SIE CHAPTER 9 Securities Industry Regulations

monetary instrument log (MIL)

- required for wire transfer cash purchases of monetary instruments, such as money orders, cashier's checks, and traveler's checks, totaling between $3,000 and $10,000 - kept on record at the financial institution for 5 years and produced at the request of examiners or auditors to verify compliance. - In addition to monetary instruments, wire transfers in amounts of $3,000 or more fall under additional scrutiny and always require an MIL and/or a currency transaction report.

Under FINRA rules, certain customer complaints must be reported to FINRA

- These complaints need to be reported within 30 days of the discovery of the event - Written customer complaints that involve theft of funds or securities must be reported - Member firms are also required to provide quarterly reports summarizing the customer complaints received by the firm - The report is due on the 15th of the month following the calendar quarter. No complaints, no report is necessary.

Bank Secrecy Act (BSA)

- authorizes the Treasury to require financial institutions, including broker-dealers, to keep records and file reports about the source, volume, and movement of funds into and out of the country and through domestic financial institutions

Customer Protection Rule

- broker-dealers must ensure the safekeeping of customer funds and securities - The firm is required to obtain and hold all customer funds and securities in a timely and efficient manner while abiding by all settlement and delivery rules - The firms must also provide customers with their free credit balances with every statement but, at a minimum, QUARTERLY

FINRA BrokerCheck Disclosure

- consumers can research current and former BDs and RRs registered with FINRA within the past 10 years - Any information available in filed uniform forms, such as Form U4 Approved registrations Arbitration awards Information about qualification exams passed, including the corresponding date Information about the broker's disciplinary history Information about current and former affiliations with member firms Complaints -

specially designated nationals (SDNs)

- designate a compliance officer to oversee execution of its customer identification program.- and U.S. persons are generally prohibited from dealing with them. Financial institutions must regularly check OFAC's list, block or freeze assets of any SDNs on the list, and report these incidents within 10 days of occurrence

Employees exempt from registration

- include any person whose functions are solely clerical or ministerial, or employees not actively engaged in the securities business - Persons associated with members who effect transactions on the floor of a national securities exchange and are registered as floor members with such exchanges are exempt from FINRA registration

Continuing Commissions

- it is permissible for the broker-dealer to pay continuing commissions to the retired representative only for business which the representative conducted while employed at the broker-dealer (not new business) - must be a written contract between the representative and the broker-dealer outlining the agreement - continuing commissions may be paid to the retired registered representative or to the representative's heirs

initial notice

- must provide their customers with an initial notice of their privacy policies and practices at the time the relationship is established and an annual notice every year after. - An initial privacy notice must be provided to consumers before disclosing nonpublic personal information about the consumer to a nonaffiliated third party

Office of Foreign Assets Control (OFAC)

- publishes a list of individuals and companies associated with certain targeted countries - lists individuals and entities, including terrorists and narcotics traffickers, who are not country-specific

RRs are required to complete FINRA-mandated continuing education (CE)

CE requirements include a regulatory element and a firm element

CTRs must be filed within 15 days of cash transactions, including layering, of $10,000 or more.

CTRs must be filed within 15 days of cash transactions, including layering, of $10,000 or more.

Recordkeeping Requirements

Correspondence and communications including emails, instant messages, records of gifts - 3 years Customer complaints - 4 years CTR & SAR - 5 years Customer account records, blotters, municipal complaints, POAs - 6 years Articles of incorporation/partnership agreement, board meeting minutes, stock certificate books, amendments - lifetime +3 following termination

Correspondence

Correspondence consists of written or electronic communication that is targeted to one individual. Additionally, correspondence can be sent to 25 or fewer retail customers within 30 calendar days - correspondence and institutional communications must be reviewed by a principal of the member firm. They do not need to be pre-approved by a principal if they have a training program in place and do not need to be filed with FINRA. They are subject to spot checks by FINRA.

customer complaint

grievance that is received in writing - If an RR receives a written complaint, they must give it to a manager immediately; it is the manager's responsibility to resolve the complaint. A record of the complaint must be retained for 4 years. If the customer later wants to rescind the complaint, the original must be kept, and a copy returned to the customer.

regulatory element

is a computer-based training session administered by FINRA. The training covers relevant rules, regulations, and industry practices. All information in the training module must be satisfactorily reviewed and completed within the allotted time period - Currently, RRs are required to complete the regulatory element training on the 2nd anniversary of their initial securities registration, and every 3 years thereafter - RRs failing to complete the training within a 120-day grace period from their anniversary date will have their registration deemed "inactive." - effective January 1, 2023, individuals will be required to complete the regulatory element on an annual basis

Advertising

is a type of communication that is distributed via mass media; the broker-dealer has no control over who receives this material. Examples include newspaper ads and commercials on TV or radio

Sales literature

is a type of retail communication where the broker-dealer controls the distribution of the material. It is provided to a targeted audience, such as group emails, text messages, and form letters to more than 25 prospects. Research reports and brochures are other examples of sales literature

Currency Transaction Report (CTR)

- A report that must be filed for each transaction in currency of more than $10,000 by or through a bank. These reports are required in an effort to detect and prevent instances of fraud and money laundering. - The report must be filed within 15 days

FINRA requires all retail communications be filed with FINRA within 10 business days of first use, not beforehand

- All retail communications must be approved by a principal prior to first use or at the time of filing with FINRA - retail communications must be maintained for 3 yearsfrom the date of last use. These records must indicate who prepared and who approved each piece of sales literature and advertising

Nonpublic Personal Information

- Any information a broker-dealer collects about a consumer that cannot be obtained from a source available to the general public, such as government records or widely distributed media, is considered nonpublic personal information - This includes information provided by an individual on an application to obtain financial products or services, information about an individual resulting from any transactions, information from a credit report, and information that can be derived using an individual's account number.

Arbitration Disclosure to Associated Persons Signing or Acknowledging Form U4

- Any monetary related securities dispute that an RR may have with their BD, another RR, or a client must be handled by arbitration and not taken to court (litigation) - This does not apply to cases involving sexual harassment or employment discrimination. The associated person must also be informed of the details of how the arbitration process works.

Firm Do-Not-Call List Procedures

- BDs are required to maintain an internal "do-not-call" list to track prospects not wishing to be contacted - A member making telephone solicitations before 8 a.m. or after 9 p.m. will not be liable under the firm-specific do-not-call rules if the member has an established business or personal relationship with the recipient of the call OR the member received prior written consent from the person to be contacted - Members must honor a person's do-not-call request within a reasonable time from the date the request is made. This period may not exceed 30 days from the date of request. - According to FINRA Rules on telemarketing, those requesting to be placed on a BD's do-not-call list must remain on the list indefinitely

Annual Compliance Meeting

- Broker-dealers are required by FINRA rules to conduct an annual compliance meeting for all registered personnel - The firm must address compliance issues that directly impact registered personnel. The firm must keep a record of attendee names and the topics presented

Opt-Out Provisions

- Consumers must be given the ability to opt out of the firm's policies on disclosing nonpublic financial information to nonaffiliated third parties.- A firm can provide a toll-free number or a detachable form with a preprinted address so that customers and consumers can easily opt out from the BD disclosing any nonpublic personal information to non-affiliated third parties. The privacy notice must offer a reasonable way for a customer or consumer to opt out.

Electronic Filing Requirements for Uniform Forms

- FINRA requires member firms to file uniform forms, such as Form U4, electronically. These forms must be filed with the Central Registration Depository (CRD), sometimes called WebCRD, which is the central licensing and registration system operated by FINRA for the U.S. securities industry and its regulators - Each BD will have a principal that is designated to be responsible for managing the registration process, including reviewing and approving the filing of the appropriate forms. - Uniform forms, such as Form U4, are subject to SEC record retention requirements. The records must be retained by the BD for 3 years total, with the first 2 years in an easily accessible location

Associated Persons Opening an Account with Other Firms

- FINRA requires that all associated persons receive written consent from their broker-dealer before opening an account at another firm - the carrying member must tell the employee that the employing firm will be notified of the account opening and send duplicate account confirmations and statements to the employing broker-dealer upon request - If an associated person had a brokerage account before working for the member firm, the associated person must notify the employer within 30 calendar days of becoming an employee of the firm, and in return must receive written consent from the firm to continue to have the account

AML Penalties

- Financial institutions and their employees face civil and criminal penalties for failing to properly file suspicious activity reports - representative found guilty of violating AML laws may be sentenced to 20 years in prison and receive a fine of twice the amount of funds involved or $500,000, whichever is greater

Sharing Commissions with Non-Members

- Firms and RRs are prohibited from paying commissions to any individual who is not registered with FINRA. - No member will deal with any non-member, except at the same prices, and for the same commissions, fees, and terms as accorded to the general public - There are no rules prohibiting any FINRA member from granting to any other member of any securities association a dealer's discount, allowance, commission, or special terms.

Termination of Registration

- Form U5 is used by the employing firm to terminate a registered representative, voluntarily or involuntarily, and discloses the reason(s) for termination. The terminating firm must file the form with FINRA and provide a copy to the terminated employee within 30 days. Failure to notify FINRA could result in a fine. A new employing firm must obtain a copy of Form U5 from the prospective employee or FINRA. - Terminated registered persons have 2 years to associate with a new member without having to retake a qualifying exam. If an RR is changing employers, Form U5 must be filed by the terminating employer before a new U4 can be filed with the hiring employer. The registration is held by the firm and is not transferable.

Disclosure of Financial Condition

- Member firms are required to disclose their current financial situation to customers every 6 months through their annual and semiannual reports and at any time upon request - If the firm receives a request that is out of the 6-month time frame, they must honor that request and can do so by sending their most recent balance sheet.

written supervisory procedures (WSP)

- Principals must carry out their supervisory responsibilities as described in the broker-dealer firm's written supervisory procedures (WSP) - the WSP is based on the types of business in which the firm engages and the activities of its RRs - The WSP and the businesses in which a BD engages must be reviewed at least annually.

Registered Persons as Beneficiaries

- Registered persons must decline being named as a customer's beneficiary unless the customer is an immediate family member, or the representative has received written permission from their member firm prior to being named as the beneficiary - disapproved, the registered person may not accept the beneficiary designation.

when BD becomes insolvent

- SPIC appoints bankruptcy trustee to oversee bankruptcy proceedings - date of insolvent is the date security valuation for customer claims

Protecting Customer Information

- Specifically, the policies and procedures must be reasonably designed to: Ensure the security and confidentiality of customer records and information Protect against any anticipated threats or hazards to the security or integrity of customer records and information Protect against unauthorized access to, or use of, customer records or information that could result in substantial harm or inconvenience to any customer -

Unlawful Representation SEC "No Approval" Clause

- The SEC does not warrant the accuracy of any registration statement or pass any judgment on the quality of the investment or registrant. - It is unlawful to say or imply that the SEC approves of any investment or person; this disclaimer must be at the front of every prospectus. Anyone soliciting securities by use of a prospectus containing false or misleading information, or omitting material information, may be held liable. Criminal penalties may be imposed for anyone offering securities through fraud or misrepresentation.

Customer Confirmations

- The SEC requires that member firms provide their customers with confirmations of each transaction - Confirmations are generally sent on or before the settlement date

Business Continuity Plans

- The basis of the rule is to ensure that all customers are provided with a document that explains how a business interruption will be handled. Each firm should prepare a plan that is specific to their own business model. - The protection, backup, and recovery of books and records All mission critical systems Financial and operational assessments Alternate communications between customers and the firm, and between the firm and employees Alternate physical location for employees Critical business constituent, bank, and counterparty impact Regulatory reporting Communications with regulators How the firm will assure customers' prompt access to funds and securities in the event the firm is unable to continue business - FINRA requires that the plan be delivered to every customer in writing AT ACCOUNT OPENING, available on the firm's website, and mailed to customers if requested. This plan is required to be reviewed annually and though a copy is not required to be sent to FINRA, it must be made available upon request and emergency contact information must be provided -

The 5% Markup Policy

- The guideline for the percentage markups, markdowns, and commissions on securities transactions. The policy is intended to ensure fair and reasonable treatment of the investing public. - ****Securities that require the delivery of a prospectus or offering document are exempt from this policy**** (Those would include IPOs, municipal bonds, and mutual funds)

Regulatory Requests

- The response to regulatory requests must be timely. - FINRA has the right to require members to provide information in writing, or electronically, regarding any matter involved in any investigation, complaint, examination, or proceeding

Regulation S-P

- requires financial regulators, including the SEC, to implement policies and procedures that restrict a financial institution's ability to disclose nonpublic personal information about consumers - a consumer is an individual (or that individual's legal representative) who obtains, or has obtained, a financial product or service from a financial institution that is to be used primarily for personal, family, or household purposes. A customer is a consumer who has an ongoing relationship with the financial institution. A consumer who obtains products or service from a broker-dealer on a one-time basis is not a customer.

personally identifiable information (PII)

- the name, postal address, or any other information that allows tracking down the specific person who owns a device, - Driver's license number Passport number Street address Email address

Payments to Unregistered Persons

-prohibited practice in which individuals who are not registered with broker-dealer are compensated in connection with securities business

4 components needed to meet the general obligations of Regulation BI.

1. Disclosure Obligation - All required disclosures must be made, before or at the time of the recommendation, about the recommendation and the relationship with the retail customer. This obligation also includes material facts relating to any conflicts of interest involved with the recommendation. 2. Care Obligation - All those making recommendations must use reasonable diligence, care, and skill. Firms must understand the potential risks, rewards, and costs involved with the recommendation. Any recommendations must take into consideration the customer's investment profile and be in the customer's best interest. 3. Conflict of Interest Obligation - Firms must establish, maintain, and enforce written policies designed to address conflicts of interest associated with any recommendations 4. Compliance Obligation - Firms must establish, maintain, and enforce written policies to achieve compliance with Regulation BI

Sharing of Referral Fees and Commissions

A registered representative may share commissions with another registered representative only when they are both associated with the same broker-dealer or an affiliated broker-dealer.

Firm-Specific Do-Not-Call List

A list of any person who previously stated that they do not wish to receive an outbound telephone call made on behalf of the member.

National Do-Not-Call List

A list of people who have registered their telephone number on the Federal Trade Commission's national do-not-call registry

Public Appearances

A public appearance is any participation in a seminar, forum (including an interactive electronic forum), radio or television interview, or other public appearance or public speaking activity. Any scripts, presentation materials, or handouts are subject to FINRA communication rules. If the appearance is attended by more than 25 people, it is considered retail communication.

Suspicious Activity Report (SAR)

A report that must be filed whenever a firm suspects that transactions of $5000 or more may be related to illegal activities

Restricted Person

A restricted person is a person to whom the underwriter may not sell shares of a new issue. Each share of a new issue must be offered to the investment public, and a restricted person is considered an "industry insider," rather than a member of the public. Restricted persons include: Broker-dealers and associated persons (registered representatives) Associated persons' immediate family members, including spouses, parents-, brothers-, and sisters-in law, children, parents, and any person who is at least 25% financially supported by a restricted person Underwriters and their finders and fiduciaries Banks, savings and loans, and insurance companies

Requirements Concerning Unsolicited Calls

All cold calling must be done between the hours of 8 a.m. to 9 p.m. in the customer's time zone RRs must state their name, the name of the firm, the purpose of the call, and provide a return phone number or address where they can be reached Prospects not wishing to be contacted must be placed on a "do-not-call" list

Restrictions Pertaining to Equity IPOs

An IPO is an offering of shares to the public for the first time. It is prohibited for an underwriter to withhold part of that offering to keep for their own account. The SEC rules on IPOs also prohibit member firms from selling new issues to any account where a restricted person has a beneficial interest. This rule makes sure that the new issue is truly a public offering.

Private Securities Transactions

Another potential conflict of interest is an RR's involvement in securities transactions that are outside of the normal scope of their duties as a representative. RRs must, at a minimum, notify their supervisors of such activities

Form CRS

As required by Regulation BI, Form CRS provides a simple, easy-to-understand information about the nature of the customer's relationship with their financial professional (investment adviser or registered representative). - Existing retail customers opening new accounts must receive Form CRS prior to the new account opening - Customers must receive the updated Form CRS within 60 days - Firms must update their form CRS with the SEC within 30 days of the event causing a material change - Firms must deliver Form CRS to a retail customer within 30 days of a request - recordkeeping requirement for Form CRS is 6 years from date of last use for broker-dealers and 5 years for investment advisers.

FINRA Retention Requirements

Broker-dealer communications are subject to spot check by FINRA for up to 3 years from last use. - dealers must retain copies of all retail communications, institutional communications, correspondence, independently prepared reprints, research reports, and scripts of public appearances for 3 years after last use

Gifts

Broker-dealers and RRs are not permitted to give or receive gifts in excess of $100 per person per year if the gift is given in relation to the business of that person's employer. This rule is designed to prevent commercial bribery. The rule also requires members to keep records regarding gifts and gratuities. This rule does not apply to gifts of a truly personal nature, such as wedding gifts to a friend or family member that is also a client. - There is an exception to the gift rule that does allow for certain business expenses in excess of $100. For example, an investment company employee is permitted to take an RR out to dinner at a fine dining restaurant if the bill exceeds of $100, or to a sporting event if the tickets are valued at more than $100. The giving firm employee must attend the event with the receiving RR, and it must be considered a business expense to keep from violating the gift rule. - The gift limit also does not apply to gifts with a corporate logo on them -even though certain gifts are allowed, members still need to keep records of all gifts received

who is not SPIC members?

Broker-dealers that sell only mutual funds or variable annuities only are not members

No Trading Ahead of Customers

Customer orders must be placed ahead of firm trading in their own accounts. The only way that a firm could place their order ahead of a customer order is if the customer's order is executed immediately following the firm's order and executed at the same price or better

Retention of Jurisdiction Following Termination

Even after a person is terminated, they are still subject to FINRA's discipline for violations that occurred prior to their termination: For 2 years after the effective date of a revocation or cancellation of registration In the case of an unregistered person, for 2 years after the date upon which they ceased to be associated with the member - Terminated persons who fail to comply with any offer of compromise, settlement, arbitration award, or other written and executed agreements are subject to additional civil action.

Fingerprinting Requirements

Every employee of a national securities exchange, broker-dealer, registered transfer agent, and registered clearing agency who handle the firm's securities, monies, or accounting books and records must satisfy the fingerprinting requirement

Broker-dealers must supply customers with the following information at account opening and least once per calendar year:

FINRA's BrokerCheck hotline number FINRA's website address A statement regarding the availability of an investor brochure that includes information describing FINRA's BrokerCheck

Firm-Sponsored Sales Contests

Firms are allowed to offer compensation to their own RRs (if the compensation is not from the mutual fund) above and beyond what is disclosed in the prospectus. The rules regarding firm-sponsored sales contests are complex, but the general rule is that the product suite being covered must be broad enough so that it does not steer business into a particular product.

Private Securities Transactions with Compensation

If a BD approves an RR's participation in private securities, and the RR is receiving selling compensation, the transaction will be recorded on the books and records of the firm, and the member firm will be responsible for the supervision of the RR's participation in the transaction as if the transaction were executed on behalf of the BD.

Status of Persons Serving in the Armed Forces of the United States

If an associated person is called to active duty in the U.S. Armed Forces, the RR's firm must properly notify FINRA. This situation will be treated differently than other circumstances where RRs leave the industry. While the RR's registration will be considered inactive, it will remain in force during the service, and the RR will not have to re-register when returning to the industry. The associated person's continuing education requirements will also be suspended. The associated person may not perform duties that require registration but may split commissions with another registered representative and receive transaction related compensation, including continuing commissions.

Private Securities Transactions - No Compensation

In the case of a transaction in which an RR will not receive any selling compensation, a BD will inform the RR that it has received notification and might require the person to meet certain specified conditions in connection with their participation in the transaction.

Research Reports

Information compiled by an analyst associated with an investment bank or broker-dealer that focuses on specific securities, or on market sectors, and may contain specific or nonspecific buy, sell, or hold recommendations.

Placement

Introducing funds to be laundered into the legitimate financial system

Fraudulent Interstate Transactions

It is unlawful to engage in securities fraud across state lines.

Form U4

Name, address, aliases 5-year residency history 1 0-year employment history Outside employment, including employment with another broker-dealer Securities-related complaints and disciplinary issues Felony convictions and misdemeanor convictions relating to handling money or securities Financial information, including bankruptcies, that could put investors at risk

SIPA created SPIC

SPIC is non profit, not a part of gov, does not protect against losses, embezzlement or fraud - all BDs that sell stock/bonds must be members of SIPC must advise all new customers in writing at the time of opening an account that they may obtain more information and the SIPC brochure by contacting SIPC - must provide the SIPC website address and telephone number - Members must provide all customers with this same information in writing at least once per year. - Member firms must display an official sign showing membership at each location

Prohibitions Relating to Interstate Commerce and the Mail

Sales materials cannot go across state lines unless a prospectus accompanies the material.

Special Deals with Underwriters

RRs are prohibbited from taking additional compensation from a mutual fund underwriter that is not disclosed in the prospectus.

Registered Persons Holding a Position of Trust

Registered persons must also decline being named as executor, trustee, or power of attorney on behalf of any customer. Exceptions for immediate family members and prior written approval from the firm apply to these types of appointments in the same manner as for beneficiaries. Written supervisory procedures must be in place to make certain of compliance with this regulation.

Selling Away

Registered representatives may not sell investments the broker-dealer does not offer unless they disclose the transaction to their firm. This practice is known as selling away, and it can lead to disciplinary action by regulators and the broker-dealer as well.

Integration

Reintroducing the now clean funds back into the financial system by providing an apparently legitimate explanation for the illicit proceeds

Approval and Recordkeeping Generally Applicable to Member Firms

Retail communication must be approved by a principal before the earlier of its filing with FINRA or first use. Correspondence and institutional communication can be approved by a principal before or after use. If the broker/dealer permits approval after use, it must have an adequate, documented training program addressing correspondence. Independently prepared reprints, research reports, and public appearances can be approved by a principal after first use.

Retail Communication

Retail communications are any printed or electronic communication directed to more than 25 retail investors in any 30-day period. A retail investor is any party other than an institutional investor. All individuals, including accredited individuals, are considered retail investors. Retail communications include sales literature and advertising.

The WSP must include, but is not limited to, procedures for all the following:

Review, by a registered principal, of all transactions. There is an exception to this rule, however: if the firm uses a "risk-based review system," enabling the firm to focus on the areas that pose the greatest risks of violation, they are not required to conduct detailed reviews of every individual transaction. Review and approve of new accounts Review of incoming and outgoing written correspondence and internal communications by a registered principal Safeguard customer funds and securities, including procedures for review of transmittal of funds and securities into and out of customer accounts Monitor the outside activities of registered representatives Handle customers written complaints Maintain required books and records

SARs must be filed within 30 days of a suspicious activity involving $5,000 or more

SARs must be filed within 30 days of a suspicious activity involving $5,000 or more

Statutory Disqualification

Securities and theft-related misdemeanor convictions, and all felony convictions for a period of 10 years from the date of conviction Temporary and permanent injunctions (regardless of their age) issued by a court of competent jurisdiction, involving a broad range of unlawful investment activities Expulsions and current suspensions from membership or participation in a self-regulatory organization (SRO) Bars and current suspensions ordered by the SEC or SRO Denials or revocations of registration by the SEC or Commodity Futures Trading Commission (CFTC) Findings that a member or person has made certain false statements in applications or reports made to, or in proceedings before, self-regulatory organizations - Resignations from membership in FINRA take effect 30 days after receipt of a letter of resignation. A member that has resigned, or had its membership cancelled or revoked, remains subject to regulation following the filing of a complaint within 2 years after the effective date of resignation, cancellation, or revocation

Definition of Compensation

Selling compensation involves any compensation paid in connection to a purchase or sale of a security, including commissions, finder's fees, securities, or rights to acquire securities, expense reimbursements, rights of participation in profits, tax benefits, and dissolution proceeds as a general partner.

Layering

Separating the proceeds of criminal activity from their origins through layers of complex financial transactions to hide the source of the funds.

Maintaining Qualifications Program (MQP)

The MQP allows qualified individuals up to 5 years to re-register with a firm without having to retake the associated qualification exam(s) - Those that do not choose the MQP within the 2-year time period will be required to qualify for registration by passing the appropriate qualification exams.

Telephone Consumer Protection Act of 1991

The rules generally apply to cold calls, which are telephone solicitations initiated by a broker-dealer to encourage an investment in property, goods, or services. No member or person associated with a member can initiate any telephone solicitation in violation of the standards under the Act or established by the member firm. ***but not Internet communications and email.***

USA PATRIOT Act

The development of internal policies, procedures, and controls Anti-money laundering compliance program to be supervised by a designated compliance officer An ongoing employee training program An annual independent audit, testing for compliance, conducted by member personnel or by a qualified outside party

firm element

The firm element of continuing education is required for any registered person who has direct client contact. FINRA members are required to evaluate the firm's training needs annually and provide training based on those findings. - Training should cover areas such as suitability, product information, and regulation. It cannot include sales practices or closing techniques.

Civil Liabilities Arising in Connection with Prospectuses and Communications

The person who purchases a security has the right to pursue civil tort claims if the items in the filing statements include false statements regarding material facts or omit material facts required to be stated

FINRA Rule 3241

This rule prohibits registered persons from being named as a customer's beneficiary and from holding a position of trust for a customer

Financial Crimes Enforcement Network (FinCEN)

U.S. Treasury system in which Suspicious Activity Reports are sent to if a broker-dealer notices activity in accounts appearing suspicious or possibly related to fraud or money laundering activities. - must be filed with FinCEN within 30 calendar days

Political Contributions

Under Rule G-37, the MSRB addresses political contributions made by the municipal securities industry. This rule specifically prohibits brokers, dealers, or municipal securities dealers from engaging in municipal securities business with an issuer within 2 years after any contribution is made to an official of the issuer by either the broker, dealer, municipal securities dealer, or any municipal finance professional (MFP) associated with these firms. - MFPs entitled to vote for such officials, provided the contributions are not more than $250 by each MFP to each official, per election.

Outside Business Activities

You must obtain a written consent if you want to do outside activities pertaining to your work such as teaching a class, but the firm can reject your request if there is conflict of interest.

Fair Credit Reporting Act (FCRA)

a consumer has the right to say "no" to the sharing of certain information, such as a credit report or application information, with the financial institution's affiliates and with affiliated third parties

principal

a person involved in the management of the firm's business activities; primarily, they carry out the supervisory responsibilities relating to solicitation and training, and they are required to pass special exams for these positions

Institutional communications

are any printed or electronic communications that are directed only to institutional investors. Such investors include banks, trust companies, insurance companies, investment companies, employee benefit plans with at least 100 participants, government entities, investment advisers, and other broker-dealers and registered persons. This type of communication includes printed media, websites, emails, texts, and faxes. Institutional communications are not required to be filed with FINRA.

Affinity Fraud

affinity fraud is a tool used by criminals to gain the trust of victims by claiming to be members of the same identifiable group, such as a religious affiliation, race, national origin, or profession, or to have similar interests. While affinity fraud has always been common, social media gives con artists a rapid and largely anonymous way to identify, and identify with, target groups.

penny stocks

common stock priced below $5 and are not actively traded - must be given a risk diclosure - must be given current quote - suitability analysis on new, established customers do not need - rules do not apply to institutional investors, accredited investors, insiders of the issue, or unsoliticed transactions

fideltiy bonds

blanket coverage purchased by brokerage firms to protect against employee dishonesty - up to 120% of firms min net cap requirement

SPIC coverage

each seperate customer account up to 500k no more than 250k can be cash claims separate accounts: individual, retirement acc, joint acc, custodial acc - if customer has more, customer becomes general creditor

Regulation Best Interest (BI) and Customer Relationship Summary Form (Form CRS)

egulation BI established new standards for investment firms when dealing with retail customers. The goal was to increase transparency when recommending an investment or investment strategy. It stated that there are 4 components needed to meet the general obligations of Regulation BI.

independently prepared reprint

is any reprint or excerpt of any article written by a publisher, if the publisher is not an affiliate of the member using the reprint or an affiliate of any underwriter or issuer of a security mentioned in the reprint. In addition, the article must not have been commissioned by the member, an underwriter, or an issuer of a mentioned security. The member may not materially alter the article, except to make it consistent with a relevant regulation, or to correct factual errors. Independently prepared reprints and public appearances can be classified as retail communications or correspondence depending on the number of recipients of the communications. More than 25 recipients will require principal pre-approval. If 25 or fewer recipients, principal approval is necessary after first use.

RRs with an inactive statuS

may not perform in any capacity that requires a securities registration. They are also prohibited from collecting compensation tied to their registration

municipal finance professional (MFP)

n associated person who solicits business from municipal issuers, renders advice to municipal issuers, or prepares research and reports on municipal issues.

Potential red flags

that may indicate unethical or fraudulent activity include excessive trading (churning), making blanket recommendations (including selling only one share class of mutual funds to all customers), repeated customer complaints of the same or similar nature, and improper suitability determination for the sole purpose of generating revenue (selling only products that generate the highest revenue)

The confirmation must include

the price and identity of the security, the number of shares, date of transaction, time of execution, capacity of the firm (agent or principal), commission, markup or markdown, price and yield and the settlement date.

Registration forms (U4)

the principal must investigate the good character, business reputation, and experience of every applicant - The supervising principal must review, sign, and date all new hire registration forms (Form U4) and must verify the prior 3 years of employment history - If the new hire has previously been employed by another member firm, the principal must also review the applicant's U5 form

beneficial interest rule

would apply not only to the associated person's account, but also accounts held by: The spouse of the associated person A child of the associated person and/or spouse, if the child lives in the same household as the associated person Any accounts for family members the associated person has control over Any accounts where the associated person provides financial support to the account holder - Security transactions exempt from this requirement include transactions in unit investment trusts, mutual funds, variable annuities, variable life insurance, municipal fund securities, and Section 529 plans. This exemption includes all accounts, including brokerage accounts, that are limited solely to transactions in these types of securities.