the member or applicant for membership under Rule 1013 wishes to sponsor the association of a person who is a disqualified person.
(2) For any disqualifications arising solely from findings or orders specified in Section 15(b)(4)(D), (E), or (H) of the Exchange Act or arising under Section 3(a)(39)(E) of the Exchange Act, a member shall not file an application unless instructed to do so by the SD Regulatory Notice.
(c) Withdrawal of Application
A member may withdraw its application or written request for relief prior to a hearing by filing a written notice with CRED pursuant to Rules 9135, 9136, and 9137. A member may withdraw its application after the start of a hearing but prior to the issuance of a decision by the National Adjudicatory Council by filing a written notice with CRED and the Office of General Counsel pursuant to Rules 9135, 9136, and 9137.
(d) Ex Parte Communications
The prohibitions against ex parte communications set forth in Rule 9143 shall become effective under the Rule 9520 Series when FINRA staff has initiated the eligibility proceeding and FINRA staff has knowledge that a member intends to file an application or written request for relief pursuant to the Rule 9520 Series.
(e) Member Regulation Consideration righthere
(1) Matters that may be Approved by the Department of Member Regulation without the Filing of an Application
The Department of Member Regulation, as it deems consistent with the public interest and the protection of investors, is authorized to approve a written request for relief from the eligibility requirements by a disqualified member or a sponsoring member without the filing of an application by such disqualified member or sponsoring member if a disqualified member or disqualified person is subject to one or more of the following conditions but is not otherwise subject to disqualification:
(A) a disqualified member or disqualified person is subject to a disqualification based on an injunction that was entered ten or more years prior to the proposed admission or continuance by order, judgment, or decree of any court of competent jurisdiction from acting as an investment adviser, underwriter, broker, dealer, municipal securities dealer, government securities broker, government securities dealer, transfer agent, foreign person performing a function substantially equivalent to any of the above, entity or person required to be registered under the Commodity Exchange Act, or any substantially equivalent foreign statute or regulation, or as an affiliated person or employee of any investment company, bank, insurance company, foreign entity substantially equivalent to any of the above, or entity or person required to be registered under the Commodity Exchange Act or any substantially equivalent foreign statute or regulation, or from engaging in or continuing any conduct or practice in connection with any such activity, or in connection with the purchase or sale of any security.
(B) a sponsoring member makes a request to change the supervisor of a disqualified person; or
(C) a disqualified member or sponsoring member is a member of both FINRA and another self-regulatory organization; and:
(i) the other self-regulatory organization intends to file a Notice under SEA Rule 19h-1 approving the membership continuance of the disqualified member or, in the case of a sponsoring member, the proposed association or continued association of the disqualified person; and
(ii) the Department of Member Regulation concurs with that determination.
(2) Matters that may be Approved by the Department of Member Regulation after the Filing of an Application
The Department of Member Regulation, as it deems consistent with the public interest and the protection of investors, is authorized to approve an application filed by a disqualified member or sponsoring member if the disqualified member or disqualified person is subject to one or more of the following conditions but is not otherwise subject to disqualification (other than a matter set forth in paragraph (e)(1)):
(A) The disqualified person is already a participant in, a member of, or a person associated with a member of, a self-regulatory organization (other than FINRA), and the terms and conditions of the proposed admission to FINRA are the same in all material respects as those imposed or not disapproved in connection with such person's prior admission or continuance pursuant to an order of the SEC under SEA Rule 19h-1 or other substantially equivalent written communication;
(B) The Department of Member Regulation finds, after reasonable inquiry, that except for the identity of the employer concerned, the terms and conditions of the proposed admission or continuance are the same in all material respects as those imposed or not disapproved in connection with a prior admission or continuance of the disqualified person pursuant to an order of the SEC under SEA Rule 19h-1 or other substantially equivalent written communication, and that there is no intervening conduct or other circumstance that would cause the employment to be inconsistent with the public interest or the protection of investors;
(C) The disqualification previously was a basis for the institution of an administrative proceeding pursuant to a provision of the federal securities laws, and was considered by the SEC in determining a sanction against such disqualified person in the proceeding; and the SEC concluded in such proceeding that it would not restrict or limit the future securities activities of such disqualified person in the capacity now proposed, or, if it imposed any such restrictions or limitations for a specified time period, such time period has elapsed;
(D) The disqualification consists of a court order or judgment of injunction or conviction, and such order or judgment:
(i) expressly includes a provision that, on the basis of such order or judgment, the SEC will not institute a proceeding against such person pursuant to Section 15(b) or 15B of the Exchange Act or that the future securities activities of such persons in the capacity now proposed will not be restricted or limited; or
(ii) includes such restrictions or limitations for a specified time period and such time period has elapsed;
(E) The disqualified person's functions are purely clerical and/or ministerial in nature; or
(F) The disqualification arises from findings or orders specified in Section 15(b)(4)(D), (E), or (H) of the Exchange Act or arises under Section 3(a)(39)(E) of the Exchange Act.
(3) Rights of Disqualified Member, Sponsoring Member, Disqualified Person, and Department of Member Regulation
(A) In the event the Department of Member Regulation does not approve a written request for relief from the eligibility requirements pursuant to paragraph (e)(1), the disqualified member or sponsoring member may file an application, and such member shall have the right to proceed under Rule 9523 or 9524, as applicable. The Department of Member Regulation may require a disqualified member or sponsoring member to file an application with CRED, notwithstanding the provisions of paragraph (e)(1).
(B) In the event the Department of Member Regulation does not approve an application pursuant to paragraph (e)(2), the disqualified member or sponsoring member shall have the right to proceed under Rule 9523 or 9524, as applicable.
(f) Submission of an Interim Plan of Heightened Supervision
An application filed pursuant to paragraph (a)(3) or (b)(1)(B) of this Rule that seeks the continued association of a disqualified person must include:
(1) An interim plan of heightened supervision. The application shall identify an appropriately registered principal responsible for carrying out the interim plan of heightened supervision, who has signed the plan and acknowledged his or her responsibility for implementing and maintaining such plan. The interim plan of heightened supervision shall be in effect throughout the entirety of the application review process which shall be considered concluded only upon the final resolution of the eligibility proceeding. The interim plan of heightened supervision shall comply with the provisions of Rule 3110, and be reasonably designed and tailored to include specific supervisory policies and procedures that address any regulatory concerns related to the nature of the disqualification, the nature of the sponsoring member's business, and the disqualified person's current and proposed activities during the review process; and
(2) A written representation from the sponsoring member that the disqualified person is currently subject to an interim plan of heightened supervision as set forth in paragraph (f)(1) of this Rule.
(g) Determination that an Application is Substantially Incomplete
If the Department of Member Regulation determines that an application filed pursuant to paragraph (a)(3) or (b)(1)(B) of this Rule that seeks the continued association of a disqualified person is substantially incomplete, it may reject the application and deem it not to have been filed. In such case, the Department of Member Regulation shall provide the sponsoring member notice of the delinquency and its reasons for so doing. The sponsoring member shall have 10 business days after service of the notice of delinquency to remedy the application, or such other time period prescribed by the Department of Member Regulation. An application will be deemed to be substantially incomplete if:
(1) It does not include the representation required by paragraph (f)(2) of this Rule; or
(2) The Department of Member Regulation determines that it does not include a reasonably designed interim plan of heightened supervision that complies with the standards of paragraph (f)(1) of this Rule.
(h) Consequences for Failure to Timely Remedy an Application that is Substantially Incomplete
If an applicant fails to remedy an application that is substantially incomplete, the Department of Member Regulation shall serve a written notice on the sponsoring member of its determination to reject the application and its reasons for so doing. FINRA shall refund the application fee, less $1,000, which shall be retained by FINRA as a processing fee. Upon such rejection, the sponsoring member must promptly terminate association with the disqualified person.
Amended by SR-FINRA-2021-019 eff. August 13, 2021.
Amended by SR-FINRA-2020-011 eff. June 1, 2021.
Amended by SR-FINRA-2021-006 eff. April 1, 2021.
Amended by SR-FINRA-2020-042 eff. Dec. 1, 2020.
Amended by SR-FINRA-2020-039 eff. Oct. 29, 2020.
Amended by SR-FINRA-2020-022 eff. July 27, 2020.
Amended by SR-FINRA-2020-017 eff. June 10, 2020.
Amended by SR-FINRA-2020-015 eff. May 8, 2020.
Amended by SR-FINRA-2019-009 eff. May 8, 2019.
Amended by SR-FINRA-2008-045 eff. June 15, 2009.
Amended by SR-FINRA-2008-021 eff. Dec. 15, 2008.
Amended by SR-NASD-2004-133 eff. March 7, 2005.
Amended by SR-NASD-2002-02 eff. January 3, 2002.
Amended by SR-NASD-99-76 eff. Sept. 11, 2000.
Amended by SR-NASD-98-57 eff. March 26, 1999.
Amended by SR-NASD-97-81 eff. Jan. 16, 1998.
Adopted by SR-NASD-97-28 eff. Aug. 7, 1997.

Selected Notices: 99-16, 00-56, 05-12, 08-57, 09-19, 21-09.