Personal Finances and Your Registration

Customers sometimes ask whether a poor credit rating or a personal bankruptcy could negatively impact their ability to get licensed to work in the securities industry. Here is some information about how your personal financial situation may affect your registration process … Continue reading

Customers sometimes ask whether a poor credit rating or a personal bankruptcy could negatively impact their ability to get licensed to work in the securities industry. Here  is some information about how your personal financial situation may affect your registration process.

First an important caveat: this is not legal advice and, as an education company, Solomon Exam Prep provides this information for educational purposes only. Please consult with a compliance professional to identify and address any issues regarding your situation or your state’s regulations. Always check with your compliance department regarding compliance issues.

1. Be sure to disclose relevant information on Form U4.

Form U4 is the registration form for broker-dealer agents and investment adviser representatives. It asks several questions about your history, including some on your finances. Such questions include whether you or a company you controlled have been subject to a bankruptcy within the past ten years. Answer these questions completely and honestly! Failing to disclose this information could jeopardize your ability to work in the securities industry–it could result in a statutory disqualification.

2. You may be denied registration based on insolvency.

If the state securities administrator discovers that you are insolvent (meaning that you can’t pay your debts), they may deny your registration if they feel that it is in the public’s interest.

3. You may be denied registration based on your financial history.

FINRA may deny your registration based your answers to the questions on Form U4. This means that FINRA could deny your registration if:
-you or a company you controlled have been subject to a bankruptcy within the past ten years
-a bonding company denied, paid out on, or revoked a bond for you
-you have unpaid legal judgments or liens

4. You may be denied registration for having a poor credit history.

Having a poor credit history could result in your registration being denied. Regulators may require applicants to submit balance sheets, and the information on such sheets will be factored into the overall decision of whether to approve or deny your application.

5. Your application for registration will not be automatically accepted if you have financial issues that are required to be reported on Form U4.

If you report financial problems on your application, it will not be automatically accepted. Instead, it will be transferred to a manual review process.

6. Once you are registered, you may lose your registration due to poor credit, bankruptcy, or insolvency.

Even if you are already registered, you are still required to report certain events by updating Form U4, and your registration is still subject to review when you do so.

7. You may be able to get registered even if you don’t have a spotless financial history.

Regulators are looking out for your customers and they want to collect all relevant information so they can stop problems before they start. They will only deny your registration if they feel it is in the public’s interest.

If a checkered financial history fit with other red flags, such as a criminal record or a history of regulatory violations, then a denial would be more likely. However, an isolated financial incident would be less likely to cause regulators to deny a registration. Regulators look at each case individually.

Note that regulations vary by state, and that in some states regulators will not look at your credit rating when evaluating your application. Certain regulators may also allow you to send your information before you apply, so you can see whether they would accept your application. For more information, contact your state securities administrator. Contact information may be found on the NASAA’s website.

Reminder: this is not legal advice and is provided for educational purposes only. Please consult with a compliance professional to identify and address any issues regarding your situation or your state’s regulations. Always check with your compliance department regarding compliance issues.

 

Sources:

Form U4

Form U4 Instructions

“Why Bad Credit Is Bad For Financial Careers”

Exam Alert: FINRA Revises ADF Market Participant Registration Rules

Effective February 3, 2014, FINRA has implemented changes to the requirements for registering as an Alternative Display Facility (ADF) market participant. An applying firm must now agree to submit an ADF Deposit Amount, execute a Participant Agreement with FINRA, and execute a Certification Record. Continue reading

Effective February 3, 2014, FINRA has implemented changes to the requirements for registering as an Alternative Display Facility (ADF) market participant. An applying firm must now agree to submit an ADF Deposit Amount of $250,000 into escrow (raised to $500,000 under certain conditions). The firm may lose some of the deposit if they fail to submit at least 75% of its quoting or trading volume to the ADF. The firm must also provide monthly projections of the volume of data it expects to submit to the ADF.

The rule provides for ways to earn back the deposit. The rule also specifies what happens to the deposit if the firm is sold, stops doing business, or fails to become or remain an ADF market participant.

A firm seeking registration as an ADF market participant must also execute a Participant Agreement with FINRA and execute a Certification Record. The Certification Record has the firm attest that it can comply with certain requirements of Regulation NMS.

Source: FINRA Regulatory Notice 14-04: SEC Approves Amendments to FINRA Rules 6271 and 6272 Regarding the Requirements For Firms Seeking Registration as FINRA Alternative Display Facility (ADF) Market Participants

This alert applies to the Series 7, Series 55, and Series 62.

Exam Alert: SEC adopts definitions for security-based swap rules

Under the Dodd-Frank Act, the SEC and CFTC (Commodity Futures Trading Commission) regulate the OTC swaps market. On April 18, 2012, the SEC adopted rules that provide definitions for terms used in the law, specifying who will be subject to regulation. Continue reading

Under the Dodd-Frank Act, the SEC and CFTC (Commodity Futures Trading Commission) regulate the OTC swaps market.  On April 18, 2012, the SEC adopted rules that provide definitions for terms used in the law, specifying who will be subject to regulation.

The rules provide two categories of persons subject to SEC registration: “security-based swap dealers” and “major security-based swap participants.”  In essence, a security-based dealer is a person that regularly trades security-based swaps for their own account.  A de minimis exemption exists for dealers who traded up to $3 billion worth of credit default swaps over the past year and up to $150 million worth of other security-based swaps.  Note that there is a different de minimis threshold of $25 million for security-based swaps involving “special entities,” including certain government agencies.

A major security-based swap participant is a person who maintains a “substantial position” in any of the major security-based swap categories, or whose outstanding security-based swaps create “substantial counterparty exposure.”  Note that hedging positions are not counted towards the “substantial position” threshold if the person is not a “highly leveraged financial entity,” meaning a financial entity with a ratio of liabilities to equity in excess of 12-to-1.  Two tests are provided for determining “substantial position,” and two thresholds are provided for “substantial counterparty exposure.”  The specifics of these tests and thresholds may be found in the SEC release, along with background information, a plan to phase-in the de minimis rule, a safe harbor to avoid being considered a major participant, and other details.

The rule will become effective 60 days after publication in the Federal Register, though the deadline for registration will be given in SEC’s final rules for registration of dealers and major participants.

Source: SEC Release 2012-67

This exam alert applies to the Series 62, Series 79, Series 99, Series 65, and Series 66.

Exam Alert: SEC replaces credit rating with other criteria on Form S-3

Form S-3 is used for “short form” registration of securities and shelf registration. The SEC has adopted rules that change the standards Continue reading

Form S-3 is used for “short form” registration of securities and shelf registration.  The SEC has adopted rules that change the standards of eligibility for filing Form S-3.  These rules will be effective 30 days after publication in the Federal Register. The alert applies to the Series 79, Series 62 and Series 24 exams.

One old criterion for Form S-3 registration was if the securities were rated investment grade by a nationally recognized statistical ratings organization.  This criterion will be replaced with four new tests.  The issuer may use Form S-3 if they satisfy any one of these four conditions and meet certain additional standards.  The conditions may be found here.

Source: SEC Release 2011-155

Exam Alert: SEC alters investment adviser registration and reporting requirements

The SEC has adopted changes to the registration and reporting requirements that private fund advisers face. Unless the private fund adviser meets Continue reading

The SEC has adopted changes to the registration and reporting requirements that private fund advisers face.  Unless the private fund adviser meets an exemption, they must register with the SEC.  Exemptions from registration are provided for venture capital fund advisers and private fund advisers with less than $150 million in assets under management in the U.S., though these advisers must still report certain business information.  Foreign private advisers are exempt from the registration and reporting requirements.

Source: SEC Release 2011-133

Exam Alert: Mid-sized advisers must register with the states

The SEC has modified the standards for federal investment adviser registration. They have raised the bar for federal registration from Continue reading

The SEC has modified the standards for federal investment adviser registration.  They have raised the bar for federal registration from $25 million in assets under management to $100 million.  Advisers with between $25 million and $100 million in assets under management fall into the new category of “mid-sized advisers,” which must register with the states unless they qualify for federal registration based on other criteria.  Mid-sized advisers have until June 28, 2012 to register at the state level.

Source: SEC Release 2011-133

Exam Alert: SEC proposes rule to eliminate credit rating as a condition for short-form securities registration

On February 9, 2011, the SEC voted unanimously to propose an amendment to its rules that would remove credit ratings as a condition Continue reading

On February 9, 2011, the SEC voted unanimously to propose an amendment to its rules that would remove credit ratings as a condition for registration of securities using short-form registration or shelf registration.  Instead of a credit rating qualification, the issuer must have issued $1 billion of non-convertible securities in the past three years.  This proposed change is part of the Dodd-Frank Act reforms, which among other things require that federal agencies remove references to credit ratings from their rules. Relevant to the Series 79, the Series 24 and the Series 62.

http://www.sec.gov/news/press/2011/2011-41.htm

Exam Alert: Private advisers must register with the SEC

Effective July 21, 2011, investment advisers to most private funds (hedge funds and private equity funds) must register with the SEC. Previously, these Continue reading

Effective July 21, 2011, investment advisers to most private funds (hedge funds and private equity funds) must register with the SEC.  Previously, these advisers had been exempt due to the “private adviser”” exemption.  The Dodd-Frank Act replaces this exemption with narrower exemptions for certain advisers, including advisers that exclusively advise venture capital funds and private fund advisers with less than $150 million in assets under management in the United States.

http://www.sec.gov/spotlight/dodd-frank/hedgefundadvisers.shtml