Chapter 9 SRO Regulatory Requirements

Question 1

What are the Membership Qualifications for SROs?

Answer 1

-Abide by FINRA rules
- Abide by Federal & State laws
- Current updates within 30 days
- Pay dues

Question 2

What does a principal do?

Answer 2

Person involved in the management of the firms business activities and must carry out written supervisory procedures (WSP)

Question 3

When does a WSP be reviewed?

Answer 3

Annually

Question 4

What are some potential red flags for an RR?

Answer 4

• Churning
• Blanket recommendations
• Similar customer complaints
• Improper suitability

Question 5

What is the FINRA requirement for an RR to open an account at another firm?

Answer 5

All associated persons receive written consent from their broker dealer before opening an account
- Must get prior written consent if there is any beneficial interest

• Must notify the carrying firm once opened & send duplicate account opening statements

Question 6

What security transactions are exempt from the account opening requirements?

Answer 6

• UIT
• Mutual Funds
• Section 529 plans

Question 7

What must a principal do when reviewing a U4?

Answer 7

Investigate good character
Reputation
experience verify prior 3 years

Then they must review, sign, and date

Question 8

What is a U5 form for?

Answer 8

Form to terminate a registered representative, voluntarily or involuntarily and discloses the reason

• Provide a copy to the employee within 30 days

Question 9

What causes a disciplinary action?

Answer 9

Causes can be if any member includes incomplete, inaccurate, or misleading information

• Failure to disclose any information in a timely manner

Question 10

What are some causes of Statutory Disqualification?

Answer 10

Theft related to securities
Misdemeanor convictions
Felony convictions from the last 10 years
Injunctions
Expulsions

Question 11

How long does a member stay subjected to regulation after resignation?

Answer 11

Subject to regulation following the filing of a complaint within 2 years after the effective date of resignation

Question 12

What are the minimum qualification requirements for registration with FINRA?

Answer 12

• Firm must register their representatives
• Registration must be appropriate to roles
• Must pass exams

Question 13

What’s the waiting period if you fail a FINRA exam?

Answer 13

30 days 1st & 2nd attempt
180 days after 3rd attempt

Question 14

What is the regulatory element?

Answer 14

Is a computer based training session administered by FINRA

Question 15

When are RR supposed to complete their regulatory training?

Answer 15

2nd anniversary of their initial securities registration

Every 3 years after

120 day grace period; if not completed by then they will receive an inactive status

Question 16

What is the purpose of the annual compliance meetings?

Answer 16

To address compliance issues that directly impact registered personnel. Must keep a record of attendee name

Question 17

What is Form U4 for?

Answer 17

Application used to register an associated person

Question 18

What is Maintaining Qualification Program (MQP)?

Answer 18

Allows individuals up to 5 years to re-register with a firm without having to retake associated qualification exams

• Must enroll in MQP within 2 years of termination or resignation

Question 19

What is FINRA BrokerCheck for?

Answer 19

For anyone who wants to look into FINRA member within the past 10 years

Question 20

What is not included in FINRA Brokercheck?

Answer 20

Any personal information
- Residence
- Social
-

Question 21

How long can FINRA retain jurisdiction over one of its members or registered associated persons after they are no longer in the industry?

Answer 21

2 Years

Question 22

Why does FINRA prohibit outside activity?

Answer 22

Its necessary to prevent misconduct or conflicts of interest that could harm the firm or their customers

Question 23

If there is any outside activity what must an RR do?

Answer 23

The RR must get written approval from the firm. It is up to the firm to decided if there’s any conflicts of interests

Question 24

What is the purpose for FINRA Rule 3241?

Answer 24

The rule is stop RR from being a beneficiary or hold a trust position

Question 25

How can an RR be a beneficiary for one of their customers?

Answer 25

- The customer has to be an immediate family member - Written permission from the firm

Question 26

When do you have to notify your supervisor?

Answer 26

Anything that is outside the normal scope of an RR duties

Question 27

What must happen if an RR gets compensation from a Private securities transaction?

Answer 27

They must record it to the firms books and the member firm is responsible for supervising the RRs participation

Question 28

Is it okay for a Broker Dealer to sell a security they have control over?

Answer 28

Its only okay if the customer has received proper disclosures and must have written disclosure

Question 29

What is selling away?

Answer 29

Selling away is when an RR sells investment that a broker dealer does not offer

Question 30

What is Rule G-37?

Answer 30

it stops Broker dealers from engaging in any municipal securities business with an issuer within 2 years of any contribution

Question 31

What should an RR do if they receive a customer complaint?

Answer 31

They must give it to their manager immediately and then its up to the manager to resolve the issue - Sent to FINRA within 30 days

Question 32

How long is a customer complaint retained for?

Answer 32

4 years

Question 33

What must an RR do if they care to engage in any for compensation outside business activity?

Answer 33

Provide Prior written notification to their BD

Question 34

When can an RR share commissions or referrals?

Answer 34

Only if they share the same Broker Dealer

Question 35

When can an RR receive continuing commissions?

Answer 35

They can only continue to receive commissions if the transaction was conducted during employment and in a written contract between rep and broker dealer

Question 36

Are you allowed to take additional compensation outside the prospectus?

Answer 36

No

Question 37

What is the general rule for Sales Contest ?

Answer 37

It is okay as long it doesn't steer the business towards one product

Question 38

What is a restricted person?

Answer 38

Basically just someone who you cannot sell shares to

Question 39

What is the purpose of creating Regulation Best Interest & Customer Relationship Summary Form ?

Answer 39

To provide transparency for retail customers.

Question 40

What are the 4 Components to Regulation BI?

Answer 40

Disclosure Obligation Care Obligation Conflict of Interest Compliance Obligation

Question 41

What is the CRS form for?

Answer 41

It describes the relationship between firm and client