This is the final page of our free SIE Study Guide. It covers important employee conduct requirements as well as key reportable events.
There are a number of FINRA rules related to the responsibilities and conduct of member firms and their associated persons, some of which are described below.
Form U4 and Form U5: Registered representatives are required to keep their Form U4s up to date. If any of the information on the form changes, such as a change of address or involvement in a lawsuit, then the Form U4 must be promptly amended by the member firm. When a registered representative leaves their employer, either voluntarily or involuntarily, a Form U5 is filed by the member firm that terminates their registration and details the reasons for the departure.
Customer Complaints: A customer complaint is a written allegation that a registered representative has committed fraud or otherwise violated FINRA or SEC rules and regulations. FINRA has specific procedures in place for when a firm receives a customer complaint, which may lead to a hearing in front of FINRA-appointed arbitrators. Arbitration rulings are final and binding on all parties.
Misleading or Omitted Information: Under FINRA Rules 2010 and 1122, there are consequences for member firms and associated persons that file false, misleading, or inaccurate Form U4 or U5 forms or amendments. Depending on the severity of the rule violation, consequences might include monetary fines, suspensions, or other enforcement actions.
Associated persons are required under FINRA Rule 4530 to promptly report certain events to their firms, such as written customer complaints, violations of securities laws, or other events requiring updates to their Form U4s. The rule also extends to their firms who may need to report the events to FINRA.
Outside Business Activities — FINRA Rule 3270: On the Form U4, registered representatives must disclose any business activities they’re involved with that exist outside the scope of their relationship with their member firm, known as outside business activities (OBAs). Registered representatives are also required to provide written notice to their member firm prior to engaging in any new OBA. Examples of OBAs might include owning rental real estate, working as a reserve fire fighter, or playing music professionally on the weekends.
Other reportable items on the Form U4 include felonies, financial-related misdemeanors, liens, and bankruptcies. These are known as disclosures and may, depending on their severity, disqualify an individual from registration.
Private Securities Transactions — FINRA Rule 3280: Registered representatives are prohibited from selling any securities products or engaging in any securities transactions that are not officially offered by their employing member firm, without written approval from the firm to do so. If the registered representative receives selling compensation for the transaction, then the firm must also supervise the transaction as if it were being executed on their behalf as well as record it on the firm’s books and records. If no compensation is involved, the firm may still require the associated person to adhere to certain conditions of the transaction.
Political Contributions: Under FINRA, SEC, and MSRB pay-to-play rules, the covered associates of covered members are allowed to contribute: (1) up to $350 to an official per election if they are entitled to vote for the official at the time of the contribution; and (2) up to $150 to an official per election if they are not entitled to vote for the official at the time of the contribution. Primary and general elections are counted separately for purposes of these rules. A covered member is defined by FINRA as any member except when that member is engaging in activities that would cause the member to be a municipal advisor. Firms are required to maintain books and records that demonstrate compliance with pay-to-play rules.
Gifts and Gratuities: On an annual basis, member firms and their associated persons are prohibited from giving customers anything of value in excess of $100. The rule also requires gifts and gratuities records to be kept separately from the firm’s other books and records.
Non-cash Compensation: Under non-cash compensation rules, member firms and their associated persons are prohibited from directly (or indirectly) accepting or making any non-cash compensation payments. There exist several exceptions to these rules, including occasional meals or entertainment tickets that are not gifted frequently or extensively enough to raise questions about propriety nor contingent on the achievement of a sales target.
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