Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend FINRA Rules 1210 (Registration Requirements) and 1240 (Continuing Education Requirements), 33427-33439 [2021-13286]
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Federal Register / Vol. 86, No. 119 / Thursday, June 24, 2021 / Notices
Complex Orders (in a pro-rata manner),
if the Exchange has designated the class
as eligible for Priority Complex Order
Plus status, immediately following
Priority Customer allocations and prior
to any Initiating TPH allocations,
pursuant to Rule 5.38(e)(1)(A) (if the C–
AIM Auction results in no price
improvement) and Rule 5.38(e)(2) (if the
C–AIM Auction results in price
improvement for the Agency Order and
the Initiating TPH selected a singleprice submission).
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III. Discussion and Commission
Findings
After careful review, the Commission
finds that the proposed rule change is
consistent with the requirements of the
Act and the rules and regulations
thereunder applicable to a national
securities exchange and, in particular,
with Section 6(b) of the Act.22 In
particular, the Commission finds that
the proposed rule change is consistent
with Section 6(b)(5) of the Act,23 which
requires, among other things, that the
rules of a national securities exchange
be designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest, and
that the rules of a national securities
exchange not be designed to permit
unfair discrimination between
customers, issuers, brokers or dealers.
The Commission believes that the
proposed new Priority Order Plus
allocation status may encourage further
competition in the AIM and C–AIM in
exclusively listed classes, by
encouraging aggressive quoting from
Users. According to the Exchange, price
improvement auctions have provided
the market with benefits (such as
providing an efficient manner of access
to liquidity for customers), however, the
options industry overall has observed
that quoted liquidity on the book has
decreased, quotes have widened, and
options market makers have reduced
their participation in the market, which
the Exchange believes has impacted
market quality.24 By providing market
22 15 U.S.C. 78f(b). In approving this proposed
rule change, the Commission has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
23 15 U.S.C. 78f(b)(5).
24 See Letter to Brett Redfearn, Director, Division
of Trading & Markets, from Cboe Global Markets,
Inc. the Listed Options Trading Committee of the
Securities Industry and Financial Markets
Association (‘‘SIFMA’’), and the Listed Options
Committee of the Security Traders Association
(‘‘STA’’), dated June 4, 2018, available at https://
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participants, particularly Market-Makers
and other liquidity providers, the
opportunity to receive priority over the
Initiating TPH in exclusively listed
index classes if they post more
aggressive markets, the Commission
believes the potential for increased
competition within an individual AIM
or C–AIM auction may enhance
displayed liquidity, provide for tighter
markets, and ultimately provide better
execution prices for all market
participants in classes available
exclusively for trading on the Exchange.
While the Commission recognizes that
the loss of Initiating TPH priority to
Users with Priority Order Plus status
may potentially result in fewer auctions
being initiated, the Commission believes
that those individual auctions should be
more competitive, as Users may be
encouraged by the prospect of Priority
Order Plus status to submit competitive
orders/quotes. This may benefit the
Agency Order by providing more
opportunity for price improvement
within an individual auction. The AIM
Auction in particular should benefit
from potentially increased competition,
especially since the AIM Auction no
longer provides guaranteed price
improvement for smaller orders (except
where the NBBO spread is $0.01).25
The Commission also believes that
updating the allocation of Priority
Orders and other contra-side interest
(including non-Priority Customer nondisplayed Reserve Quantity) to be prorata for all AIM- or SAM-eligible classes
(as applicable), as opposed to pricetime, may enhance competition by
encouraging market participants to bring
more liquidity into the auctions and
provide competitive bids and offers
throughout an auction. The Commission
notes that pro-rata allocation is
consistent with the manner in which
other options exchanges allocate agency
orders at the conclusion of comparable
price improvement auctions 26 and
solicitation auctions on those
exchanges.27 Further, the proposed procdn.batstrading.com/resources/comment_letters/
Cboe-Joint-Letter-with-SIFMA-and-The-STA-onOptions-Market-Structure.pdf.
25 See Securities Exchange Act Release No. 91609
(April 19, 2021), 86 FR 21773 (April 23, 2021) (SR–
CBOE–2021–024).
26 See Nasdaq ISE Options 3, Section 13(d)(3),
which governs allocations at the conclusion of ISE’s
price improvement mechanism and allocates an
agency order across non-Priority Customer interest
‘‘based upon the percentage of the total number of
contracts available at the price that is represented
by the size of such interest’’; and MIAX Options
Rule 515A(a)(2)(iii), which governs allocations at
the conclusion of MIAX’s price improvement
mechanism and allocates an agency order across
Professional interest on a pro-rata basis.
27 See Nasdaq ISE Options 3, Section 11(d)(3),
which governs the allocations at the conclusion of
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33427
rata allocation for Priority Orders and
all other contra-side interest at the
conclusion of an AIM Auction is
consistent with the manner in which the
same orders currently receive
allocations at the conclusion of an AIM
auction on the Exchange’s affiliated
options exchange, Cboe EDGX
Exchange, Inc. (‘‘EDGX Options’’).28
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,29 that the
proposed rule change (SR–CBOE–2021–
025), is approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.30
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–13244 Filed 6–23–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–92183; File No. SR–FINRA–
2021–015]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a
Proposed Rule Change To Amend
FINRA Rules 1210 (Registration
Requirements) and 1240 (Continuing
Education Requirements)
June 15, 2021.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on June 3,
2021, the Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I, II,
and III below, which Items have been
prepared by FINRA. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
ISE’s solicitation mechanism and allocates an
agency order across non-Priority Customer interest
‘‘based upon the percentage of the total number of
contracts available at the best price that is
represented by the size of the non-Priority Customer
[interest]’’.
28 Pursuant to EDGX Options Rules
21.19(e)(1)(C)–(D) and (e)(2)(B)–(C), Priority Orders
or all other contra-side interest, as applicable, are
allocated pursuant to EDGX Options Rule 21.8(c),
which provides that all option classes on EDGX
Options have a pro-rata base algorithm for orders
resting at the same best price.
29 15 U.S.C. 78s(b)(2).
30 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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Federal Register / Vol. 86, No. 119 / Thursday, June 24, 2021 / Notices
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
FINRA is proposing to amend FINRA
Rule 1240 (Continuing Education
Requirements). The proposed rule
change also makes conforming
amendments to FINRA Rule 1210
(Registration Requirements). Among
other changes, the proposed rule change
requires that the Regulatory Element of
continuing education be completed
annually rather than every three years
and provides a path through continuing
education for individuals to maintain
their qualification following the
termination of a registration.
The text of the proposed rule change
is available on FINRA’s website at
https://www.finra.org, at the principal
office of FINRA and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
FINRA included statements concerning
the purpose of and basis for the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. FINRA has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
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1. Purpose
(i) Background
The continuing education program for
registered persons of broker-dealers
(‘‘CE Program’’) currently requires
registered persons to complete
continuing education consisting of a
Regulatory Element and a Firm Element.
The Regulatory Element, which is
administered by FINRA, focuses on
regulatory requirements and industry
standards, while the Firm Element is
provided by each firm and focuses on
securities products, services and
strategies the firm offers, firm policies
and industry trends. The CE Program is
codified under the rules of the selfregulatory organizations (‘‘SROs’’). The
CE Program for registered persons of
FINRA members is codified under Rule
1240.3
3 See also Rule 1210.07 (All Registered Persons
Must Satisfy the Regulatory Element of Continuing
Education).
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a. Regulatory Element
Rule 1240(a) (Regulatory Element)
currently requires a registered person to
complete the applicable 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.4 FINRA may extend
these time frames for good cause
shown.5 Registered persons who have
not completed the Regulatory Element
within the prescribed time frames will
have their FINRA registrations deemed
inactive and will be designated as ‘‘CE
inactive’’ in the CRD system until the
requirements of the Regulatory Element
have been satisfied.6 A CE inactive
person is prohibited from performing, or
being compensated for, any activities
requiring FINRA registration, including
supervision. Moreover, if registered
persons remain CE inactive for two
consecutive years, they must requalify
by retaking required examinations (or
obtain a waiver of the applicable
qualification examinations).7
4 See
Rules 1240(a)(1) (Requirements) and (a)(4)
(Reassociation in a Registered Capacity). An
individual’s registration anniversary date is
generally the date they initially registered with
FINRA in the Central Registration Depository
(‘‘CRD®’’) system. However, an individual’s
registration anniversary date would be reset if the
individual has been out of the industry for two or
more years and is required to requalify by
examination, or obtain an examination waiver, in
order to reregister. An individual’s registration
anniversary date would also be reset if the
individual obtains a conditional examination
waiver that requires them to complete the
Regulatory Element by a specified date. Nonregistered individuals who are participating in the
waiver program under Rule 1210.09 (Waiver of
Examinations for Individuals Working for a
Financial Services Industry Affiliate of a Member)
(‘‘FSAWP participants’’) are also subject to the
Regulatory Element. See also Rule 1240(a)(5)
(Definition of Covered Person). The Regulatory
Element for FSAWP participants correlates to their
most recent registration(s), and it must be
completed based on the same cycle had they
remained registered. FSAWP participants are
eligible for a single, fixed seven-year waiver period
from the date of their initial designation, subject to
specified conditions. Registered persons who
become subject to a significant disciplinary action,
as specified in Rule 1240(a)(3) (Disciplinary
Actions), may be required to retake the Regulatory
Element within 120 days of the effective date of the
disciplinary action, if they remain registered.
Further, their cycle for participation in the
Regulatory Element may be adjusted to reflect the
effective date of the disciplinary action rather than
their registration anniversary date.
5 See Rule 1240(a)(2) (Failure to Complete).
6 See supra note 5. Individuals must complete the
entire Regulatory Element session to be considered
to have ‘‘completed’’ the Regulatory Element;
partial completion is the same as non-completion.
7 This CE inactive two-year period is calculated
from the date such persons become CE inactive, and
it continues to run regardless of whether they
terminate their registrations before the end of the
two-year period. Therefore, if registered persons
terminate their registrations while in a CE inactive
status, they must satisfy all outstanding Regulatory
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The Regulatory Element consists of a
subprogram for registered persons
generally, and a subprogram for
principals and supervisors.8 While some
of the current Regulatory Element
content is unique to particular
registration categories, most of the
content has broad application to both
representatives and principals.9
The Regulatory Element was
originally designed at a time when most
individuals had to complete the
Regulatory Element at a test center, and
its design was shaped by the limitations
of the test center-based delivery model.
In 2015, FINRA transitioned the
delivery of the Regulatory Element to an
online platform (‘‘CE Online’’), which
allows individuals to complete the
content online at a location of their
choosing, including their private
residence. This online delivery provides
FINRA with much greater flexibility in
updating content in a timelier fashion,
developing content tailored to each
registration category and presenting the
material in an optimal learning format.
b. Firm Element
Rule 1240(b) (Firm Element) currently
requires each firm to develop and
administer an annual Firm Element
training program for covered registered
persons.10 The rule requires firms to
conduct an annual needs analysis to
determine the appropriate training.11
Currently, at a minimum, the Firm
Element must cover training in ethics
and professional responsibility as well
as the following items concerning
securities products, services and
strategies offered by the member: (1)
General investment features and
associated risk factors; (2) suitability
and sales practice considerations; and
(3) applicable regulatory
requirements.12
A firm, consistent with its needs
analysis, may determine to apply
Element prior to the end of the CE inactive two-year
period in order to reregister with a member without
having to requalify by examination or having to
obtain an examination waiver.
8 The S101 (General Program for Registered
Persons) and the S201 (Registered Principals and
Supervisors).
9 The current content is presented in a single
format leading individuals through a case that
provides a story depicting situations that they may
encounter in the course of their work.
10 The rule defines ‘‘covered registered persons’’
as any registered person who has direct contact
with customers in the conduct of a member’s
securities sales, trading and investment banking
activities, any individual who is registered as an
Operations Professional or a Research Analyst, and
the immediate supervisors of any such persons. See
Rule 1240(b)(1) (Persons Subject to the Firm
Element).
11 See Rule 1240(b)(2) (Standards for the Firm
Element).
12 See supra note 11.
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Federal Register / Vol. 86, No. 119 / Thursday, June 24, 2021 / Notices
toward the Firm Element other required
training. The current rule does not
expressly recognize other required
training, such as training relating to the
anti-money laundering (‘‘AML’’)
compliance program and training
relating to the annual compliance
meeting,13 for purposes of satisfying
Firm Element training.
c. Termination of a Registration
Currently, individuals whose
registrations as representatives or
principals have been terminated for two
or more years may reregister as
representatives or principals only if they
requalify by retaking and passing the
applicable representative- or principallevel examination or if they obtain a
waiver of such examination(s) (the
‘‘two-year qualification period’’).14 The
two-year qualification period was
adopted prior to the creation of the CE
Program and was intended to ensure
that individuals who reregister are
relatively current on their regulatory
and securities knowledge.
(ii) Proposed Rule Change
After extensive work with the
Securities Industry/Regulatory Council
on Continuing Education (‘‘CE
Council’’) and discussions with
stakeholders, including industry
participants and the North American
Securities Administrators Association
(‘‘NASAA’’), FINRA proposes the
13 See
FINRA Rules 3310(e) and 3110(a)(7).
Rule 1210.08 (Lapse of Registration and
Expiration of SIE). The two-year qualification
period is calculated from the date individuals
terminate their registration and the date FINRA
receives a new application for registration. The twoyear qualification period does not apply to
individuals who terminate a limited registration
category that is a subset of a broader registration
category for which they remain qualified. For
instance, it would not apply to an individual who
maintains his registration as a General Securities
Representative but who terminates his registration
as an Investment Company and Variable Contracts
Products Representative. Such individuals have the
option of reregistering in the more limited
registration category without having to requalify by
examination or obtain an examination waiver so
long as they continue to remain qualified for the
broader registration category. Further, the two-year
qualification period only applies to the
representative- and principal-level examinations; it
does not extend to the Securities Industry Essentials
(‘‘SIE’’) examination. The SIE examination is valid
for four years, but having a valid SIE examination
alone does not qualify an individual for registration
as a representative or principal. Individuals whose
registrations as representatives or principals have
been revoked pursuant to FINRA Rule 8310
(Sanctions for Violation of the Rules) may only
requalify by retaking the applicable representativeor principal-level examination in order to reregister
as representatives or principals, in addition to
satisfying the eligibility conditions for association
with a firm. Waivers are granted either on a caseby-case basis under Rule 1210.03 (Qualification
Examinations and Waivers of Examinations) or as
part of the waiver program under Rule 1210.09.
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14 See
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following changes to the CE Program
under Rule 1240.15
a. Transition to Annual Regulatory
Element for Each Registration Category
As noted above, currently, the
Regulatory Element generally must be
completed every three years, and the
content is broad in nature. Based on
changes in technology and learning
theory, the Regulatory Element content
can be updated and delivered in a
timelier fashion and tailored to each
registration category, which would
further the goals of the Regulatory
Element.16 Therefore, to provide
registered persons with more timely and
relevant training on significant
regulatory developments, FINRA
proposes amending Rule 1240(a) to
require registered persons to complete
the Regulatory Element annually by
December 31.17 The proposed
amendment would also require
registered persons to complete
Regulatory Element content for each
representative or principal registration
category that they hold, which would
also further the goals of the Regulatory
Element.18
15 The proposed changes are based on the CE
Council’s September 2019 recommendations to
enhance the CE Program. See Recommended
Enhancements for the Securities Industry
Continuing Education Program, available at https://
cecouncil.org/media/266634/councilrecommendations-final-.pdf. The CE Council is
composed of securities industry representatives and
representatives of SROs. The CE Council was
formed in 1995 upon a recommendation from the
Securities Industry Task Force on Continuing
Education and was tasked with facilitating the
development of uniform continuing education
requirements for registered persons of brokerdealers.
16 When the CE Program was originally adopted
in 1995, registered persons were required to
complete the Regulatory Element on their second,
fifth and 10th registration anniversary dates. See
Securities Exchange Act Release No. 35341
(February 8, 1995), 60 FR 8426 (February 14, 1995)
(Order Approving File Nos. SR–AMEX–94–59; SR–
CBOE–94–49; SR–CHX–94–27; SR–MSRB–94–17;
SR–NASD–94–72; SR–NYSE–94–43; SR–PSE–94–
35; and SR–PHLX–94–52). The change to the
current three-year cycle was made in 1998 to
provide registered persons more timely and
effective training, consistent with the overall
purpose of the Regulatory Element. See Securities
Exchange Act Release No. 39712 (March 3, 1998),
63 FR 11939 (March 11, 1998) (Order Approving
File Nos. SR–CBOE–97–68; SR–MSRB–98–02; SR–
NASD–98–03; and SR–NYSE–97–33).
17 See proposed Rules 1240(a)(1) and (a)(4). Some
commenters supported the proposed change to an
annual requirement, while others disagreed with it
or expressed concerns with the burdens it would
impose on firms and registered persons. See infra
Item II.C.(a) and (b)(i).
18 See proposed Rules 1210.07 and 1240(a)(1).
Commenters generally supported the development
of tailored content that is specific to each
registration category. See infra Item II.C.(a).
However, some commenters questioned whether
there would be sufficient content for certain
registration categories in a given year, while others
were concerned that some individuals could be
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33429
Under the proposed rule change,
firms would have the flexibility to
require their registered persons to
complete the Regulatory Element sooner
than December 31, which would allow
firms to coordinate the timing of the
Regulatory Element with other training
requirements, including the Firm
Element.19 For example, a firm could
require its registered persons to
complete both their Regulatory Element
and Firm Element by October 1 of each
year.
Individuals who would be registering
as a representative or principal for the
first time on or after the implementation
date of the proposed rule change would
be required to complete their initial
Regulatory Element for that registration
category in the next calendar year
following their registration.20 In
addition, subject to specified
conditions, individuals who would be
reregistering as a representative or
principal on or after the implementation
date of the proposed rule change would
also be required to complete their initial
Regulatory Element for that registration
category in the next calendar year
following their reregistration.21
Consistent with current requirements,
individuals who fail to complete their
Regulatory Element within the
prescribed period would be
automatically designated as CE
inactive.22 However, the proposed rule
change preserves FINRA’s ability to
extend the time by which a registered
person must complete the Regulatory
Element for good cause shown.23
FINRA also proposes amending Rule
1240(a) to clarify that: (1) Individuals
who are designated as CE inactive
would be required to complete all of
their pending and upcoming annual
Regulatory Element, including any
annual Regulatory Element that
becomes due during their CE inactive
subject to duplicate or excessive content. See infra
Item II.C.(a) and (b)(i).
19 See proposed Rules 1240(a)(1) and (a)(4).
20 See proposed Rule 1240(a)(1).
21 See proposed Rule 1240(a)(4).
22 See proposed Rule 1240(a)(2). In Regulatory
Notice 20–05 (February 2020), FINRA had proposed
a 15-day grace period prior to being designated as
CE inactive, provided that the member documented
the reasons for the individual’s failure to complete
the Regulatory Element within the prescribed
calendar year and retained the documentation for
recordkeeping purposes. Some commenters noted
that the proposed grace period would increase
administrative and operational burdens, while one
commenter requested that FINRA provide a longer
grace period. See infra Item II.C.(b)(i). FINRA has
determined to eliminate the proposed grace period
to avoid any unnecessary burdens.
23 See supra note 22. The proposed rule change
clarifies that the request for an extension of time
must be in writing and include supporting
documentation, which is consistent with current
practice.
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Federal Register / Vol. 86, No. 119 / Thursday, June 24, 2021 / Notices
period, to return to active status; 24 (2)
the two-year CE inactive period is
calculated from the date individuals
become CE inactive, and it continues to
run regardless of whether individuals
terminate their registrations; 25 (3)
individuals who become subject to a
significant disciplinary action may be
required to complete assigned
continuing education content as
prescribed by FINRA; 26 (4) individuals
who have not completed any Regulatory
Element content for a registration
category in the calendar year(s) prior to
reregistering would not be approved for
registration for that category until they
complete that Regulatory Element
content, pass an examination for that
registration category or obtain an
unconditional examination waiver for
that registration category, whichever is
applicable; 27 and (5) the Regulatory
Element requirements apply to
individuals who are registered, or in the
process of registering, as a
representative or principal.28 In
addition, FINRA proposes making
conforming amendments to Rule
1210.07.
Under the proposed rule change, the
amount of content that registered
persons would be required to complete
in a three-year, annual cycle for a
particular registration category is
expected to be comparable to what most
registered persons are currently
completing every three years.29 In some
years, there may be more required
content for some registration categories
depending on the volume of rule
changes and regulatory issues. In
addition, an individual who holds
multiple registrations may be required
to complete additional content
compared to an individual who holds a
single registration because, as noted
above, individuals would be required to
complete content specific to each
registration category that they hold.30
However, individuals with multiple
registrations would not be subject to
duplicative regulatory content in any
24 See
supra note 22.
supra note 22.
26 See proposed Rule 1240(a)(3). As previously
noted, Rule 1240(a)(3) currently provides that such
individuals may be required to retake the
Regulatory Element. See supra note 4.
27 See proposed Rule 1240(a)(4).
28 See proposed Rule 1240(a)(5).
29 As previously noted, some commenters
questioned whether there would be sufficient
annual content for certain registration categories
and some commenters were concerned that some
individuals might be subject to duplicate or
excessive content on an annual basis. See supra
note 18; see infra Item II.C.(a) and (b)(i).
30 As discussed in the economic impact
assessment, individuals with multiple registrations
represent a smaller percentage of the population of
registered persons.
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25 See
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given year. The more common
registration combinations would likely
share much of their relevant regulatory
content each year. For example,
individuals registered as General
Securities Representatives and General
Securities Principals would receive the
same content as individuals solely
registered as General Securities
Representatives, supplemented with a
likely smaller amount of supervisoryspecific content on the same topics. The
less common registration combinations
may result in less topic overlap and
more content overall.
b. Recognition of Other Training
Requirements for Firm Element and
Extension of Firm Element to All
Registered Persons
To better align the Firm Element
requirement with other required
training, FINRA proposes amending
Rule 1240(b) to expressly allow firms to
consider training relating to the AML
compliance program and the annual
compliance meeting toward satisfying
an individual’s annual Firm Element
requirement.31 FINRA also proposes
amending the rule to extend the Firm
Element requirement to all registered
persons, including individuals who
maintain solely a permissive registration
consistent with Rule 1210.02
(Permissive Registrations), thereby
further aligning the Firm Element
requirement with other broadly-based
training requirements.32 In conjunction
with this proposed change, FINRA
proposes modifying the current
minimum training criteria under Rule
1240(b) to instead provide that the
training must cover topics related to the
role, activities or responsibilities of the
registered person and to professional
responsibility.33
c. Maintenance of Qualification After
Termination of Registration
FINRA proposes adopting paragraph
(c) under Rule 1240 and Supplementary
Material .01 and .02 to Rule 1240 to
provide eligible individuals who
terminate any of their representative or
principal registrations the option of
maintaining their qualification for any
31 See proposed Rule 1240(b)(2)(D). Commenters
overwhelmingly supported this proposed change.
See infra Item II.C.(b)(ii).
32 See proposed Rule 1240(b)(1). As noted earlier,
the current requirement only applies to ‘‘covered
registered persons’’ and not all registered persons.
Not all commenters agreed with this proposed
change. See infra Item II.C.(b)(ii).
33 See proposed Rule 1240(b)(2)(B). In Regulatory
Notice 20–05, FINRA had proposed to retain the
current minimum training criteria under Rule
1240(b)(2)(B). One commenter stated that the
current criteria is overly prescriptive and that the
requirement should be more flexible. See infra Item
II.C.(b)(ii). FINRA is revising the rule in response.
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of the terminated registrations by
completing continuing education.34 The
proposed rule change would not
eliminate the two-year qualification
period.35 Rather, it would provide such
individuals an alternative means of
staying current on their regulatory and
securities knowledge following the
termination of a registration(s). Eligible
individuals who elect not to participate
in the proposed continuing education
program would continue to be subject to
the current two-year qualification
period. The proposed rule change is
generally aligned with other
professional continuing education
programs that allow individuals to
maintain their qualification to work in
their respective fields during a period of
absence from their careers (including an
absence of more than two years) by
satisfying continuing education
requirements for their credential.
The proposed rule change would
impose the following conditions and
limitations:
• Individuals would be required to be
registered in the terminated registration
category for at least one year
immediately prior to the termination of
that category; 36
• individuals could elect to
participate when they terminate a
registration or within two years from the
termination of a registration; 37
34 Commenters overwhelmingly supported this
proposed change. See infra Item II.C.(b)(iii). The
proposed option would also be available to
individuals who terminate any permissive
registrations as provided under Rule 1210.02.
However, the proposed option would not be
available to individuals who terminate a limited
registration category that is a subset of a broader
registration category for which they remain
qualified. As previously noted, such individuals
currently have the option of reregistering in the
more limited registration category without having to
requalify by examination or obtain an examination
waiver so long as they continue to remain qualified
for the broader registration category. In addition,
the proposed option would not be available to
individuals who are maintaining an eliminated
registration category, such as the category for
Corporate Securities Representative, or individuals
who have solely passed the Securities Industry
Essentials examination, which does not, in and of
itself, confer registration.
35 One commenter requested that FINRA
eliminate the two-year qualification period. See
infra Item II.C.(b)(iii).
36 See proposed Rule 1240(c)(1).
37 See proposed Rule 1240(c)(2). Individuals who
elect to participate at the later date would be
required to complete, within two years from the
termination of their registration, any continuing
education that becomes due between the time of
their Form U5 (Uniform Termination Notice for
Securities Industry Registration) submission and
the date that they commence their participation. In
addition, FINRA would enhance its systems to
notify individuals of their eligibility to participate,
enable them to affirmatively opt in, and notify them
of their annual continuing education requirement if
they opt in.
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• individuals would be required to
complete annually all prescribed
continuing education; 38
• individuals would have a maximum
of five years in which to reregister; 39
• individuals who have been CE
inactive for two consecutive years, or
who become CE inactive for two
consecutive years during their
participation, would not be eligible to
participate or continue; 40 and
• individuals who are subject to a
statutory disqualification, or who
become subject to a statutory
disqualification following the
termination of their registration or
during their participation, would not be
eligible to participate or continue.41
38 See proposed Rule 1240(c)(3). However, upon
a participant’s request and for good cause shown,
FINRA would have the ability to grant an extension
of time for the participant to complete the
prescribed continuing education. A participant who
is also a registered person must directly request an
extension of the prescribed continuing education
from FINRA. The continuing education content for
participants would consist of a combination of
Regulatory Element content and content selected by
FINRA and the CE Council from the Firm Element
content catalog discussed below. One commenter
suggested that the content, subject matter and
volume of training be the same for both participants
and registered persons. See infra Item II.C.(b)(iii).
The content would correspond to the registration
category for which individuals wish to maintain
their qualifications. Participants who are
maintaining their qualification status for a principal
registration category that includes one or more
corequisite representative registrations must also
complete required annual continuing education for
the corequisite registrations in order to maintain
their qualification status for the principal
registration category. In Regulatory Notice 20–05,
FINRA had proposed that participants complete the
prescribed continuing education annually. The
proposed rule change clarifies that the prescribed
continuing education must be completed by
December 31 of the calendar year, which is
consistent with the timing for the proposed annual
Regulatory Element.
39 See proposed Rule 1240(c). As described in
greater detail in Item II.C. of this filing, in
Regulatory Notice 20–05, FINRA had proposed a
seven-year participation period, and some
commenters suggested that there should not be any
time limit on the participation period. See infra
Item II.C.(b)(iii). However, based on discussions
with NASAA and its support for a participation
period of five years, the proposed rule change
provides a five-year participation period in the
interest of consistency and promoting registration
efficiency. See infra Item II.C.(b)(iii). The proposed
five-year participation period would continue to
serve the diversity and inclusion goals of the
proposed rule change. In addition, individuals
applying for reregistration must satisfy all other
requirements relating to the registration process
(e.g., submit a Form U4 (Uniform Application for
Securities Industry Registration or Transfer) and
undergo a background check).
40 See proposed Rules 1240(c)(4) and (c)(5).
41 See proposed Rules 1240(c)(1) and (c)(6).
Individuals who are subject to a statutory
disqualification would not be eligible to enter the
proposed continuing education program.
Individuals who become subject to a statutory
disqualification while participating in the proposed
continuing education program would not be eligible
to continue in the program. Further, any content
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The proposed rule change also
includes a look-back provision that
would, subject to specified conditions,
extend the proposed option to
individuals who have been registered as
a representative or principal within two
years immediately prior to the
implementation date of the proposed
rule change and individuals who have
been FSAWP participants immediately
prior to the implementation date of the
proposed rule change.42
completed by such participants would be
retroactively nullified upon disclosure of the
statutory disqualification. The following example
illustrates the application of the proposed rule
change to individuals who become subject to a
statutory disqualification while participating in the
proposed continuing education program. Individual
A participates in the proposed continuing
education program for four years and completes the
prescribed content for each of those years. During
year five of his participation, he becomes subject to
a statutory disqualification resulting from a foreign
regulatory action. In that same year, FINRA receives
a Form U4 submitted by a member on behalf of
Individual A requesting registration with FINRA.
The Form U4 discloses the statutory
disqualification event. FINRA would then
retroactively nullify any content that Individual A
completed while participating in the proposed
continuing education program. Therefore, in this
example, in order to become registered with FINRA,
he would be required to requalify by examination.
This would be in addition to satisfying the
eligibility conditions for association with a FINRA
member firm. See Exchange Act Sections 3(a)(39)
and 15(b)(4) and Article III of the FINRA By-Laws.
42 See proposed Supplementary Material .01 to
Rule 1240. Such individuals would be required to
elect whether to participate by the implementation
date of the proposed rule change. If such
individuals elect to participate, they would be
required to complete their initial annual content by
the end of the calendar year in which the proposed
rule change is implemented. In addition, if such
individuals elect to participate, their initial
participation period would be adjusted based on the
date that their registration was terminated. The
current waiver program for FSAWP participants
would not be available to new participants upon
implementation of the proposed rule change. See
proposed Rule 1210.09. However, individuals who
are FSAWP participants immediately prior to the
implementation date of the proposed rule change
could elect to continue in that waiver program until
the program has been retired. As noted above,
FSAWP participants may participate for up to seven
years in that waiver program, subject to specified
conditions. See supra note 4. In Regulatory Notice
20–05, FINRA had proposed to eliminate the
FSAWP given that the participation period of seven
years for FSAWP participants would have been the
same for participants in the proposed continuing
education program. As discussed above, the
proposed rule change provides a five-year
participation period for participants in the
proposed continuing education program. So as not
to disadvantage FSAWP participants, FINRA has
determined to preserve that waiver program for
individuals who are participating in the FSAWP
immediately prior to the implementation date of the
proposed rule change. Because the proposed rule
change transitions the Regulatory Element to an
annual cycle, FSAWP participants who remain in
that waiver program following the implementation
of the proposed rule change would be subject to an
annual Regulatory Element requirement. See
proposed Rule 1240(a)(1). Finally, the proposed
rule change preserves FINRA’s ability to extend the
time by which FSAWP participants must complete
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33431
In addition, the proposed rule change
includes a re-eligibility provision that
would allow individuals to regain
eligibility to participate each time they
reregister with a firm for a period of at
least one year and subsequently
terminate their registration, provided
that they satisfy the other participation
conditions and limitations.43 Finally,
FINRA proposes making conforming
amendments to Rule 1210, including
adding references to proposed Rule
1240(c) under Rule 1210.08.
The proposed rule change will have
several important benefits. It will
provide individuals with flexibility to
address life and career events and
necessary absences from registered
functions without having to requalify
each time. It will also incentivize them
to stay current on their respective
securities industry knowledge following
the termination of any of their
registrations. The continuing education
under the proposed option will be as
rigorous as the continuing education of
registered persons, which promotes
investor protection. Further, the
proposed rule change will enhance
diversity and inclusion in the securities
industry by attracting and retaining a
broader and diverse group of
professionals. Moreover, if the proposed
rule change is implemented, FINRA will
evaluate its efficacy following
implementation to ensure that it is
meeting its goals.
Significantly, the proposed rule
change will be of particular value to
women, who continue to be the primary
caregivers for children and aging family
members and, as a result, are likely to
be absent from the industry for longer
periods.44 In addition, the proposed rule
change will provide longer-term relief
for women, individuals with low
incomes and other populations,
including older workers, who are at a
higher risk of a job loss during certain
economic downturns and who are likely
to remain unemployed for longer
periods.45
the Regulatory Element for good cause shown. See
proposed Rule 1240(a)(2).
43 See proposed Supplementary Material .02 to
Rule 1240.
44 See The Female Face of Family Caregiving
(November 2018), available at https://
www.nationalpartnership.org/our-work/resources/
economic-justice/female-face-family-caregiving.pdf.
45 See The COVID–19 Recession is the Most
Unequal in Modern U.S. History (September 30,
2020), available at https://
www.washingtonpost.com/graphics/2020/business/
coronavirus-recession-equality/ and
Unemployment’s Toll on Older Workers Is Worst in
Half a Century (October 21, 2020), available at
https://www.aarp.org/work/working-at-50-plus/
info-2020/pandemic-unemployment-older-workers.
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d. Other Enhancements to CE Program
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FINRA and the CE Council also plan
to enhance the CE Program in other
ways.46 FINRA will work with the CE
Council to incorporate a variety of
instructional formats to present the
Regulatory Element content. In addition,
FINRA will work with the CE Council
to publish in advance the Regulatory
Element learning topics for the next
year.47 This will allow firms to review
the Regulatory Element topics when
developing their Firm Element training
plan to avoid unnecessary duplication
of topics. The proposed transition to an
annual Regulatory Element requirement
would increase the number of registered
persons who would be required to
complete the Regulatory Element on an
annual basis. To assist compliance with
this proposed change, FINRA would
enhance its systems to provide firms
and registered persons with additional
notification, management and tracking
functionality. In response to comments,
FINRA would also make the Regulatory
Element available via a mobile
compatible format.48
FINRA and the CE Council also will
improve the guidance and resources
available to firms to develop effective
Firm Element training programs, such as
updated guidance for developing and
documenting training plans and specific
principles. Further, FINRA and the CE
Council will develop a catalog of
continuing education content that
would serve as an optional resource for
firms to select relevant Firm Element
content and create learning plans for
their registered persons. The catalog
would include content developed by
third-party training providers, FINRA
and the other SROs participating in the
CE Program. Firms would have the
option of using the content in the
catalog for purposes of their Firm
Element training; they would not be
obligated to select content from the
catalog.
If the Commission approves the
proposed rule change, FINRA will
announce the implementation dates of
the proposed rule change in a
Regulatory Notice to be published no
later than 90 days following
Commission approval.
46 These additional enhancements do not require
any changes to the FINRA rules. Most commenters
supported these enhancements, while some
commenters had concerns and questions. See infra
Item II.C.(b)(iv).
47 If there are any other critical rule changes or
other regulatory developments that arise during a
given year, FINRA and the CE Council will work
to provide registered persons timely and sufficient
training on such rule changes and developments.
48 See infra Item II.C.(b)(i).
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2. Statutory Basis
The proposed rule change is
consistent with the provisions of
Section 15A(b)(6) of the Act,49 which
requires, among other things, that
FINRA rules must be designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, and, in
general, to protect investors and the
public interest, and Section 15A(g)(3) of
the Act,50 which authorizes FINRA to
prescribe standards of training,
experience and competence for persons
associated with FINRA members.
FINRA believes that the proposed
changes to the Regulatory Element and
Firm Element will ensure that all
registered persons receive timely and
relevant training, which will, in turn,
enhance compliance and investor
protection. Further, FINRA believes that
establishing a path for individuals to
maintain their qualification following
the termination of a registration will
reduce unnecessary impediments to
requalification and promote greater
diversity and inclusion in the securities
industry without diminishing investor
protection.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
FINRA does not believe that the
proposed rule change would result in
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. All members
would be subject to the proposed rule
change.
Economic Impact Assessment
FINRA has undertaken an economic
impact assessment, as set forth below, to
further analyze the regulatory need for
the proposed rule change, its potential
economic impacts, including
anticipated costs, benefits, and
distributional and competitive effects,
relative to the current baseline, and the
alternatives FINRA considered in
assessing how best to meet its regulatory
objective.
Regulatory Need
FINRA is proposing to make changes
to the CE Program, including the related
FINRA rules, as part of ongoing efforts
to address and implement the CE
Council’s recommendations. As
described above, the proposed rule
change focuses on: (1) Ensuring that all
registered persons receive relevant and
sufficient Regulatory Element and Firm
Element training on an annual basis; (2)
providing a path through continuing
49 15
50 15
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education for individuals to maintain
their qualification following the
termination of a registration; and (3)
providing firms with the guidance and
resources necessary to design effective
and efficient Firm Element training
programs.
The proposed rule change is expected
to result in a more efficient CE Program
that addresses relevant regulatory
requirements and provides individuals
with improved tools and resources to
understand and comply with such
requirements, enhancing investor
protection. Moreover, the proposed rule
change would provide new channels for
individuals to maintain their
qualification status for a terminated
registration category and, in so doing,
could increase the likelihood that
professionals who need to step away
from the industry for a period could
return, subject to satisfying all other
requirements relating to the registration
process.
Economic Baseline
The economic baseline for the
proposed rule change is the existing CE
Program. As described above, registered
persons of broker-dealers are required to
participate in continuing education
consisting of a Regulatory Element and
a Firm Element. The Regulatory Element
is generally delivered every three years
and focuses on regulatory requirements
and industry standards, while the Firm
Element is an annual requirement and
focuses on securities products, services
and strategies firms offer, firm policies
and industry trends.
As stated above, under the current
regime, individuals generally have a
two-year window from the termination
of their association with a member to
reregister without requalifying by
examination or obtaining a waiver.
According to FINRA’s analysis, the total
number of registered persons,
approximately 620,000, has shown a
slow decrease over the past few years
even as individual registered persons
regularly change their status by ending
and renewing their association with a
firm.51 Across this pool of registered
persons, approximately 65% hold only
one FINRA registration category (for
example either a General Securities
Representative (Series 7) registration or
an Investment Company and Variable
Contracts Products Representative
(Series 6) registration), 25% hold two
FINRA registrations (for example a
General Securities Representative
51 The number of registered persons has been
decreasing at an annual rate of approximately 1%
per year. See, e.g., 2020 FINRA Industry Snapshot,
available at https://www.finra.org/rules-guidance/
guidance/reports-studies/2020-industry-snapshot.
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registration and an Investment Banking
Representative registration), and the
remainder hold three FINRA
registrations or more. Moreover, across
the pool of registered persons, in
addition to the FINRA registration,
approximately 90% hold at least one
state registration, and 50% hold more
than five state registrations. With
respect to registration with a FINRA
member, in recent years, out of the
approximately 620,000 registered
persons, approximately 90,000 end their
registration with all firms with whom
they are registered at some point during
the year. Out of these, about half do not
renew their registration and are
considered to have left the securities
industry.
Under the current baseline, registered
persons who terminate a registration are
given a two-year grace period in which
they can reregister without being
required to retake a qualification
examination or obtain an examination
waiver. Individuals who seek to
reregister more than two years after
terminating their association are
required to requalify by passing an
examination or obtaining an
examination waiver. Requalification
imposes costs in the form of time spent
preparing for and taking the
examinations, potential limitations to
the activities permitted to be conducted
until the requalification is completed,
opportunity costs for the individual and
the potential employers in terms of lost
business, and the direct registration
costs. FINRA understands anecdotally
that these costs currently deter some
significant portion of the population
that give up their registrations from
reregistering.
Figure 1, as an example, presents a
plot of the number of registered persons
that reregister within a given number of
years after having terminated their
registrations for at least 60 days.52 The
focus is on registered persons who
terminated their registrations in either
2007, 2008 or 2009 and the period of
time until they reregister with the same
or a different firm.53 Each bar in Figure
1 represents a 100-day period and,
roughly speaking, three-and-a-half bars
represent one year. As can be observed
in Figure 1, for all three origination
years, there is an increase in the number
of previously registered persons who
reregister towards the end of the second
year from their date of termination. This
is consistent with the incentive in the
current rule permitting individuals to
reregister without having to requalify by
passing an examination or having to
obtain an examination waiver (i.e., the
current two-year qualification period)
and supports the assumption that the
requalification process imposes direct
and indirect economic costs. After this
point, there is a significant drop in the
number of individuals who reregister.
Moreover, following the end of the
second year after terminating their
registrations, the number of individuals
reregistering remains low and tapers off
slowly. Finally, an analysis of the stage
in the Regulatory Element cycle at
which registered persons terminate their
registrations, on average, across the time
period of 2007–2016, suggests that
registered persons who terminate their
registrations tend to do so
approximately 530 days before their
next Regulatory Element would be due
(i.e., on average in the middle of a
current three-year Regulatory Element
cycle).
1
Year
2007
2008
2009
Figure 1: Plot of the number of
previously registered persons that
reregister within a given number of
years after having terminated their
registrations for at least 60 days in either
2007, 2008 or 2009. Each bar represents
100 days, and every year is accordingly
represented by approximately threeand-a-half bars.
52 The minimum 60 days for employment gap
follows the definition used in the 2020 FINRA
Industry Snapshot, available at https://
www.finra.org/rules-guidance/guidance/reportsstudies/2020-industry-snapshot.
53 The period of 2007–2009 covers the events
before, during and after the 2008 financial crisis.
These events had an effect on the number of
individuals leaving the industry, which indeed rose
during this period. However, the trends observed
for these years do not appear to be extreme outliers
and, moreover, potentially reflect changes in labor
markets that the proposed rule change is targeting.
Further, the three years selected for the analysis
provide the means to study the trends of
individuals returning to the industry for up to a
period of 10 years of being away from it.
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With respect to firms, the economic
baseline is derived from the current
processes and procedures used to
implement the existing CE Program.
Firms are currently responsible for the
appropriate monitoring of the
compliance of their registered persons
with the three-year Regulatory Element
cycle and for administering the annual
Firm Element. Further, firms may
experience material negative impact
where they are not able to retain
qualified experienced persons because
of professional and personal events that
require such individuals to take an
extended leave of absence from the
industry.
Economic Impacts
FINRA believes that economic
impacts of the proposed rule change
would result in both benefits and costs
to firms and registered persons and
would potentially benefit the investor
community. FINRA will undertake an
evaluation of the efficacy of the program
within a reasonable period following the
implementation date. The aim of such
an evaluation is to ensure that the
program is meeting its goals and
objectives, without resulting in
unintended diminished investor
protections, or unintended increase in
regulatory burden on any relevant
parties.
Anticipated Benefits
FINRA believes that the proposed rule
change would result in two main
benefits to registered persons.
First, as discussed above, the
proposed rule change would transition
the Regulatory Element from a threeyear requirement to an annual
requirement. Such an annual
requirement is implemented for other
professionals, such as Certified Public
Accountants (‘‘CPAs’’), Chartered
Financial Analysts (‘‘CFAs’’) and
lawyers.54 The 2015 transition to CE
Online resulted in a more efficient
program and added a new dimension of
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54 In
general, the CFA requires 20 hours of
continuing education on an annual basis. See CFA’s
Continuing Education (CE) Program, available at
https://www.cfainstitute.org/en/membership/
professional-development/pl. The American
Institute of CPAs (‘‘AICPA’’) requires 120 credit
hours of continuing education over a three-year
period, with the requirement of 40 credit hours per
year. See AICPA’s Continuing Professional
Education (CPE) Requirements for CPAs, available
at https://www.aicpa.org/cpe-learning/
cperequirements.html. The continuing education
requirement for lawyers is different across states,
but it generally ranges between 10–15 credit hours
per year. See https://www.americanbar.org/content/
dam/aba/directories/policy/aba_model_rule_
comparison_by_state_meet_model_rule_noted.pdf.
None of these three professions requires members
to be active practitioners to maintain their
credentials.
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flexibility to the CE Program in terms of
the content, timing and availability of
the program. This change would allow
the Regulatory Element to focus on
current issues and recent regulatory
changes and enhance registered persons’
understanding of the changes through
more frequent assessments. A transition
to an annual cycle is expected to benefit
registered persons by helping to ensure
that they understand recent regulatory
changes and are thus able to perform
their work in a compliant and effective
manner. Under the current program, a
regulatory change could take place in
the beginning of a three-year Regulatory
Element cycle and thus result in some
portion of the individuals in that cycle
being assessed on their knowledge of
the change at a significantly later date.
Second, FINRA believes that a
significant benefit of the proposed rule
change for registered persons would be
the increased flexibility in terms of
maintaining their qualification for a
terminated registration category. As can
be observed in Figure 1, there is an
increase in the number of individuals
who reregister towards the end of the
two-year period, which is the current
grace period for maintaining their
qualification status. Extending this
period to five years through the
completion of continuing education
would provide flexibility to individuals,
as well as potentially result in increased
retention of expertise in the industry.
With respect to increased flexibility,
extending the current two-year period to
five years would allow individuals to
manage significant life events, including
professional changes and development
(such as pursuing educational goals, a
career change to a role in the firm that
is not part of the broker-dealer, working
overseas for an extended period due to
a career change or an attempt at a
different career path) or personal life
events (such as birth or adoption of a
child, unexpected loss in the family or
relocation due to family needs).55
55 See, e.g., Christy Spivey, Time Off at What
Price? The Effects of Career Interruptions on
Earnings, 59(1) Indus. & Lab. Rel. Rev. 119–140
(2005); Jill K. Hayter, Career Interrupted for What
Reason? Job Interruptions and Their Wage Effects,
30(4) J. App. Bus. Res. 1197–1210 (2014). Spivey
(2005) uses the National Longitudinal Survey of
Youth (‘‘NLSY’’) data, and finds that the total time
spent out of the labor force for men was 2.9 years
on average, with a standard deviation of 3.7. The
paper finds that women spent on average 5.3 years
out of the labor force, with a standard deviation of
5.1. Finally, the paper reports that the average
number of interruptions was 2.53 for women and
0.93 for men. Hayter (2014) also studies the NLSY
data. The paper reports the percentage of women
and men in the sample who experienced various
types of employment disruptions, and the average
cumulative length of disruptions by type,
conditional on having at least one interruption.
Non-family disruptions are found to have similar
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Through discussions with industry
representatives, FINRA has learned that
the proposed rule change could
potentially lower the barrier to reentry
to the industry. Some firms indicated
that a significant benefit may arise in
cases where an individual leaves the
broker-dealer to gain experience in an
affiliate of a parent company, for
instance in an affiliated commercial
bank, investment adviser or foreign
affiliate. Other firms indicated that the
proposed rule change could potentially
be relevant for under-represented
populations in the securities industry,
such as, for example, female
registrants.56
With respect to firms, FINRA believes
that the proposed rule change will result
in three main benefits. First, FINRA
believes that the transition to an annual
Regulatory Element cycle will reduce
firms’ regulatory risk, as well as
enhance compliance and reduce
compliance-related costs. This benefit
would potentially result from the
enhanced timeliness and relevance
afforded by the proposed annual cycle.
Second, the proposed rule change
would further enhance and streamline
the Firm Element requirement. These
changes include an express recognition
of existing firm training programs, such
as the annual compliance meeting,
toward satisfying a registered
individual’s Firm Element requirement,
potentially saving firms compliance
resources currently devoted to
developing and implementing different
training programs. In addition, in
conjunction with the proposed rule
change, FINRA and the CE Council
would develop a content catalog,
managed by FINRA, that would serve as
an optional resource from which firms
could select or supplement their Firm
Element content.57 Such a catalog could
provide firms with a more cost-efficient
resource for Firm Element content.
Third, with respect to the extended
time period for maintaining a
qualification status, FINRA believes that
impacts across genders. However, women are much
more likely (15% versus 2%) to experience familyrelated disruptions and the total reported length out
of the work force resulting from the disruption is
three times longer for women versus men (150
weeks versus 53 weeks).
56 FINRA has repeated the analysis presented in
Figure 1, separating registered persons by gender.
The analysis found that female registered persons
are underrepresented, at an approximate ratio of
one to four. With respect to the pattern of
reregistering under the baseline that is presented in
Figure 1, the analysis found that the pattern was
similar for either male or female registered persons,
when studied separately. However, this does not
rule out that female registrants could especially
benefit from the proposed rule change, for the
reasons discussed above.
57 See supra Item II.A.1.(ii)d.
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the proposed rule change could result in
added flexibility for firms in terms of
hiring qualified candidates. This could
ultimately extend the potential pool of
securities industry professionals and
potentially benefit firms regardless of
their size. Through discussions with
industry representatives, FINRA has
learned that this could permit firms to
better retain skilled professionals, more
easily provide individuals with
professional development outside the
broker-dealer, and facilitate the hiring
process for experienced professionals
who have required the career flexibility.
In addition, FINRA believes that the
investor community will ultimately
benefit from the proposed rule change.
These benefits will stem from the
potential increase in the knowledge and
ongoing training of registered persons,
as well as through the increased
flexibility of retention of skill and
experience in the industry.
Finally, FINRA notes that these
benefits may be limited for individuals
seeking to maintain FINRA and state
registrations if there are significant
differences between the relevant
requirements across the various
regulatory frameworks. For instance,
currently, state regulators require an
individual to retake examinations for
terminated licenses after two years.
Some individuals may be dissuaded
from remaining in the industry where
the state requirements are more binding
than those proposed in this filing.
Others may be dissuaded from taking
advantage of the flexibility provided by
the proposed rule change at the expense
of other obligations. As discussed above,
approximately 90% of registered
individuals hold some combination of
FINRA and state registrations. This may
serve as an upper bound on an estimate
of the proportion of the population that
may be limited in the full advantages of
the proposed rule change, depending on
the combinations of registrations held
and individual state rules.58
58 As of November 2020, out of the approximately
620,000 FINRA registered persons, approximately
84% held a Series 7 or a Series 6. This population
is expected to potentially be impacted by regulatory
differences (or an estimate of the percentage of the
relevant population that may be constrained by
differences between FINRA and state rules).
Further, approximately 78% of the total registered
persons population have at least one state license.
Depending on roles and responsibilities of FINRA
registered persons, there is not always a state
licensure requirement (specifically, non-customerfacing roles). The anticipated benefits of the
proposed rule change might be more fully achieved
for these individuals. Finally, the impacts of the
potential differences may be particularly
pronounced in a few states that have more than
200,000 individuals licensed in them. For these
states, approximately 90% of these individuals (on
average across these states) hold a Series 7 or a
Series 6.
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Anticipated Costs
FINRA believes that, alongside the
anticipated benefits discussed above,
the proposed rule change would also
result in costs for both firms and
registered persons.
With respect to registered persons,
FINRA anticipates three main costs that
may result from the proposed rule
change. First, the move to an annual
Regulatory Element cycle will increase
the frequency of the required training
and the associated impact of failing to
complete the annual content.59 Further,
this anticipated increase in burdens is
expected to be smaller for individuals
with a single registration category than
for individuals with more than one
registration category. Individuals with
more than one registration category
(approximately 35% of registered
persons) may have more Regulatory
Element content (including the
associated time commitment) in a given
year, in comparison to individuals with
only a single registration category.
Second, the introduction of Regulatory
Element notifications directly to
registered persons could shift some of
the time management burden to them.
Third, the eligibility requirements for
maintaining a qualification status for a
terminated registration category will
require an individual to have been
registered with FINRA in that
registration category for at least one
year, which could limit potential career
changes that may occur within a shorter
period.
With respect to firms, FINRA
anticipates some costs that may result
from the proposed rule change. The
transition to an annual Regulatory
Element requirement could ultimately
increase the administrative and
operational burden on firms due to
changes to compliance systems. This is
anticipated in terms of the resources
required to implement and monitor
compliance with the program on an
annual basis. These resources would
59 However, as discussed above, the amount of
content that registered persons would be required
to complete in a three-year, annual cycle for a
particular registration category is expected to be
comparable to what most registered persons are
currently completing every three years. See supra
Item II.A.1.(ii)a. Some commenters expressed
concerns regarding the costs and burdens that the
proposed annual requirement would impose on
firms and registered persons. See infra Item II.C.(a)
and (b)(i). FINRA recognizes that the transition to
an annual Regulatory Element requirement may
result in potential costs and burdens. However,
FINRA believes that any such costs and burdens are
appropriate and justified given the significant
regulatory benefit of more tailored and timelier
Regulatory Element. Further, FINRA believes that
some of the potential costs and burdens would be
mitigated by the proposed enhancements to the
program.
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also need to be potentially further
increased to address the proposed
extension of the Firm Element
requirement to all registered persons.60
It is anticipated that costs stemming
from the change to an annual Regulatory
Element requirement will tend to
increase with the number of
representatives at a firm and thus be
higher in aggregate at larger firms.
However, economies of scale likely exist
in the application of the proposed
requirements. Thus, the average
additional cost per representative at
larger firms will likely be lower than
that at smaller firms.61
Alternatives Considered
FINRA has considered a range of
alternatives in developing the proposed
rule change. These included alternative
frequency of the Regulatory Element
requirement (periodic versus annual),
alternative time periods for becoming
eligible to maintain a qualification
status for a terminated registration
category (one year versus more than one
year) and alternative time periods for
maintaining a qualification status (seven
years versus 10 or five years).
The proposed rule change reflects a
consideration of the various
alternatives. Within each of these
alternatives there is a trade-off between
providing the flexibility to encourage
more registered persons to remain in the
industry when other, outside demands
arise versus ensuring that those
individuals are likely to be aware of
current regulations and best practices.
For example, with respect to
maintaining qualifications, FINRA
believes that a length of five years could
achieve the main goals and anticipated
benefits of the program. FINRA
considered whether a seven-year period
would better balance flexibility against
investor protection risks. Such a sevenyear period would also likely provide a
reasonable upper limit on the length of
the proposed requalification option, in
so far as a longer period might erode the
benefits of the proposed option. While
the proposed participation period of five
years may limit some individuals’
ability to remain in the industry, it may
better mitigate the impact of differences
60 Some commenters noted that the extension of
the Firm Element to all registered persons could
result in unnecessary costs and burdens, and they
also noted that this proposed change could have a
disparate impact on firms with large home offices
and firms with large numbers of registered support
staff and others holding permissive registrations.
See infra Item II.C.(b)(ii).
61 One commenter suggested that the transition to
an annual Regulatory Element could increase
administrative workloads and costs on smaller
firms and independent contractors. See infra Item
II.C.(b)(i).
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with state licensing requirements.62
Considering the discussion above
regarding economic impacts, issues
stemming from other regulatory
frameworks, as well as the views
expressed by commenters in response to
Regulatory Notice 20–05, including
NASAA’s support for a participation
period of five years, FINRA believes that
a five-year period is more appropriate.63
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C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
(a) Comments Relating to Regulatory
Notice 18–26
In September 2018, the CE Council
published an initial document outlining
several potential enhancements to the
CE Program under consideration by the
CE Council. In support of the CE
Council, FINRA published Regulatory
Notice 18–26 (September 2018) (‘‘Notice
18–26’’) requesting comment on the
potential enhancements. In response to
Notice 18–26, FINRA, on behalf of the
CE Council, received 22 comment
letters. A copy of Notice 18–26 is
available on FINRA’s website at https://
www.finra.org. Copies of the comment
letters received in response to Notice
18–26 are also available on FINRA’s
website.
Most commenters generally supported
the potential enhancements outlined by
the CE Council. The commenters
expressed overwhelming interest in
implementing a mechanism for allowing
previously registered individuals to
maintain their qualification after the
termination of their registrations for
longer than the current two-year period.
In addition, most commenters agreed
that there is value in moving to an
annual Regulatory Element requirement
in order to provide registered persons
with more timely and relevant
education and training. However, many
expressed concern that doing so could
increase the administrative and
operational burden on both firms and
registered persons, particularly for firms
with a narrowly focused business model
(e.g., the sale of mutual funds and
variable annuities). One commenter
expressed concern that increasing the
frequency of the Regulatory Element
may exacerbate the existing burden on
those without ready access to a highspeed internet connection, which is
currently required for online access.
Many commenters supported Regulatory
Element content that is tailored and
specific to each registration category
rather than content that applies
generally to all registered persons. Some
of these commenters questioned
whether there are sufficient regulatory
developments occurring annually that
would be relevant to individuals with
limited registrations, such as registered
persons engaged in the sale of mutual
funds and variable annuities. Further,
commenters widely supported the
creation of a content catalog that firms
could leverage for administering
education and training for their Firm
Element programs. Finally, several
commenters requested more guidance
on the Firm Element component,
including express guidance that other
training requirements may count toward
satisfying the Firm Element
requirement.
Following a review of the public
comments and further discussions with
industry and SRO participants, in
September 2019, the CE Council
published its recommendations to
enhance the CE Program.64 As
previously noted, the proposed rule
change is based on the CE Council’s
recommendations.65
(b) Comments Relating to Regulatory
Notice 20–05
The proposed rule change was
published for comment in Regulatory
Notice 20–05 (February 2020) (‘‘Notice
20–05’’). FINRA received 26 comment
letters in response to Notice 20–05. A
copy of Notice 20–05 is available on
FINRA’s website at https://
www.finra.org. Copies of the comment
letters received in response to Notice
20–05 are also available on FINRA’s
website.66
Below is a summary of the comments
on Notice 20–05 and FINRA’s
responses.
(i) Transition to Annual Regulatory
Element for Each Registration Category
Most of the commenters addressing
the proposed annual Regulatory
Element requirement supported the
change. Some of these commenters
qualified their support. ARM supported
the proposed change if individuals with
multiple registrations would not be
subject to additional or duplicative
requirements. SIFMA, Morgan Stanley,
LPL and Fidelity suggested an annual
‘‘cap’’ on the number of modules that
individuals must complete. Huntington
was concerned about the potential
64 See
supra note 15.
supra note 15.
66 See SR–FINRA–2021–015 (Form 19b–4, Exhibit
2d) for a list of abbreviations assigned to
commenters (available on FINRA’s website at
https://www.finra.org).
65 See
62 Some commenters expressed support for an
indefinite participation period. See infra Item
II.C.(b)(iii).
63 See infra Item II.C.(b)(iii).
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increase in compliance and supervisory
burdens and duplicative training.
Monahan & Roth requested that the cost
of the annual requirement be
proportionately less. STANY requested
that FINRA be mindful of the impact of
costs and compliance efforts, especially
for smaller firms.
Further, Integrated Solutions
suggested that registrations that have
been held for longer periods be subject
to less frequent Regulatory Element.
CFA suggested that an individual’s
‘‘primary’’ registration be subject to an
annual requirement and that the
individual’s other registrations be
subject to less frequent Regulatory
Element. PFS requested that Investment
Company and Variable Contracts
Products Representatives be subject to
less frequent Regulatory Element
because there may not be enough
material to develop annual content for
such individuals. Morgan Stanley
suggested that FINRA consider a phased
approach followed by a cost-benefit
analysis to further assess the impact of
the transition. ARM and Foreside stated
that the 15-day grace period for
completing the Regulatory Element,
which was originally proposed in
Regulatory Notice 20–05, would
increase administrative and operational
burdens. Morgan Stanley requested that
FINRA provide a 30-day grace period.
Morgan Stanley and SIFMA also
requested that FINRA provide hiring
firms with information regarding an
individual’s Regulatory Element status
at the prehire stage, subject to the
individual’s consent.
Several commenters did not support
the proposed annual Regulatory
Element requirement or raised other
concerns with the proposed change.
Executive Advisors, MML, Nationwide
and Pacer did not support the proposed
annual requirement. FSI stated that the
proposed change would potentially
increase administrative workloads and
costs on smaller firms and independent
contractors as well as duplicative
training. FSI also requested clarification
regarding the impact of a CE inactive
status on an individual’s state
registrations, including advisory
registrations, and adequate time for
firms to implement the proposed rule
change. PFS stated that the proposed
change to an annual requirement would
disparately impact those without
broadband internet, which is currently
required to complete the Regulatory
Element.
Registered persons would not be
subject to duplicative regulatory content
in any given year, regardless of how
many registrations they hold. Further,
FINRA does not believe that it is
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necessary to establish an annual ‘‘cap’’
on the amount of regulatory content as
suggested by some commenters. Rather,
with respect to individuals who hold a
significant number of registrations,
FINRA and the CE Council would
review the amount of content that such
individuals would be required to
complete each year and, if necessary,
the amount would be adjusted so that it
is reasonable and balanced. FINRA will
file a separate proposed rule change to
establish the session fee for the
proposed annual Regulatory Element;
we generally expect that the fee for the
annual Regulatory Element would be
reduced and be the same for all
registered persons, regardless of the
amount of content that they would be
required to complete (that is, an
individual who holds multiple
registrations would be subject to the
same annual fee as an individual who
holds a single registration).
FINRA believes that the
implementation of less frequent
Regulatory Element for certain
registration categories or a phased
implementation as suggested by some
commenters would be overly complex
and cause confusion. FINRA will work
with the CE Council to ensure that there
is sufficient and appropriate content for
each registration category. With respect
to the originally proposed 15-day grace
period prior to being designated as CE
inactive, FINRA has eliminated the
grace period from the proposed rule
change to avoid any unnecessary
burdens on firms and registered
persons, as was suggested by some
commenters. However, the proposed
rule change preserves the ability of a
firm to request an extension of time for
an individual, if necessary. In addition,
as is currently the case, an individual’s
CE inactive status would impact the
individual’s ability to function in a
FINRA-registered capacity. As is the
case today, any questions regarding the
impact of a CE inactive status on state
registrations should be directed to the
appropriate state securities regulator.
Finally, in conjunction with the
proposed rule change, FINRA would
enhance its systems to reduce the
overall burden on firms and registered
persons. As part of these enhancements,
FINRA would work with firms to
determine what information would be
helpful and appropriate prior to
associating with or hiring individuals.
FINRA would also provide firms with
adequate time to implement the
proposed rule change. Further, to
mitigate any potential disparate impact
on individuals who do not have ready
access to a high-speed internet
connection, FINRA would make the
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Regulatory Element available via a
mobile compatible format.
(ii) Recognition of Other Training
Requirements for Firm Element and
Extension of Firm Element to All
Registered Persons
Commenters overwhelmingly
supported the express recognition of
AML compliance program training and
annual compliance meeting training
toward satisfying the Firm Element.
Some of these commenters requested
additional flexibility and clarification
regarding the Firm Element
requirement.
Foreside requested that firms be
provided with the flexibility to combine
the requirements of the Regulatory
Element, Firm Element and annual
compliance meeting. Cambridge
suggested that completion of additional
modules of Regulatory Element be
applied toward satisfying the Firm
Element. Cambridge also recommended
that ethics and professional
responsibility training be included in
the Regulatory Element rather than the
Firm Element. Monahan & Roth stated
that the current Firm Element training
criteria is overly prescriptive and that
the requirement should be more
flexible, allowing firms to train to the
scope of their business and changing
environment. NRS stated that other
training should count toward satisfying
Firm Element training if the other
training is applicable to an individual’s
job function. STANY requested that
industry conferences count toward
satisfying the Firm Element. SIFMA
requested that firms should continue to
have the flexibility to determine if
leveraging other training makes sense
given their business model and the
flexibility to cover the topics in the
Regulatory Element in Firm Element
training. SIFMA also requested that the
Firm Element requirement recognize the
unique needs of limited purpose brokerdealers and suggested that Firm Element
training be designed to apply to other
professional designations or training
requirements. NASAA stated that
satisfaction of AML compliance
program training or annual compliance
meeting training alone should not
satisfy Firm Element training.
Not all commenters supported the
extension of the Firm Element
requirement to all registered persons.
FSI and STANY recommended that it be
optional for registered persons who are
not currently covered under the rule.
STANY stated that extending the
requirement to individuals holding
permissive registrations could create
unnecessary burdens and discourage
permissive registrations. LPL stated that
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33437
the proposed change may result in
unnecessary costs. MML stated that it
would have a disparate impact on firms
with large home offices. SIFMA stated
that it would be overly burdensome,
particularly for firms with large
numbers of registered support staff and
others holding permissive registrations
who are not currently covered under the
rule.
The Regulatory Element cannot be
combined with other training
requirements. Registered persons must
complete prescribed regulatory content
provided by FINRA to establish that
they have an appropriate level of
knowledge relating to regulatory
requirements. However, the Firm
Element and annual compliance
meeting may be combined, provided
that the criteria for each requirement is
satisfied.
FINRA and the CE Council will
consider the possibility of making
additional Regulatory Element topics
available to firms, which they could
apply toward satisfying Firm Element
training based on their needs analysis.
FINRA and the CE Council will also
consider whether ethics and
professional responsibility training
should be covered in the Regulatory
Element.
In response to comments, FINRA has
revised the proposed rule change to
replace the current prescriptive Firm
Element criteria with a requirement that
the training cover topics related to the
role, activities or responsibilities of the
registered person and to professional
responsibility. Nothing in the proposed
rule change would preclude firms from
covering the Regulatory Element topics
in their Firm Element training,
consistent with their needs analysis.
Further, consistent with their needs
analysis, firms would continue to have
the flexibility to determine whether
other training, including industry
conferences, may be applied toward the
Firm Element. In addition, the CE
Council will consider issuing best
practices and guidance to help firms
evaluate other financial industry
continuing education programs for
purposes of satisfying the Firm Element.
The recognition of other training
requirements toward satisfying the Firm
Element would still require firms to
conduct a needs analysis to determine
the appropriateness of applying such
other training toward the Firm Element.
However, based on a needs analysis, a
firm may determine that such other
training requirements fully satisfy the
Firm Element requirement. FINRA is
not considering developing Firm
Element training specifically to satisfy
other professional designations or
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training requirements, but some existing
training is, and would continue to be,
appropriate for both Firm Element and
other professional requirements.
The extension of the Firm Element
requirement to all registered persons
would ensure that firms enhance the
securities knowledge, skill and
professionalism of all registered
persons, which is consistent with the
overall goal of the Firm Element. It
would also ensure that registered
persons are provided more specific
learning materials relevant to their dayto-day activities, which will provide
each registered person a more complete
training cycle. As indicated by
commenters, some firms already require
that all their registered persons
complete Firm Element training. In
addition, while firms with a larger
number of registered persons, including
individuals who are permissively
registered, may incur additional
burdens in implementing the proposed
rule change, some of that burden would
be mitigated based on the express
recognition of other training
requirements toward satisfying the Firm
Element requirement. In some cases,
registered persons may not have to
complete any additional training
beyond what they are required to
complete today. For example, with
respect to permissively registered
persons working in a clerical or
administrative capacity for a firm, the
firm may determine, based on a needs
analysis, that such individuals have
satisfied the annual Firm Element
requirement by participating in the firmwide annual compliance meeting.
(iii) Maintenance of Qualification After
Termination of Registration
Commenters overwhelmingly
supported the proposed change to
provide individuals the option of
maintaining their qualification
following the termination of a
registration by completing annual
continuing education. Some
commenters requested additional
changes, which are discussed below.
NASAA supported the goals of the
proposed rule change, but it had
concerns regarding the seven-year
participation period originally proposed
in Regulatory Notice 20–05. NASAA has
expressed support for a participation
period of five years. CFA, Fidelity,
Foreside, Integrated Solutions and
STANY stated that there should not be
any time limit on the participation
period. FSI, Foreside, MML, SIFMA and
STANY requested that the proposed
rule change also extend to state licenses.
Cambridge suggested that the content,
subject matter and volume of training be
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the same for both participants and
registered persons. Cambridge also
suggested that the learning topics for
participants be available to firms so that
they may elect to apply it to their
registered persons. FSI recommended
that individuals who elect to participate
at a later date following their Form U5
submission should not be required to
complete any content that is outdated.
MML wanted to know what would
happen if a participant misses an annual
cycle. In addition, MML requested that
individuals who became CE inactive
within three years prior to the
implementation date of the proposed
rule change should be able to
participate. SIFMA requested that hiring
firms be provided with information
regarding a participant’s status. CFA
recommended that the current two-year
qualification period be eliminated.
The proposed time limit for
participation is necessary to ensure that
previously registered individuals
maintain an appropriate level of
securities experience throughout their
professional careers. FINRA believes
that a seven-year period better serves
the diversity and inclusion goals of the
proposed rule change. However, FINRA
also recognizes the benefits to the
industry of having further alignment
between FINRA qualification
requirements and state licensing
requirements. Therefore, in the interest
of consistency and promoting
registration efficiency, the proposed rule
change provides individuals a
maximum of five years in which to
reregister, which will still serve the
diversity and inclusion goals. As noted
above, following implementation of the
proposed rule change, FINRA will
review the efficacy of the program,
which will include a review of the
participation period. In addition, FINRA
will work with NASAA and state
regulators to provide for an appropriate
process and system support to allow
states to track and process registration
requests for individuals operating under
the two- or five-year examination
provisions.
Participants, including registered
persons who elect to participate for a
terminated registration category, may be
subject to more overall content
compared to registered persons who are
not participants because participants
would be required to complete a
minimum amount of non-regulatory
content selected by FINRA and the CE
Council. FINRA and the CE Council will
consider publishing the learning topics
for participants for those firms that may
elect to apply it to their registered
persons. FINRA and the CE Council will
also work to ensure that eligible
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individuals who elect to participate are
not subject to outdated content.
Participants who miss an annual cycle
for a registration category would be
provided with an opportunity to
continue by completing any missed
content, provided that the registration
category has not been terminated for
two or more years.67 Individuals who
have been CE inactive for two
consecutive years prior to the
implementation date of the proposed
rule change would not be eligible to
participate because of the long lapse in
continuing education. FINRA would
work with firms to determine what
information regarding a participant’s
status would be helpful and
appropriate. The current two-year
qualification period would not be
eliminated because participation is
optional and eligible individuals may
elect not to participate.68
(iv) Other Enhancements to CE Program
Most commenters supported the other
enhancements to the CE Program.
However, some commenters had
concerns and questions. SIFMA
requested that consideration be given to
potential technical limitations and
challenges of registrants when designing
diverse instructional formats for the
Regulatory Element. FSI, MML and
SIFMA requested that the Regulatory
Element learning topics for each
upcoming year be published early.
67 Participants who fail to complete the required
annual content for a registration category that has
been terminated for two or more years would not
be eligible to continue. For example, if the proposed
rule change were implemented on January 1, 2022,
a participant who completes the required annual
content for the General Securities Representative
category in 2022, 2023 and 2024 but fails to
complete the 2025 annual content would not be
eligible to continue beyond 2025. In the example
above, if the individual reregisters with a firm as
a General Securities Representative in 2025, the
individual would be required to complete any
annual Regulatory Element applicable to the
General Securities Representative registration
category by December 31, 2025. If the individual
fails to complete such Regulatory Element by
December 31, 2025, the individual would be
designated as CE inactive in the CRD system
beginning on January 1, 2026. Alternatively, if the
individual decides to reregister with a firm as a
General Securities Representative at any point
beyond 2025, the individual would be required to
requalify by examination, or obtain an examination
waiver, in order to reregister.
68 In this regard, it should be noted that if an
individual who holds a single registration
terminates that registration and elects not to
participate, the registration would be subject to the
two-year qualification period. Similarly, if an
individual with multiple registration categories
terminates only some of those registration
categories (that is, files a partial termination) and
elects not to participate, the terminated registration
category or categories would also be subject to the
two-year qualification period, unless the terminated
category is a subset of a broader registration
category for which they remain qualified.
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khammond on DSKJM1Z7X2PROD with NOTICES
Federal Register / Vol. 86, No. 119 / Thursday, June 24, 2021 / Notices
SIFMA suggested that firms be
allowed to set the timing and frequency
of FINRA-generated notifications to
registered persons, especially where the
firm’s Regulatory Element deadline is
sooner than December 31. SIFMA also
suggested that FINRA should consider
providing firms with the means to
‘‘audit’’ notifications sent to registered
persons regarding the Regulatory
Element via the FINRA Financial
Professional Gateway (‘‘FinPro®’’)
system and that continuing education
completion information, including
information relating to participants who
elect the proposed option, should be
displayed on BrokerCheck®. Morgan
Stanley requested that FINRA provide
firms with the option to communicate
directly with registered persons so firms
may set their own internal timelines to
fulfill the annual Regulatory Element
requirement. MML suggested that
sending a notification to the personal
email of a registered person via the
FinPro system is inconsistent with
general supervision and recordkeeping
requirements relating to businessrelated electronic communications.
NRS supported the development of a
centralized Firm Element content
directory, which includes course title,
description and length, intended
audience, learning objectives and skill
level, rather than the development of a
content catalog. Among other reasons,
NRS stated that SROs should not create
Firm Element content because it may
have the unintended consequence of
being considered regulatory guidance.
FINRA and the CE Council will work
to create optimal instructional formats
for the Regulatory Element, taking into
consideration the user experience.
Further, FINRA and the CE Council will
consider the possibility of publishing
the Regulatory Element learning topics
for each upcoming year early to provide
firms with sufficient time to design their
training for the upcoming year. FINRA
will work with firms to determine the
necessary enhancements to the FinPro
system to facilitate the proposed
transition to an annual Regulatory
Element requirement. The use of the
FinPro system notification functionality
would not be inconsistent with the
requirements relating to electronic
communications. Firms that elect to use
the functionality would receive copies
of the system-generated notifications,
which they could review and retain.
With respect to the availability of
continuing education information on
BrokerCheck, an individual’s CE
inactive status is currently displayed on
BrokerCheck and it will continue to be
displayed under the proposed rule
change. FINRA will also consider
VerDate Sep<11>2014
19:19 Jun 23, 2021
Jkt 253001
whether the continuing education status
of participants who elect the proposed
option should be displayed on
BrokerCheck. Finally, with respect to
the development of a Firm Element
content catalog, which most
commenters supported, SROs have
historically created Firm Element
content and have provided firms with
the option of using such content. FINRA
and the CE Council are considering
creating a centralized location for such
content and to partner with third-party
training providers to include their
content in the catalog. Based on the
comments and industry feedback, a
content catalog would be a valuable
resource and would facilitate
compliance by all firms, regardless of
firm type.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve or disapprove
such proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
FINRA–2021–015 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–FINRA–2021–015. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
PO 00000
Frm 00234
Fmt 4703
Sfmt 4703
33439
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
office of FINRA. All comments received
will be posted without change. Persons
submitting comments are cautioned that
we do not redact or edit personal
identifying information from comment
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–FINRA–
2021–015 and should be submitted on
or before July 15, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.69
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–13286 Filed 6–23–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–92167; File No. SR–
CboeEDGX–2021–028]
Self-Regulatory Organizations; Cboe
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Amend
Open-Close Data Fees
June 14, 2021.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on June 1,
2021, Cboe EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Commission is
69 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
E:\FR\FM\24JNN1.SGM
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]]>Agencies
[Federal Register Volume 86, Number 119 (Thursday, June 24, 2021)]
[Notices]
[Pages 33427-33439]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-13286]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92183; File No. SR-FINRA-2021-015]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend
FINRA Rules 1210 (Registration Requirements) and 1240 (Continuing
Education Requirements)
June 15, 2021.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on June 3, 2021, the Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by FINRA. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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[[Page 33428]]
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to amend FINRA Rule 1240 (Continuing Education
Requirements). The proposed rule change also makes conforming
amendments to FINRA Rule 1210 (Registration Requirements). Among other
changes, the proposed rule change requires that the Regulatory Element
of continuing education be completed annually rather than every three
years and provides a path through continuing education for individuals
to maintain their qualification following the termination of a
registration.
The text of the proposed rule change is available on FINRA's
website at https://www.finra.org, at the principal office of FINRA and
at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, FINRA included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. FINRA has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
(i) Background
The continuing education program for registered persons of broker-
dealers (``CE Program'') currently requires registered persons to
complete continuing education consisting of a Regulatory Element and a
Firm Element. The Regulatory Element, which is administered by FINRA,
focuses on regulatory requirements and industry standards, while the
Firm Element is provided by each firm and focuses on securities
products, services and strategies the firm offers, firm policies and
industry trends. The CE Program is codified under the rules of the
self-regulatory organizations (``SROs''). The CE Program for registered
persons of FINRA members is codified under Rule 1240.\3\
---------------------------------------------------------------------------
\3\ See also Rule 1210.07 (All Registered Persons Must Satisfy
the Regulatory Element of Continuing Education).
---------------------------------------------------------------------------
a. Regulatory Element
Rule 1240(a) (Regulatory Element) currently requires a registered
person to complete the applicable 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.\4\ FINRA may extend these time frames for good cause shown.\5\
Registered persons who have not completed the Regulatory Element within
the prescribed time frames will have their FINRA registrations deemed
inactive and will be designated as ``CE inactive'' in the CRD system
until the requirements of the Regulatory Element have been
satisfied.\6\ A CE inactive person is prohibited from performing, or
being compensated for, any activities requiring FINRA registration,
including supervision. Moreover, if registered persons remain CE
inactive for two consecutive years, they must requalify by retaking
required examinations (or obtain a waiver of the applicable
qualification examinations).\7\
---------------------------------------------------------------------------
\4\ See Rules 1240(a)(1) (Requirements) and (a)(4)
(Reassociation in a Registered Capacity). An individual's
registration anniversary date is generally the date they initially
registered with FINRA in the Central Registration Depository
(``CRD[supreg]'') system. However, an individual's registration
anniversary date would be reset if the individual has been out of
the industry for two or more years and is required to requalify by
examination, or obtain an examination waiver, in order to
reregister. An individual's registration anniversary date would also
be reset if the individual obtains a conditional examination waiver
that requires them to complete the Regulatory Element by a specified
date. Non-registered individuals who are participating in the waiver
program under Rule 1210.09 (Waiver of Examinations for Individuals
Working for a Financial Services Industry Affiliate of a Member)
(``FSAWP participants'') are also subject to the Regulatory Element.
See also Rule 1240(a)(5) (Definition of Covered Person). The
Regulatory Element for FSAWP participants correlates to their most
recent registration(s), and it must be completed based on the same
cycle had they remained registered. FSAWP participants are eligible
for a single, fixed seven-year waiver period from the date of their
initial designation, subject to specified conditions. Registered
persons who become subject to a significant disciplinary action, as
specified in Rule 1240(a)(3) (Disciplinary Actions), may be required
to retake the Regulatory Element within 120 days of the effective
date of the disciplinary action, if they remain registered. Further,
their cycle for participation in the Regulatory Element may be
adjusted to reflect the effective date of the disciplinary action
rather than their registration anniversary date.
\5\ See Rule 1240(a)(2) (Failure to Complete).
\6\ See supra note 5. Individuals must complete the entire
Regulatory Element session to be considered to have ``completed''
the Regulatory Element; partial completion is the same as non-
completion.
\7\ This CE inactive two-year period is calculated from the date
such persons become CE inactive, and it continues to run regardless
of whether they terminate their registrations before the end of the
two-year period. Therefore, if registered persons terminate their
registrations while in a CE inactive status, they must satisfy all
outstanding Regulatory Element prior to the end of the CE inactive
two-year period in order to reregister with a member without having
to requalify by examination or having to obtain an examination
waiver.
---------------------------------------------------------------------------
The Regulatory Element consists of a subprogram for registered
persons generally, and a subprogram for principals and supervisors.\8\
While some of the current Regulatory Element content is unique to
particular registration categories, most of the content has broad
application to both representatives and principals.\9\
---------------------------------------------------------------------------
\8\ The S101 (General Program for Registered Persons) and the
S201 (Registered Principals and Supervisors).
\9\ The current content is presented in a single format leading
individuals through a case that provides a story depicting
situations that they may encounter in the course of their work.
---------------------------------------------------------------------------
The Regulatory Element was originally designed at a time when most
individuals had to complete the Regulatory Element at a test center,
and its design was shaped by the limitations of the test center-based
delivery model. In 2015, FINRA transitioned the delivery of the
Regulatory Element to an online platform (``CE Online''), which allows
individuals to complete the content online at a location of their
choosing, including their private residence. This online delivery
provides FINRA with much greater flexibility in updating content in a
timelier fashion, developing content tailored to each registration
category and presenting the material in an optimal learning format.
b. Firm Element
Rule 1240(b) (Firm Element) currently requires each firm to develop
and administer an annual Firm Element training program for covered
registered persons.\10\ The rule requires firms to conduct an annual
needs analysis to determine the appropriate training.\11\ Currently, at
a minimum, the Firm Element must cover training in ethics and
professional responsibility as well as the following items concerning
securities products, services and strategies offered by the member: (1)
General investment features and associated risk factors; (2)
suitability and sales practice considerations; and (3) applicable
regulatory requirements.\12\
---------------------------------------------------------------------------
\10\ The rule defines ``covered registered persons'' as any
registered person who has direct contact with customers in the
conduct of a member's securities sales, trading and investment
banking activities, any individual who is registered as an
Operations Professional or a Research Analyst, and the immediate
supervisors of any such persons. See Rule 1240(b)(1) (Persons
Subject to the Firm Element).
\11\ See Rule 1240(b)(2) (Standards for the Firm Element).
\12\ See supra note 11.
---------------------------------------------------------------------------
A firm, consistent with its needs analysis, may determine to apply
[[Page 33429]]
toward the Firm Element other required training. The current rule does
not expressly recognize other required training, such as training
relating to the anti-money laundering (``AML'') compliance program and
training relating to the annual compliance meeting,\13\ for purposes of
satisfying Firm Element training.
---------------------------------------------------------------------------
\13\ See FINRA Rules 3310(e) and 3110(a)(7).
---------------------------------------------------------------------------
c. Termination of a Registration
Currently, individuals whose registrations as representatives or
principals have been terminated for two or more years may reregister as
representatives or principals only if they requalify by retaking and
passing the applicable representative- or principal-level examination
or if they obtain a waiver of such examination(s) (the ``two-year
qualification period'').\14\ The two-year qualification period was
adopted prior to the creation of the CE Program and was intended to
ensure that individuals who reregister are relatively current on their
regulatory and securities knowledge.
---------------------------------------------------------------------------
\14\ See Rule 1210.08 (Lapse of Registration and Expiration of
SIE). The two-year qualification period is calculated from the date
individuals terminate their registration and the date FINRA receives
a new application for registration. The two-year qualification
period does not apply to individuals who terminate a limited
registration category that is a subset of a broader registration
category for which they remain qualified. For instance, it would not
apply to an individual who maintains his registration as a General
Securities Representative but who terminates his registration as an
Investment Company and Variable Contracts Products Representative.
Such individuals have the option of reregistering in the more
limited registration category without having to requalify by
examination or obtain an examination waiver so long as they continue
to remain qualified for the broader registration category. Further,
the two-year qualification period only applies to the
representative- and principal-level examinations; it does not extend
to the Securities Industry Essentials (``SIE'') examination. The SIE
examination is valid for four years, but having a valid SIE
examination alone does not qualify an individual for registration as
a representative or principal. Individuals whose registrations as
representatives or principals have been revoked pursuant to FINRA
Rule 8310 (Sanctions for Violation of the Rules) may only requalify
by retaking the applicable representative- or principal-level
examination in order to reregister as representatives or principals,
in addition to satisfying the eligibility conditions for association
with a firm. Waivers are granted either on a case-by-case basis
under Rule 1210.03 (Qualification Examinations and Waivers of
Examinations) or as part of the waiver program under Rule 1210.09.
---------------------------------------------------------------------------
(ii) Proposed Rule Change
After extensive work with the Securities Industry/Regulatory
Council on Continuing Education (``CE Council'') and discussions with
stakeholders, including industry participants and the North American
Securities Administrators Association (``NASAA''), FINRA proposes the
following changes to the CE Program under Rule 1240.\15\
---------------------------------------------------------------------------
\15\ The proposed changes are based on the CE Council's
September 2019 recommendations to enhance the CE Program. See
Recommended Enhancements for the Securities Industry Continuing
Education Program, available at https://cecouncil.org/media/266634/council-recommendations-final-.pdf. The CE Council is composed of
securities industry representatives and representatives of SROs. The
CE Council was formed in 1995 upon a recommendation from the
Securities Industry Task Force on Continuing Education and was
tasked with facilitating the development of uniform continuing
education requirements for registered persons of broker-dealers.
---------------------------------------------------------------------------
a. Transition to Annual Regulatory Element for Each Registration
Category
As noted above, currently, the Regulatory Element generally must be
completed every three years, and the content is broad in nature. Based
on changes in technology and learning theory, the Regulatory Element
content can be updated and delivered in a timelier fashion and tailored
to each registration category, which would further the goals of the
Regulatory Element.\16\ Therefore, to provide registered persons with
more timely and relevant training on significant regulatory
developments, FINRA proposes amending Rule 1240(a) to require
registered persons to complete the Regulatory Element annually by
December 31.\17\ The proposed amendment would also require registered
persons to complete Regulatory Element content for each representative
or principal registration category that they hold, which would also
further the goals of the Regulatory Element.\18\
---------------------------------------------------------------------------
\16\ When the CE Program was originally adopted in 1995,
registered persons were required to complete the Regulatory Element
on their second, fifth and 10th registration anniversary dates. See
Securities Exchange Act Release No. 35341 (February 8, 1995), 60 FR
8426 (February 14, 1995) (Order Approving File Nos. SR-AMEX-94-59;
SR-CBOE-94-49; SR-CHX-94-27; SR-MSRB-94-17; SR-NASD-94-72; SR-NYSE-
94-43; SR-PSE-94-35; and SR-PHLX-94-52). The change to the current
three-year cycle was made in 1998 to provide registered persons more
timely and effective training, consistent with the overall purpose
of the Regulatory Element. See Securities Exchange Act Release No.
39712 (March 3, 1998), 63 FR 11939 (March 11, 1998) (Order Approving
File Nos. SR-CBOE-97-68; SR-MSRB-98-02; SR-NASD-98-03; and SR-NYSE-
97-33).
\17\ See proposed Rules 1240(a)(1) and (a)(4). Some commenters
supported the proposed change to an annual requirement, while others
disagreed with it or expressed concerns with the burdens it would
impose on firms and registered persons. See infra Item II.C.(a) and
(b)(i).
\18\ See proposed Rules 1210.07 and 1240(a)(1). Commenters
generally supported the development of tailored content that is
specific to each registration category. See infra Item II.C.(a).
However, some commenters questioned whether there would be
sufficient content for certain registration categories in a given
year, while others were concerned that some individuals could be
subject to duplicate or excessive content. See infra Item II.C.(a)
and (b)(i).
---------------------------------------------------------------------------
Under the proposed rule change, firms would have the flexibility to
require their registered persons to complete the Regulatory Element
sooner than December 31, which would allow firms to coordinate the
timing of the Regulatory Element with other training requirements,
including the Firm Element.\19\ For example, a firm could require its
registered persons to complete both their Regulatory Element and Firm
Element by October 1 of each year.
---------------------------------------------------------------------------
\19\ See proposed Rules 1240(a)(1) and (a)(4).
---------------------------------------------------------------------------
Individuals who would be registering as a representative or
principal for the first time on or after the implementation date of the
proposed rule change would be required to complete their initial
Regulatory Element for that registration category in the next calendar
year following their registration.\20\ In addition, subject to
specified conditions, individuals who would be reregistering as a
representative or principal on or after the implementation date of the
proposed rule change would also be required to complete their initial
Regulatory Element for that registration category in the next calendar
year following their reregistration.\21\
---------------------------------------------------------------------------
\20\ See proposed Rule 1240(a)(1).
\21\ See proposed Rule 1240(a)(4).
---------------------------------------------------------------------------
Consistent with current requirements, individuals who fail to
complete their Regulatory Element within the prescribed period would be
automatically designated as CE inactive.\22\ However, the proposed rule
change preserves FINRA's ability to extend the time by which a
registered person must complete the Regulatory Element for good cause
shown.\23\
---------------------------------------------------------------------------
\22\ See proposed Rule 1240(a)(2). In Regulatory Notice 20-05
(February 2020), FINRA had proposed a 15-day grace period prior to
being designated as CE inactive, provided that the member documented
the reasons for the individual's failure to complete the Regulatory
Element within the prescribed calendar year and retained the
documentation for recordkeeping purposes. Some commenters noted that
the proposed grace period would increase administrative and
operational burdens, while one commenter requested that FINRA
provide a longer grace period. See infra Item II.C.(b)(i). FINRA has
determined to eliminate the proposed grace period to avoid any
unnecessary burdens.
\23\ See supra note 22. The proposed rule change clarifies that
the request for an extension of time must be in writing and include
supporting documentation, which is consistent with current practice.
---------------------------------------------------------------------------
FINRA also proposes amending Rule 1240(a) to clarify that: (1)
Individuals who are designated as CE inactive would be required to
complete all of their pending and upcoming annual Regulatory Element,
including any annual Regulatory Element that becomes due during their
CE inactive
[[Page 33430]]
period, to return to active status; \24\ (2) the two-year CE inactive
period is calculated from the date individuals become CE inactive, and
it continues to run regardless of whether individuals terminate their
registrations; \25\ (3) individuals who become subject to a significant
disciplinary action may be required to complete assigned continuing
education content as prescribed by FINRA; \26\ (4) individuals who have
not completed any Regulatory Element content for a registration
category in the calendar year(s) prior to reregistering would not be
approved for registration for that category until they complete that
Regulatory Element content, pass an examination for that registration
category or obtain an unconditional examination waiver for that
registration category, whichever is applicable; \27\ and (5) the
Regulatory Element requirements apply to individuals who are
registered, or in the process of registering, as a representative or
principal.\28\ In addition, FINRA proposes making conforming amendments
to Rule 1210.07.
---------------------------------------------------------------------------
\24\ See supra note 22.
\25\ See supra note 22.
\26\ See proposed Rule 1240(a)(3). As previously noted, Rule
1240(a)(3) currently provides that such individuals may be required
to retake the Regulatory Element. See supra note 4.
\27\ See proposed Rule 1240(a)(4).
\28\ See proposed Rule 1240(a)(5).
---------------------------------------------------------------------------
Under the proposed rule change, the amount of content that
registered persons would be required to complete in a three-year,
annual cycle for a particular registration category is expected to be
comparable to what most registered persons are currently completing
every three years.\29\ In some years, there may be more required
content for some registration categories depending on the volume of
rule changes and regulatory issues. In addition, an individual who
holds multiple registrations may be required to complete additional
content compared to an individual who holds a single registration
because, as noted above, individuals would be required to complete
content specific to each registration category that they hold.\30\
However, individuals with multiple registrations would not be subject
to duplicative regulatory content in any given year. The more common
registration combinations would likely share much of their relevant
regulatory content each year. For example, individuals registered as
General Securities Representatives and General Securities Principals
would receive the same content as individuals solely registered as
General Securities Representatives, supplemented with a likely smaller
amount of supervisory-specific content on the same topics. The less
common registration combinations may result in less topic overlap and
more content overall.
---------------------------------------------------------------------------
\29\ As previously noted, some commenters questioned whether
there would be sufficient annual content for certain registration
categories and some commenters were concerned that some individuals
might be subject to duplicate or excessive content on an annual
basis. See supra note 18; see infra Item II.C.(a) and (b)(i).
\30\ As discussed in the economic impact assessment, individuals
with multiple registrations represent a smaller percentage of the
population of registered persons.
---------------------------------------------------------------------------
b. Recognition of Other Training Requirements for Firm Element and
Extension of Firm Element to All Registered Persons
To better align the Firm Element requirement with other required
training, FINRA proposes amending Rule 1240(b) to expressly allow firms
to consider training relating to the AML compliance program and the
annual compliance meeting toward satisfying an individual's annual Firm
Element requirement.\31\ FINRA also proposes amending the rule to
extend the Firm Element requirement to all registered persons,
including individuals who maintain solely a permissive registration
consistent with Rule 1210.02 (Permissive Registrations), thereby
further aligning the Firm Element requirement with other broadly-based
training requirements.\32\ In conjunction with this proposed change,
FINRA proposes modifying the current minimum training criteria under
Rule 1240(b) to instead provide that the training must cover topics
related to the role, activities or responsibilities of the registered
person and to professional responsibility.\33\
---------------------------------------------------------------------------
\31\ See proposed Rule 1240(b)(2)(D). Commenters overwhelmingly
supported this proposed change. See infra Item II.C.(b)(ii).
\32\ See proposed Rule 1240(b)(1). As noted earlier, the current
requirement only applies to ``covered registered persons'' and not
all registered persons. Not all commenters agreed with this proposed
change. See infra Item II.C.(b)(ii).
\33\ See proposed Rule 1240(b)(2)(B). In Regulatory Notice 20-
05, FINRA had proposed to retain the current minimum training
criteria under Rule 1240(b)(2)(B). One commenter stated that the
current criteria is overly prescriptive and that the requirement
should be more flexible. See infra Item II.C.(b)(ii). FINRA is
revising the rule in response.
---------------------------------------------------------------------------
c. Maintenance of Qualification After Termination of Registration
FINRA proposes adopting paragraph (c) under Rule 1240 and
Supplementary Material .01 and .02 to Rule 1240 to provide eligible
individuals who terminate any of their representative or principal
registrations the option of maintaining their qualification for any of
the terminated registrations by completing continuing education.\34\
The proposed rule change would not eliminate the two-year qualification
period.\35\ Rather, it would provide such individuals an alternative
means of staying current on their regulatory and securities knowledge
following the termination of a registration(s). Eligible individuals
who elect not to participate in the proposed continuing education
program would continue to be subject to the current two-year
qualification period. The proposed rule change is generally aligned
with other professional continuing education programs that allow
individuals to maintain their qualification to work in their respective
fields during a period of absence from their careers (including an
absence of more than two years) by satisfying continuing education
requirements for their credential.
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\34\ Commenters overwhelmingly supported this proposed change.
See infra Item II.C.(b)(iii). The proposed option would also be
available to individuals who terminate any permissive registrations
as provided under Rule 1210.02. However, the proposed option would
not be available to individuals who terminate a limited registration
category that is a subset of a broader registration category for
which they remain qualified. As previously noted, such individuals
currently have the option of reregistering in the more limited
registration category without having to requalify by examination or
obtain an examination waiver so long as they continue to remain
qualified for the broader registration category. In addition, the
proposed option would not be available to individuals who are
maintaining an eliminated registration category, such as the
category for Corporate Securities Representative, or individuals who
have solely passed the Securities Industry Essentials examination,
which does not, in and of itself, confer registration.
\35\ One commenter requested that FINRA eliminate the two-year
qualification period. See infra Item II.C.(b)(iii).
---------------------------------------------------------------------------
The proposed rule change would impose the following conditions and
limitations:
Individuals would be required to be registered in the
terminated registration category for at least one year immediately
prior to the termination of that category; \36\
---------------------------------------------------------------------------
\36\ See proposed Rule 1240(c)(1).
---------------------------------------------------------------------------
individuals could elect to participate when they terminate
a registration or within two years from the termination of a
registration; \37\
---------------------------------------------------------------------------
\37\ See proposed Rule 1240(c)(2). Individuals who elect to
participate at the later date would be required to complete, within
two years from the termination of their registration, any continuing
education that becomes due between the time of their Form U5
(Uniform Termination Notice for Securities Industry Registration)
submission and the date that they commence their participation. In
addition, FINRA would enhance its systems to notify individuals of
their eligibility to participate, enable them to affirmatively opt
in, and notify them of their annual continuing education requirement
if they opt in.
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[[Page 33431]]
individuals would be required to complete annually all
prescribed continuing education; \38\
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\38\ See proposed Rule 1240(c)(3). However, upon a participant's
request and for good cause shown, FINRA would have the ability to
grant an extension of time for the participant to complete the
prescribed continuing education. A participant who is also a
registered person must directly request an extension of the
prescribed continuing education from FINRA. The continuing education
content for participants would consist of a combination of
Regulatory Element content and content selected by FINRA and the CE
Council from the Firm Element content catalog discussed below. One
commenter suggested that the content, subject matter and volume of
training be the same for both participants and registered persons.
See infra Item II.C.(b)(iii). The content would correspond to the
registration category for which individuals wish to maintain their
qualifications. Participants who are maintaining their qualification
status for a principal registration category that includes one or
more corequisite representative registrations must also complete
required annual continuing education for the corequisite
registrations in order to maintain their qualification status for
the principal registration category. In Regulatory Notice 20-05,
FINRA had proposed that participants complete the prescribed
continuing education annually. The proposed rule change clarifies
that the prescribed continuing education must be completed by
December 31 of the calendar year, which is consistent with the
timing for the proposed annual Regulatory Element.
---------------------------------------------------------------------------
individuals would have a maximum of five years in which to
reregister; \39\
---------------------------------------------------------------------------
\39\ See proposed Rule 1240(c). As described in greater detail
in Item II.C. of this filing, in Regulatory Notice 20-05, FINRA had
proposed a seven-year participation period, and some commenters
suggested that there should not be any time limit on the
participation period. See infra Item II.C.(b)(iii). However, based
on discussions with NASAA and its support for a participation period
of five years, the proposed rule change provides a five-year
participation period in the interest of consistency and promoting
registration efficiency. See infra Item II.C.(b)(iii). The proposed
five-year participation period would continue to serve the diversity
and inclusion goals of the proposed rule change. In addition,
individuals applying for reregistration must satisfy all other
requirements relating to the registration process (e.g., submit a
Form U4 (Uniform Application for Securities Industry Registration or
Transfer) and undergo a background check).
---------------------------------------------------------------------------
individuals who have been CE inactive for two consecutive
years, or who become CE inactive for two consecutive years during their
participation, would not be eligible to participate or continue; \40\
and
---------------------------------------------------------------------------
\40\ See proposed Rules 1240(c)(4) and (c)(5).
---------------------------------------------------------------------------
individuals who are subject to a statutory
disqualification, or who become subject to a statutory disqualification
following the termination of their registration or during their
participation, would not be eligible to participate or continue.\41\
---------------------------------------------------------------------------
\41\ See proposed Rules 1240(c)(1) and (c)(6). Individuals who
are subject to a statutory disqualification would not be eligible to
enter the proposed continuing education program. Individuals who
become subject to a statutory disqualification while participating
in the proposed continuing education program would not be eligible
to continue in the program. Further, any content completed by such
participants would be retroactively nullified upon disclosure of the
statutory disqualification. The following example illustrates the
application of the proposed rule change to individuals who become
subject to a statutory disqualification while participating in the
proposed continuing education program. Individual A participates in
the proposed continuing education program for four years and
completes the prescribed content for each of those years. During
year five of his participation, he becomes subject to a statutory
disqualification resulting from a foreign regulatory action. In that
same year, FINRA receives a Form U4 submitted by a member on behalf
of Individual A requesting registration with FINRA. The Form U4
discloses the statutory disqualification event. FINRA would then
retroactively nullify any content that Individual A completed while
participating in the proposed continuing education program.
Therefore, in this example, in order to become registered with
FINRA, he would be required to requalify by examination. This would
be in addition to satisfying the eligibility conditions for
association with a FINRA member firm. See Exchange Act Sections
3(a)(39) and 15(b)(4) and Article III of the FINRA By-Laws.
---------------------------------------------------------------------------
The proposed rule change also includes a look-back provision that
would, subject to specified conditions, extend the proposed option to
individuals who have been registered as a representative or principal
within two years immediately prior to the implementation date of the
proposed rule change and individuals who have been FSAWP participants
immediately prior to the implementation date of the proposed rule
change.\42\
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\42\ See proposed Supplementary Material .01 to Rule 1240. Such
individuals would be required to elect whether to participate by the
implementation date of the proposed rule change. If such individuals
elect to participate, they would be required to complete their
initial annual content by the end of the calendar year in which the
proposed rule change is implemented. In addition, if such
individuals elect to participate, their initial participation period
would be adjusted based on the date that their registration was
terminated. The current waiver program for FSAWP participants would
not be available to new participants upon implementation of the
proposed rule change. See proposed Rule 1210.09. However,
individuals who are FSAWP participants immediately prior to the
implementation date of the proposed rule change could elect to
continue in that waiver program until the program has been retired.
As noted above, FSAWP participants may participate for up to seven
years in that waiver program, subject to specified conditions. See
supra note 4. In Regulatory Notice 20-05, FINRA had proposed to
eliminate the FSAWP given that the participation period of seven
years for FSAWP participants would have been the same for
participants in the proposed continuing education program. As
discussed above, the proposed rule change provides a five-year
participation period for participants in the proposed continuing
education program. So as not to disadvantage FSAWP participants,
FINRA has determined to preserve that waiver program for individuals
who are participating in the FSAWP immediately prior to the
implementation date of the proposed rule change. Because the
proposed rule change transitions the Regulatory Element to an annual
cycle, FSAWP participants who remain in that waiver program
following the implementation of the proposed rule change would be
subject to an annual Regulatory Element requirement. See proposed
Rule 1240(a)(1). Finally, the proposed rule change preserves FINRA's
ability to extend the time by which FSAWP participants must complete
the Regulatory Element for good cause shown. See proposed Rule
1240(a)(2).
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In addition, the proposed rule change includes a re-eligibility
provision that would allow individuals to regain eligibility to
participate each time they reregister with a firm for a period of at
least one year and subsequently terminate their registration, provided
that they satisfy the other participation conditions and
limitations.\43\ Finally, FINRA proposes making conforming amendments
to Rule 1210, including adding references to proposed Rule 1240(c)
under Rule 1210.08.
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\43\ See proposed Supplementary Material .02 to Rule 1240.
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The proposed rule change will have several important benefits. It
will provide individuals with flexibility to address life and career
events and necessary absences from registered functions without having
to requalify each time. It will also incentivize them to stay current
on their respective securities industry knowledge following the
termination of any of their registrations. The continuing education
under the proposed option will be as rigorous as the continuing
education of registered persons, which promotes investor protection.
Further, the proposed rule change will enhance diversity and inclusion
in the securities industry by attracting and retaining a broader and
diverse group of professionals. Moreover, if the proposed rule change
is implemented, FINRA will evaluate its efficacy following
implementation to ensure that it is meeting its goals.
Significantly, the proposed rule change will be of particular value
to women, who continue to be the primary caregivers for children and
aging family members and, as a result, are likely to be absent from the
industry for longer periods.\44\ In addition, the proposed rule change
will provide longer-term relief for women, individuals with low incomes
and other populations, including older workers, who are at a higher
risk of a job loss during certain economic downturns and who are likely
to remain unemployed for longer periods.\45\
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\44\ See The Female Face of Family Caregiving (November 2018),
available at https://www.nationalpartnership.org/our-work/resources/economic-justice/female-face-family-caregiving.pdf.
\45\ See The COVID-19 Recession is the Most Unequal in Modern
U.S. History (September 30, 2020), available at https://www.washingtonpost.com/graphics/2020/business/coronavirus-recession-equality/ and Unemployment's Toll on Older Workers Is Worst in Half
a Century (October 21, 2020), available at https://www.aarp.org/work/working-at-50-plus/info-2020/pandemic-unemployment-older-workers.
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[[Page 33432]]
d. Other Enhancements to CE Program
FINRA and the CE Council also plan to enhance the CE Program in
other ways.\46\ FINRA will work with the CE Council to incorporate a
variety of instructional formats to present the Regulatory Element
content. In addition, FINRA will work with the CE Council to publish in
advance the Regulatory Element learning topics for the next year.\47\
This will allow firms to review the Regulatory Element topics when
developing their Firm Element training plan to avoid unnecessary
duplication of topics. The proposed transition to an annual Regulatory
Element requirement would increase the number of registered persons who
would be required to complete the Regulatory Element on an annual
basis. To assist compliance with this proposed change, FINRA would
enhance its systems to provide firms and registered persons with
additional notification, management and tracking functionality. In
response to comments, FINRA would also make the Regulatory Element
available via a mobile compatible format.\48\
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\46\ These additional enhancements do not require any changes to
the FINRA rules. Most commenters supported these enhancements, while
some commenters had concerns and questions. See infra Item
II.C.(b)(iv).
\47\ If there are any other critical rule changes or other
regulatory developments that arise during a given year, FINRA and
the CE Council will work to provide registered persons timely and
sufficient training on such rule changes and developments.
\48\ See infra Item II.C.(b)(i).
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FINRA and the CE Council also will improve the guidance and
resources available to firms to develop effective Firm Element training
programs, such as updated guidance for developing and documenting
training plans and specific principles. Further, FINRA and the CE
Council will develop a catalog of continuing education content that
would serve as an optional resource for firms to select relevant Firm
Element content and create learning plans for their registered persons.
The catalog would include content developed by third-party training
providers, FINRA and the other SROs participating in the CE Program.
Firms would have the option of using the content in the catalog for
purposes of their Firm Element training; they would not be obligated to
select content from the catalog.
If the Commission approves the proposed rule change, FINRA will
announce the implementation dates of the proposed rule change in a
Regulatory Notice to be published no later than 90 days following
Commission approval.
2. Statutory Basis
The proposed rule change is consistent with the provisions of
Section 15A(b)(6) of the Act,\49\ which requires, among other things,
that FINRA rules must be designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest, and Section 15A(g)(3) of the Act,\50\ which authorizes
FINRA to prescribe standards of training, experience and competence for
persons associated with FINRA members.
---------------------------------------------------------------------------
\49\ 15 U.S.C. 78o-3(b)(6).
\50\ 15 U.S.C. 78o-3(g)(3).
---------------------------------------------------------------------------
FINRA believes that the proposed changes to the Regulatory Element
and Firm Element will ensure that all registered persons receive timely
and relevant training, which will, in turn, enhance compliance and
investor protection. Further, FINRA believes that establishing a path
for individuals to maintain their qualification following the
termination of a registration will reduce unnecessary impediments to
requalification and promote greater diversity and inclusion in the
securities industry without diminishing investor protection.
B. Self-Regulatory Organization's Statement on Burden on Competition
FINRA does not believe that the proposed rule change would result
in any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. All members would be subject to
the proposed rule change.
Economic Impact Assessment
FINRA has undertaken an economic impact assessment, as set forth
below, to further analyze the regulatory need for the proposed rule
change, its potential economic impacts, including anticipated costs,
benefits, and distributional and competitive effects, relative to the
current baseline, and the alternatives FINRA considered in assessing
how best to meet its regulatory objective.
Regulatory Need
FINRA is proposing to make changes to the CE Program, including the
related FINRA rules, as part of ongoing efforts to address and
implement the CE Council's recommendations. As described above, the
proposed rule change focuses on: (1) Ensuring that all registered
persons receive relevant and sufficient Regulatory Element and Firm
Element training on an annual basis; (2) providing a path through
continuing education for individuals to maintain their qualification
following the termination of a registration; and (3) providing firms
with the guidance and resources necessary to design effective and
efficient Firm Element training programs.
The proposed rule change is expected to result in a more efficient
CE Program that addresses relevant regulatory requirements and provides
individuals with improved tools and resources to understand and comply
with such requirements, enhancing investor protection. Moreover, the
proposed rule change would provide new channels for individuals to
maintain their qualification status for a terminated registration
category and, in so doing, could increase the likelihood that
professionals who need to step away from the industry for a period
could return, subject to satisfying all other requirements relating to
the registration process.
Economic Baseline
The economic baseline for the proposed rule change is the existing
CE Program. As described above, registered persons of broker-dealers
are required to participate in continuing education consisting of a
Regulatory Element and a Firm Element. The Regulatory Element is
generally delivered every three years and focuses on regulatory
requirements and industry standards, while the Firm Element is an
annual requirement and focuses on securities products, services and
strategies firms offer, firm policies and industry trends.
As stated above, under the current regime, individuals generally
have a two-year window from the termination of their association with a
member to reregister without requalifying by examination or obtaining a
waiver. According to FINRA's analysis, the total number of registered
persons, approximately 620,000, has shown a slow decrease over the past
few years even as individual registered persons regularly change their
status by ending and renewing their association with a firm.\51\ Across
this pool of registered persons, approximately 65% hold only one FINRA
registration category (for example either a General Securities
Representative (Series 7) registration or an Investment Company and
Variable Contracts Products Representative (Series 6) registration),
25% hold two FINRA registrations (for example a General Securities
Representative
[[Page 33433]]
registration and an Investment Banking Representative registration),
and the remainder hold three FINRA registrations or more. Moreover,
across the pool of registered persons, in addition to the FINRA
registration, approximately 90% hold at least one state registration,
and 50% hold more than five state registrations. With respect to
registration with a FINRA member, in recent years, out of the
approximately 620,000 registered persons, approximately 90,000 end
their registration with all firms with whom they are registered at some
point during the year. Out of these, about half do not renew their
registration and are considered to have left the securities industry.
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\51\ The number of registered persons has been decreasing at an
annual rate of approximately 1% per year. See, e.g., 2020 FINRA
Industry Snapshot, available at https://www.finra.org/rules-guidance/guidance/reports-studies/2020-industry-snapshot.
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Under the current baseline, registered persons who terminate a
registration are given a two-year grace period in which they can
reregister without being required to retake a qualification examination
or obtain an examination waiver. Individuals who seek to reregister
more than two years after terminating their association are required to
requalify by passing an examination or obtaining an examination waiver.
Requalification imposes costs in the form of time spent preparing for
and taking the examinations, potential limitations to the activities
permitted to be conducted until the requalification is completed,
opportunity costs for the individual and the potential employers in
terms of lost business, and the direct registration costs. FINRA
understands anecdotally that these costs currently deter some
significant portion of the population that give up their registrations
from reregistering.
Figure 1, as an example, presents a plot of the number of
registered persons that reregister within a given number of years after
having terminated their registrations for at least 60 days.\52\ The
focus is on registered persons who terminated their registrations in
either 2007, 2008 or 2009 and the period of time until they reregister
with the same or a different firm.\53\ Each bar in Figure 1 represents
a 100-day period and, roughly speaking, three-and-a-half bars represent
one year. As can be observed in Figure 1, for all three origination
years, there is an increase in the number of previously registered
persons who reregister towards the end of the second year from their
date of termination. This is consistent with the incentive in the
current rule permitting individuals to reregister without having to
requalify by passing an examination or having to obtain an examination
waiver (i.e., the current two-year qualification period) and supports
the assumption that the requalification process imposes direct and
indirect economic costs. After this point, there is a significant drop
in the number of individuals who reregister.
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\52\ The minimum 60 days for employment gap follows the
definition used in the 2020 FINRA Industry Snapshot, available at
https://www.finra.org/rules-guidance/guidance/reports-studies/2020-industry-snapshot.
\53\ The period of 2007-2009 covers the events before, during
and after the 2008 financial crisis. These events had an effect on
the number of individuals leaving the industry, which indeed rose
during this period. However, the trends observed for these years do
not appear to be extreme outliers and, moreover, potentially reflect
changes in labor markets that the proposed rule change is targeting.
Further, the three years selected for the analysis provide the means
to study the trends of individuals returning to the industry for up
to a period of 10 years of being away from it.
---------------------------------------------------------------------------
Moreover, following the end of the second year after terminating
their registrations, the number of individuals reregistering remains
low and tapers off slowly. Finally, an analysis of the stage in the
Regulatory Element cycle at which registered persons terminate their
registrations, on average, across the time period of 2007-2016,
suggests that registered persons who terminate their registrations tend
to do so approximately 530 days before their next Regulatory Element
would be due (i.e., on average in the middle of a current three-year
Regulatory Element cycle).
[GRAPHIC] [TIFF OMITTED] TN24JN21.001
Figure 1: Plot of the number of previously registered persons that
reregister within a given number of years after having terminated their
registrations for at least 60 days in either 2007, 2008 or 2009. Each
bar represents 100 days, and every year is accordingly represented by
approximately three-and-a-half bars.
[[Page 33434]]
With respect to firms, the economic baseline is derived from the
current processes and procedures used to implement the existing CE
Program. Firms are currently responsible for the appropriate monitoring
of the compliance of their registered persons with the three-year
Regulatory Element cycle and for administering the annual Firm Element.
Further, firms may experience material negative impact where they are
not able to retain qualified experienced persons because of
professional and personal events that require such individuals to take
an extended leave of absence from the industry.
Economic Impacts
FINRA believes that economic impacts of the proposed rule change
would result in both benefits and costs to firms and registered persons
and would potentially benefit the investor community. FINRA will
undertake an evaluation of the efficacy of the program within a
reasonable period following the implementation date. The aim of such an
evaluation is to ensure that the program is meeting its goals and
objectives, without resulting in unintended diminished investor
protections, or unintended increase in regulatory burden on any
relevant parties.
Anticipated Benefits
FINRA believes that the proposed rule change would result in two
main benefits to registered persons.
First, as discussed above, the proposed rule change would
transition the Regulatory Element from a three-year requirement to an
annual requirement. Such an annual requirement is implemented for other
professionals, such as Certified Public Accountants (``CPAs''),
Chartered Financial Analysts (``CFAs'') and lawyers.\54\ The 2015
transition to CE Online resulted in a more efficient program and added
a new dimension of flexibility to the CE Program in terms of the
content, timing and availability of the program. This change would
allow the Regulatory Element to focus on current issues and recent
regulatory changes and enhance registered persons' understanding of the
changes through more frequent assessments. A transition to an annual
cycle is expected to benefit registered persons by helping to ensure
that they understand recent regulatory changes and are thus able to
perform their work in a compliant and effective manner. Under the
current program, a regulatory change could take place in the beginning
of a three-year Regulatory Element cycle and thus result in some
portion of the individuals in that cycle being assessed on their
knowledge of the change at a significantly later date.
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\54\ In general, the CFA requires 20 hours of continuing
education on an annual basis. See CFA's Continuing Education (CE)
Program, available at https://www.cfainstitute.org/en/membership/professional-development/pl. The American Institute of CPAs
(``AICPA'') requires 120 credit hours of continuing education over a
three-year period, with the requirement of 40 credit hours per year.
See AICPA's Continuing Professional Education (CPE) Requirements for
CPAs, available at https://www.aicpa.org/cpe-learning/cperequirements.html. The continuing education requirement for
lawyers is different across states, but it generally ranges between
10-15 credit hours per year. See https://www.americanbar.org/content/dam/aba/directories/policy/aba_model_rule_comparison_by_state_meet_model_rule_noted.pdf. None
of these three professions requires members to be active
practitioners to maintain their credentials.
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Second, FINRA believes that a significant benefit of the proposed
rule change for registered persons would be the increased flexibility
in terms of maintaining their qualification for a terminated
registration category. As can be observed in Figure 1, there is an
increase in the number of individuals who reregister towards the end of
the two-year period, which is the current grace period for maintaining
their qualification status. Extending this period to five years through
the completion of continuing education would provide flexibility to
individuals, as well as potentially result in increased retention of
expertise in the industry.
With respect to increased flexibility, extending the current two-
year period to five years would allow individuals to manage significant
life events, including professional changes and development (such as
pursuing educational goals, a career change to a role in the firm that
is not part of the broker-dealer, working overseas for an extended
period due to a career change or an attempt at a different career path)
or personal life events (such as birth or adoption of a child,
unexpected loss in the family or relocation due to family needs).\55\
Through discussions with industry representatives, FINRA has learned
that the proposed rule change could potentially lower the barrier to
reentry to the industry. Some firms indicated that a significant
benefit may arise in cases where an individual leaves the broker-dealer
to gain experience in an affiliate of a parent company, for instance in
an affiliated commercial bank, investment adviser or foreign affiliate.
Other firms indicated that the proposed rule change could potentially
be relevant for under-represented populations in the securities
industry, such as, for example, female registrants.\56\
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\55\ See, e.g., Christy Spivey, Time Off at What Price? The
Effects of Career Interruptions on Earnings, 59(1) Indus. & Lab.
Rel. Rev. 119-140 (2005); Jill K. Hayter, Career Interrupted for
What Reason? Job Interruptions and Their Wage Effects, 30(4) J. App.
Bus. Res. 1197-1210 (2014). Spivey (2005) uses the National
Longitudinal Survey of Youth (``NLSY'') data, and finds that the
total time spent out of the labor force for men was 2.9 years on
average, with a standard deviation of 3.7. The paper finds that
women spent on average 5.3 years out of the labor force, with a
standard deviation of 5.1. Finally, the paper reports that the
average number of interruptions was 2.53 for women and 0.93 for men.
Hayter (2014) also studies the NLSY data. The paper reports the
percentage of women and men in the sample who experienced various
types of employment disruptions, and the average cumulative length
of disruptions by type, conditional on having at least one
interruption. Non-family disruptions are found to have similar
impacts across genders. However, women are much more likely (15%
versus 2%) to experience family-related disruptions and the total
reported length out of the work force resulting from the disruption
is three times longer for women versus men (150 weeks versus 53
weeks).
\56\ FINRA has repeated the analysis presented in Figure 1,
separating registered persons by gender. The analysis found that
female registered persons are underrepresented, at an approximate
ratio of one to four. With respect to the pattern of reregistering
under the baseline that is presented in Figure 1, the analysis found
that the pattern was similar for either male or female registered
persons, when studied separately. However, this does not rule out
that female registrants could especially benefit from the proposed
rule change, for the reasons discussed above.
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With respect to firms, FINRA believes that the proposed rule change
will result in three main benefits. First, FINRA believes that the
transition to an annual Regulatory Element cycle will reduce firms'
regulatory risk, as well as enhance compliance and reduce compliance-
related costs. This benefit would potentially result from the enhanced
timeliness and relevance afforded by the proposed annual cycle.
Second, the proposed rule change would further enhance and
streamline the Firm Element requirement. These changes include an
express recognition of existing firm training programs, such as the
annual compliance meeting, toward satisfying a registered individual's
Firm Element requirement, potentially saving firms compliance resources
currently devoted to developing and implementing different training
programs. In addition, in conjunction with the proposed rule change,
FINRA and the CE Council would develop a content catalog, managed by
FINRA, that would serve as an optional resource from which firms could
select or supplement their Firm Element content.\57\ Such a catalog
could provide firms with a more cost-efficient resource for Firm
Element content.
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\57\ See supra Item II.A.1.(ii)d.
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Third, with respect to the extended time period for maintaining a
qualification status, FINRA believes that
[[Page 33435]]
the proposed rule change could result in added flexibility for firms in
terms of hiring qualified candidates. This could ultimately extend the
potential pool of securities industry professionals and potentially
benefit firms regardless of their size. Through discussions with
industry representatives, FINRA has learned that this could permit
firms to better retain skilled professionals, more easily provide
individuals with professional development outside the broker-dealer,
and facilitate the hiring process for experienced professionals who
have required the career flexibility.
In addition, FINRA believes that the investor community will
ultimately benefit from the proposed rule change. These benefits will
stem from the potential increase in the knowledge and ongoing training
of registered persons, as well as through the increased flexibility of
retention of skill and experience in the industry.
Finally, FINRA notes that these benefits may be limited for
individuals seeking to maintain FINRA and state registrations if there
are significant differences between the relevant requirements across
the various regulatory frameworks. For instance, currently, state
regulators require an individual to retake examinations for terminated
licenses after two years. Some individuals may be dissuaded from
remaining in the industry where the state requirements are more binding
than those proposed in this filing. Others may be dissuaded from taking
advantage of the flexibility provided by the proposed rule change at
the expense of other obligations. As discussed above, approximately 90%
of registered individuals hold some combination of FINRA and state
registrations. This may serve as an upper bound on an estimate of the
proportion of the population that may be limited in the full advantages
of the proposed rule change, depending on the combinations of
registrations held and individual state rules.\58\
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\58\ As of November 2020, out of the approximately 620,000 FINRA
registered persons, approximately 84% held a Series 7 or a Series 6.
This population is expected to potentially be impacted by regulatory
differences (or an estimate of the percentage of the relevant
population that may be constrained by differences between FINRA and
state rules). Further, approximately 78% of the total registered
persons population have at least one state license. Depending on
roles and responsibilities of FINRA registered persons, there is not
always a state licensure requirement (specifically, non-customer-
facing roles). The anticipated benefits of the proposed rule change
might be more fully achieved for these individuals. Finally, the
impacts of the potential differences may be particularly pronounced
in a few states that have more than 200,000 individuals licensed in
them. For these states, approximately 90% of these individuals (on
average across these states) hold a Series 7 or a Series 6.
---------------------------------------------------------------------------
Anticipated Costs
FINRA believes that, alongside the anticipated benefits discussed
above, the proposed rule change would also result in costs for both
firms and registered persons.
With respect to registered persons, FINRA anticipates three main
costs that may result from the proposed rule change. First, the move to
an annual Regulatory Element cycle will increase the frequency of the
required training and the associated impact of failing to complete the
annual content.\59\ Further, this anticipated increase in burdens is
expected to be smaller for individuals with a single registration
category than for individuals with more than one registration category.
Individuals with more than one registration category (approximately 35%
of registered persons) may have more Regulatory Element content
(including the associated time commitment) in a given year, in
comparison to individuals with only a single registration category.
Second, the introduction of Regulatory Element notifications directly
to registered persons could shift some of the time management burden to
them. Third, the eligibility requirements for maintaining a
qualification status for a terminated registration category will
require an individual to have been registered with FINRA in that
registration category for at least one year, which could limit
potential career changes that may occur within a shorter period.
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\59\ However, as discussed above, the amount of content that
registered persons would be required to complete in a three-year,
annual cycle for a particular registration category is expected to
be comparable to what most registered persons are currently
completing every three years. See supra Item II.A.1.(ii)a. Some
commenters expressed concerns regarding the costs and burdens that
the proposed annual requirement would impose on firms and registered
persons. See infra Item II.C.(a) and (b)(i). FINRA recognizes that
the transition to an annual Regulatory Element requirement may
result in potential costs and burdens. However, FINRA believes that
any such costs and burdens are appropriate and justified given the
significant regulatory benefit of more tailored and timelier
Regulatory Element. Further, FINRA believes that some of the
potential costs and burdens would be mitigated by the proposed
enhancements to the program.
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With respect to firms, FINRA anticipates some costs that may result
from the proposed rule change. The transition to an annual Regulatory
Element requirement could ultimately increase the administrative and
operational burden on firms due to changes to compliance systems. This
is anticipated in terms of the resources required to implement and
monitor compliance with the program on an annual basis. These resources
would also need to be potentially further increased to address the
proposed extension of the Firm Element requirement to all registered
persons.\60\
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\60\ Some commenters noted that the extension of the Firm
Element to all registered persons could result in unnecessary costs
and burdens, and they also noted that this proposed change could
have a disparate impact on firms with large home offices and firms
with large numbers of registered support staff and others holding
permissive registrations. See infra Item II.C.(b)(ii).
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It is anticipated that costs stemming from the change to an annual
Regulatory Element requirement will tend to increase with the number of
representatives at a firm and thus be higher in aggregate at larger
firms. However, economies of scale likely exist in the application of
the proposed requirements. Thus, the average additional cost per
representative at larger firms will likely be lower than that at
smaller firms.\61\
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\61\ One commenter suggested that the transition to an annual
Regulatory Element could increase administrative workloads and costs
on smaller firms and independent contractors. See infra Item
II.C.(b)(i).
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Alternatives Considered
FINRA has considered a range of alternatives in developing the
proposed rule change. These included alternative frequency of the
Regulatory Element requirement (periodic versus annual), alternative
time periods for becoming eligible to maintain a qualification status
for a terminated registration category (one year versus more than one
year) and alternative time periods for maintaining a qualification
status (seven years versus 10 or five years).
The proposed rule change reflects a consideration of the various
alternatives. Within each of these alternatives there is a trade-off
between providing the flexibility to encourage more registered persons
to remain in the industry when other, outside demands arise versus
ensuring that those individuals are likely to be aware of current
regulations and best practices. For example, with respect to
maintaining qualifications, FINRA believes that a length of five years
could achieve the main goals and anticipated benefits of the program.
FINRA considered whether a seven-year period would better balance
flexibility against investor protection risks. Such a seven-year period
would also likely provide a reasonable upper limit on the length of the
proposed requalification option, in so far as a longer period might
erode the benefits of the proposed option. While the proposed
participation period of five years may limit some individuals' ability
to remain in the industry, it may better mitigate the impact of
differences
[[Page 33436]]
with state licensing requirements.\62\ Considering the discussion above
regarding economic impacts, issues stemming from other regulatory
frameworks, as well as the views expressed by commenters in response to
Regulatory Notice 20-05, including NASAA's support for a participation
period of five years, FINRA believes that a five-year period is more
appropriate.\63\
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\62\ Some commenters expressed support for an indefinite
participation period. See infra Item II.C.(b)(iii).
\63\ See infra Item II.C.(b)(iii).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
(a) Comments Relating to Regulatory Notice 18-26
In September 2018, the CE Council published an initial document
outlining several potential enhancements to the CE Program under
consideration by the CE Council. In support of the CE Council, FINRA
published Regulatory Notice 18-26 (September 2018) (``Notice 18-26'')
requesting comment on the potential enhancements. In response to Notice
18-26, FINRA, on behalf of the CE Council, received 22 comment letters.
A copy of Notice 18-26 is available on FINRA's website at https://www.finra.org. Copies of the comment letters received in response to
Notice 18-26 are also available on FINRA's website.
Most commenters generally supported the potential enhancements
outlined by the CE Council. The commenters expressed overwhelming
interest in implementing a mechanism for allowing previously registered
individuals to maintain their qualification after the termination of
their registrations for longer than the current two-year period. In
addition, most commenters agreed that there is value in moving to an
annual Regulatory Element requirement in order to provide registered
persons with more timely and relevant education and training. However,
many expressed concern that doing so could increase the administrative
and operational burden on both firms and registered persons,
particularly for firms with a narrowly focused business model (e.g.,
the sale of mutual funds and variable annuities). One commenter
expressed concern that increasing the frequency of the Regulatory
Element may exacerbate the existing burden on those without ready
access to a high-speed internet connection, which is currently required
for online access. Many commenters supported Regulatory Element content
that is tailored and specific to each registration category rather than
content that applies generally to all registered persons. Some of these
commenters questioned whether there are sufficient regulatory
developments occurring annually that would be relevant to individuals
with limited registrations, such as registered persons engaged in the
sale of mutual funds and variable annuities. Further, commenters widely
supported the creation of a content catalog that firms could leverage
for administering education and training for their Firm Element
programs. Finally, several commenters requested more guidance on the
Firm Element component, including express guidance that other training
requirements may count toward satisfying the Firm Element requirement.
Following a review of the public comments and further discussions
with industry and SRO participants, in September 2019, the CE Council
published its recommendations to enhance the CE Program.\64\ As
previously noted, the proposed rule change is based on the CE Council's
recommendations.\65\
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\64\ See supra note 15.
\65\ See supra note 15.
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(b) Comments Relating to Regulatory Notice 20-05
The proposed rule change was published for comment in Regulatory
Notice 20-05 (February 2020) (``Notice 20-05''). FINRA received 26
comment letters in response to Notice 20-05. A copy of Notice 20-05 is
available on FINRA's website at https://www.finra.org. Copies of the
comment letters received in response to Notice 20-05 are also available
on FINRA's website.\66\
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\66\ See SR-FINRA-2021-015 (Form 19b-4, Exhibit 2d) for a list
of abbreviations assigned to commenters (available on FINRA's
website at https://www.finra.org).
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Below is a summary of the comments on Notice 20-05 and FINRA's
responses.
(i) Transition to Annual Regulatory Element for Each Registration
Category
Most of the commenters addressing the proposed annual Regulatory
Element requirement supported the change. Some of these commenters
qualified their support. ARM supported the proposed change if
individuals with multiple registrations would not be subject to
additional or duplicative requirements. SIFMA, Morgan Stanley, LPL and
Fidelity suggested an annual ``cap'' on the number of modules that
individuals must complete. Huntington was concerned about the potential
increase in compliance and supervisory burdens and duplicative
training. Monahan & Roth requested that the cost of the annual
requirement be proportionately less. STANY requested that FINRA be
mindful of the impact of costs and compliance efforts, especially for
smaller firms.
Further, Integrated Solutions suggested that registrations that
have been held for longer periods be subject to less frequent
Regulatory Element. CFA suggested that an individual's ``primary''
registration be subject to an annual requirement and that the
individual's other registrations be subject to less frequent Regulatory
Element. PFS requested that Investment Company and Variable Contracts
Products Representatives be subject to less frequent Regulatory Element
because there may not be enough material to develop annual content for
such individuals. Morgan Stanley suggested that FINRA consider a phased
approach followed by a cost-benefit analysis to further assess the
impact of the transition. ARM and Foreside stated that the 15-day grace
period for completing the Regulatory Element, which was originally
proposed in Regulatory Notice 20-05, would increase administrative and
operational burdens. Morgan Stanley requested that FINRA provide a 30-
day grace period. Morgan Stanley and SIFMA also requested that FINRA
provide hiring firms with information regarding an individual's
Regulatory Element status at the prehire stage, subject to the
individual's consent.
Several commenters did not support the proposed annual Regulatory
Element requirement or raised other concerns with the proposed change.
Executive Advisors, MML, Nationwide and Pacer did not support the
proposed annual requirement. FSI stated that the proposed change would
potentially increase administrative workloads and costs on smaller
firms and independent contractors as well as duplicative training. FSI
also requested clarification regarding the impact of a CE inactive
status on an individual's state registrations, including advisory
registrations, and adequate time for firms to implement the proposed
rule change. PFS stated that the proposed change to an annual
requirement would disparately impact those without broadband internet,
which is currently required to complete the Regulatory Element.
Registered persons would not be subject to duplicative regulatory
content in any given year, regardless of how many registrations they
hold. Further, FINRA does not believe that it is
[[Page 33437]]
necessary to establish an annual ``cap'' on the amount of regulatory
content as suggested by some commenters. Rather, with respect to
individuals who hold a significant number of registrations, FINRA and
the CE Council would review the amount of content that such individuals
would be required to complete each year and, if necessary, the amount
would be adjusted so that it is reasonable and balanced. FINRA will
file a separate proposed rule change to establish the session fee for
the proposed annual Regulatory Element; we generally expect that the
fee for the annual Regulatory Element would be reduced and be the same
for all registered persons, regardless of the amount of content that
they would be required to complete (that is, an individual who holds
multiple registrations would be subject to the same annual fee as an
individual who holds a single registration).
FINRA believes that the implementation of less frequent Regulatory
Element for certain registration categories or a phased implementation
as suggested by some commenters would be overly complex and cause
confusion. FINRA will work with the CE Council to ensure that there is
sufficient and appropriate content for each registration category. With
respect to the originally proposed 15-day grace period prior to being
designated as CE inactive, FINRA has eliminated the grace period from
the proposed rule change to avoid any unnecessary burdens on firms and
registered persons, as was suggested by some commenters. However, the
proposed rule change preserves the ability of a firm to request an
extension of time for an individual, if necessary. In addition, as is
currently the case, an individual's CE inactive status would impact the
individual's ability to function in a FINRA-registered capacity. As is
the case today, any questions regarding the impact of a CE inactive
status on state registrations should be directed to the appropriate
state securities regulator.
Finally, in conjunction with the proposed rule change, FINRA would
enhance its systems to reduce the overall burden on firms and
registered persons. As part of these enhancements, FINRA would work
with firms to determine what information would be helpful and
appropriate prior to associating with or hiring individuals. FINRA
would also provide firms with adequate time to implement the proposed
rule change. Further, to mitigate any potential disparate impact on
individuals who do not have ready access to a high-speed internet
connection, FINRA would make the Regulatory Element available via a
mobile compatible format.
(ii) Recognition of Other Training Requirements for Firm Element and
Extension of Firm Element to All Registered Persons
Commenters overwhelmingly supported the express recognition of AML
compliance program training and annual compliance meeting training
toward satisfying the Firm Element. Some of these commenters requested
additional flexibility and clarification regarding the Firm Element
requirement.
Foreside requested that firms be provided with the flexibility to
combine the requirements of the Regulatory Element, Firm Element and
annual compliance meeting. Cambridge suggested that completion of
additional modules of Regulatory Element be applied toward satisfying
the Firm Element. Cambridge also recommended that ethics and
professional responsibility training be included in the Regulatory
Element rather than the Firm Element. Monahan & Roth stated that the
current Firm Element training criteria is overly prescriptive and that
the requirement should be more flexible, allowing firms to train to the
scope of their business and changing environment. NRS stated that other
training should count toward satisfying Firm Element training if the
other training is applicable to an individual's job function. STANY
requested that industry conferences count toward satisfying the Firm
Element. SIFMA requested that firms should continue to have the
flexibility to determine if leveraging other training makes sense given
their business model and the flexibility to cover the topics in the
Regulatory Element in Firm Element training. SIFMA also requested that
the Firm Element requirement recognize the unique needs of limited
purpose broker-dealers and suggested that Firm Element training be
designed to apply to other professional designations or training
requirements. NASAA stated that satisfaction of AML compliance program
training or annual compliance meeting training alone should not satisfy
Firm Element training.
Not all commenters supported the extension of the Firm Element
requirement to all registered persons. FSI and STANY recommended that
it be optional for registered persons who are not currently covered
under the rule. STANY stated that extending the requirement to
individuals holding permissive registrations could create unnecessary
burdens and discourage permissive registrations. LPL stated that the
proposed change may result in unnecessary costs. MML stated that it
would have a disparate impact on firms with large home offices. SIFMA
stated that it would be overly burdensome, particularly for firms with
large numbers of registered support staff and others holding permissive
registrations who are not currently covered under the rule.
The Regulatory Element cannot be combined with other training
requirements. Registered persons must complete prescribed regulatory
content provided by FINRA to establish that they have an appropriate
level of knowledge relating to regulatory requirements. However, the
Firm Element and annual compliance meeting may be combined, provided
that the criteria for each requirement is satisfied.
FINRA and the CE Council will consider the possibility of making
additional Regulatory Element topics available to firms, which they
could apply toward satisfying Firm Element training based on their
needs analysis. FINRA and the CE Council will also consider whether
ethics and professional responsibility training should be covered in
the Regulatory Element.
In response to comments, FINRA has revised the proposed rule change
to replace the current prescriptive Firm Element criteria with a
requirement that the training cover topics related to the role,
activities or responsibilities of the registered person and to
professional responsibility. Nothing in the proposed rule change would
preclude firms from covering the Regulatory Element topics in their
Firm Element training, consistent with their needs analysis. Further,
consistent with their needs analysis, firms would continue to have the
flexibility to determine whether other training, including industry
conferences, may be applied toward the Firm Element. In addition, the
CE Council will consider issuing best practices and guidance to help
firms evaluate other financial industry continuing education programs
for purposes of satisfying the Firm Element.
The recognition of other training requirements toward satisfying
the Firm Element would still require firms to conduct a needs analysis
to determine the appropriateness of applying such other training toward
the Firm Element. However, based on a needs analysis, a firm may
determine that such other training requirements fully satisfy the Firm
Element requirement. FINRA is not considering developing Firm Element
training specifically to satisfy other professional designations or
[[Page 33438]]
training requirements, but some existing training is, and would
continue to be, appropriate for both Firm Element and other
professional requirements.
The extension of the Firm Element requirement to all registered
persons would ensure that firms enhance the securities knowledge, skill
and professionalism of all registered persons, which is consistent with
the overall goal of the Firm Element. It would also ensure that
registered persons are provided more specific learning materials
relevant to their day-to-day activities, which will provide each
registered person a more complete training cycle. As indicated by
commenters, some firms already require that all their registered
persons complete Firm Element training. In addition, while firms with a
larger number of registered persons, including individuals who are
permissively registered, may incur additional burdens in implementing
the proposed rule change, some of that burden would be mitigated based
on the express recognition of other training requirements toward
satisfying the Firm Element requirement. In some cases, registered
persons may not have to complete any additional training beyond what
they are required to complete today. For example, with respect to
permissively registered persons working in a clerical or administrative
capacity for a firm, the firm may determine, based on a needs analysis,
that such individuals have satisfied the annual Firm Element
requirement by participating in the firm-wide annual compliance
meeting.
(iii) Maintenance of Qualification After Termination of Registration
Commenters overwhelmingly supported the proposed change to provide
individuals the option of maintaining their qualification following the
termination of a registration by completing annual continuing
education. Some commenters requested additional changes, which are
discussed below.
NASAA supported the goals of the proposed rule change, but it had
concerns regarding the seven-year participation period originally
proposed in Regulatory Notice 20-05. NASAA has expressed support for a
participation period of five years. CFA, Fidelity, Foreside, Integrated
Solutions and STANY stated that there should not be any time limit on
the participation period. FSI, Foreside, MML, SIFMA and STANY requested
that the proposed rule change also extend to state licenses.
Cambridge suggested that the content, subject matter and volume of
training be the same for both participants and registered persons.
Cambridge also suggested that the learning topics for participants be
available to firms so that they may elect to apply it to their
registered persons. FSI recommended that individuals who elect to
participate at a later date following their Form U5 submission should
not be required to complete any content that is outdated. MML wanted to
know what would happen if a participant misses an annual cycle. In
addition, MML requested that individuals who became CE inactive within
three years prior to the implementation date of the proposed rule
change should be able to participate. SIFMA requested that hiring firms
be provided with information regarding a participant's status. CFA
recommended that the current two-year qualification period be
eliminated.
The proposed time limit for participation is necessary to ensure
that previously registered individuals maintain an appropriate level of
securities experience throughout their professional careers. FINRA
believes that a seven-year period better serves the diversity and
inclusion goals of the proposed rule change. However, FINRA also
recognizes the benefits to the industry of having further alignment
between FINRA qualification requirements and state licensing
requirements. Therefore, in the interest of consistency and promoting
registration efficiency, the proposed rule change provides individuals
a maximum of five years in which to reregister, which will still serve
the diversity and inclusion goals. As noted above, following
implementation of the proposed rule change, FINRA will review the
efficacy of the program, which will include a review of the
participation period. In addition, FINRA will work with NASAA and state
regulators to provide for an appropriate process and system support to
allow states to track and process registration requests for individuals
operating under the two- or five-year examination provisions.
Participants, including registered persons who elect to participate
for a terminated registration category, may be subject to more overall
content compared to registered persons who are not participants because
participants would be required to complete a minimum amount of non-
regulatory content selected by FINRA and the CE Council. FINRA and the
CE Council will consider publishing the learning topics for
participants for those firms that may elect to apply it to their
registered persons. FINRA and the CE Council will also work to ensure
that eligible individuals who elect to participate are not subject to
outdated content.
Participants who miss an annual cycle for a registration category
would be provided with an opportunity to continue by completing any
missed content, provided that the registration category has not been
terminated for two or more years.\67\ Individuals who have been CE
inactive for two consecutive years prior to the implementation date of
the proposed rule change would not be eligible to participate because
of the long lapse in continuing education. FINRA would work with firms
to determine what information regarding a participant's status would be
helpful and appropriate. The current two-year qualification period
would not be eliminated because participation is optional and eligible
individuals may elect not to participate.\68\
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\67\ Participants who fail to complete the required annual
content for a registration category that has been terminated for two
or more years would not be eligible to continue. For example, if the
proposed rule change were implemented on January 1, 2022, a
participant who completes the required annual content for the
General Securities Representative category in 2022, 2023 and 2024
but fails to complete the 2025 annual content would not be eligible
to continue beyond 2025. In the example above, if the individual
reregisters with a firm as a General Securities Representative in
2025, the individual would be required to complete any annual
Regulatory Element applicable to the General Securities
Representative registration category by December 31, 2025. If the
individual fails to complete such Regulatory Element by December 31,
2025, the individual would be designated as CE inactive in the CRD
system beginning on January 1, 2026. Alternatively, if the
individual decides to reregister with a firm as a General Securities
Representative at any point beyond 2025, the individual would be
required to requalify by examination, or obtain an examination
waiver, in order to reregister.
\68\ In this regard, it should be noted that if an individual
who holds a single registration terminates that registration and
elects not to participate, the registration would be subject to the
two-year qualification period. Similarly, if an individual with
multiple registration categories terminates only some of those
registration categories (that is, files a partial termination) and
elects not to participate, the terminated registration category or
categories would also be subject to the two-year qualification
period, unless the terminated category is a subset of a broader
registration category for which they remain qualified.
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(iv) Other Enhancements to CE Program
Most commenters supported the other enhancements to the CE Program.
However, some commenters had concerns and questions. SIFMA requested
that consideration be given to potential technical limitations and
challenges of registrants when designing diverse instructional formats
for the Regulatory Element. FSI, MML and SIFMA requested that the
Regulatory Element learning topics for each upcoming year be published
early.
[[Page 33439]]
SIFMA suggested that firms be allowed to set the timing and
frequency of FINRA-generated notifications to registered persons,
especially where the firm's Regulatory Element deadline is sooner than
December 31. SIFMA also suggested that FINRA should consider providing
firms with the means to ``audit'' notifications sent to registered
persons regarding the Regulatory Element via the FINRA Financial
Professional Gateway (``FinPro[supreg]'') system and that continuing
education completion information, including information relating to
participants who elect the proposed option, should be displayed on
BrokerCheck[supreg]. Morgan Stanley requested that FINRA provide firms
with the option to communicate directly with registered persons so
firms may set their own internal timelines to fulfill the annual
Regulatory Element requirement. MML suggested that sending a
notification to the personal email of a registered person via the
FinPro system is inconsistent with general supervision and
recordkeeping requirements relating to business-related electronic
communications.
NRS supported the development of a centralized Firm Element content
directory, which includes course title, description and length,
intended audience, learning objectives and skill level, rather than the
development of a content catalog. Among other reasons, NRS stated that
SROs should not create Firm Element content because it may have the
unintended consequence of being considered regulatory guidance.
FINRA and the CE Council will work to create optimal instructional
formats for the Regulatory Element, taking into consideration the user
experience. Further, FINRA and the CE Council will consider the
possibility of publishing the Regulatory Element learning topics for
each upcoming year early to provide firms with sufficient time to
design their training for the upcoming year. FINRA will work with firms
to determine the necessary enhancements to the FinPro system to
facilitate the proposed transition to an annual Regulatory Element
requirement. The use of the FinPro system notification functionality
would not be inconsistent with the requirements relating to electronic
communications. Firms that elect to use the functionality would receive
copies of the system-generated notifications, which they could review
and retain.
With respect to the availability of continuing education
information on BrokerCheck, an individual's CE inactive status is
currently displayed on BrokerCheck and it will continue to be displayed
under the proposed rule change. FINRA will also consider whether the
continuing education status of participants who elect the proposed
option should be displayed on BrokerCheck. Finally, with respect to the
development of a Firm Element content catalog, which most commenters
supported, SROs have historically created Firm Element content and have
provided firms with the option of using such content. FINRA and the CE
Council are considering creating a centralized location for such
content and to partner with third-party training providers to include
their content in the catalog. Based on the comments and industry
feedback, a content catalog would be a valuable resource and would
facilitate compliance by all firms, regardless of firm type.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-FINRA-2021-015 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2021-015. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of such filing also will be available for inspection
and copying at the principal office of FINRA. All comments received
will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-FINRA-2021-015 and should be submitted
on or before July 15, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\69\
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\69\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-13286 Filed 6-23-21; 8:45 am]
BILLING CODE 8011-01-P
