sie chapter 9

restricted persons

"industry insider" rather than a member of the public 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

record keeping requirements:

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

If a person does not pass their qualification exam the first time, how long must they wait before they can retest? A 30 days B 20 days C 10 days D 1 day

A There is a 30-day waiting period to retake the exam if a person fails the first or second attempt. After the third attempt, there is a 180-day waiting period for a retake

The maximum protection SIPC provides per separate customer is: A $500,000 B $750,000 C $250,000 D $100,000

A -SIPC is designed to protect the investing public. SIPC coverage provides each separate customer with protection up to $500,000, of which no more than $250,000 can be for cash balances.

What is the annual dollar limit in gifts that broker-dealers and registered representatives can give or receive when the gift relates to the employer's business? A $100 B $250 C $1,000 D $500

A 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. For example, an investment company representative may give a gift of up to $100 value, but not more, to a registered representative. A larger gift might be perceived as an attempt to "buy business" from the RR. This may also incent the RR to sell certain products without considering suitability. 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 were 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 does not apply to gifts with a corporate logo on them. For example, if a registered representative received a gift, such as a picture frame or travel mug with the logo of the mutual fund sponsor, the gift rule would not be violated. Even though certain gifts are allowed, members still need to keep records of all gifts received.

Which of the following is true regarding FINRA's jurisdiction over an RR whose registration has been terminated? A FINRA has jurisdiction for 2 years after a person's registration has been terminated B FINRA has no jurisdiction over a person who is no longer registered C FINRA has jurisdiction for up to 1 year after a person's registration has been terminated D There is no time limit on FINRA's jurisdiction of a former RR

A FINRA retains jurisdiction over a former RR for up to 2 years after that person's registration was terminated.

A registered representative wishes to work from home in the evening to confirm appointments for the following day. The representative sends emails to customers from a personal email address, which of the following statements is true regarding this practice? A This is allowed if the firm permits but the firm must have access to the email account B This is prohibited C The representative cannot work from home D This is permitted if the representative does not solicit business using the personal email

A RRs who use social media and/or personal email accounts for any business communication, no matter how informal and infrequent, must allow their firms access to these accounts, and should understand that any communications in these accounts may be subject to archiving by their firm.

An investor had $750,000 of securities held in street name with the KAF Brokerage Firm. KAF filed for bankruptcy and SIPC insured against $500,000 worth of the investor's stock. Regarding the remaining $250,000 of securities, what is a: A General creditor of KAF B Secured creditor of KAF C General creditor of SIPC D General creditor of the FDIC

A When a broker-dealer goes bankrupt, SIPC will cover up to $500,000 total of which no more than $250,000 can be in cash claims. For securities and cash above SIPC's coverage, the customer becomes a general creditor of the defunct broker-dealer.

opt-out provisions

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.

public appearance

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.

disclosure requirements:

All broker-dealers that sell stocks or bonds or clear these transactions must be members of SIPC. Member firms 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. They 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. They cannot imply that SIPC membership confers approval or a recommendation concerning any security. Broker-dealers that sell only mutual funds or variable annuities only are not members. Firms that are not members must disclose that they are not members.

arbitration disclosure to associated persons signing or acknowledge 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 th

customer claims when a broker dealer becomes insolvent

Assume cash claims are settled first, followed by securities claims. When a member firm becomes insolvent, SIPC will ask a court to appoint a bankruptcy trustee to oversee the bankruptcy proceedings and the firm is closed. Securities registered in a customer's name are returned to the customer. Securities in street name and cash are distributed to customers on a proportional basis, according to SIPC guidelines. The date on which the broker-dealer is declared insolvent is the date of security valuation for customer claims.

How often must a FINRA member firm conduct a compliance meeting for its registered representatives? A Every 3 years B Annually C Every 2 years D Every 4 years

B 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 topics presented.

How can consumers research current and former BDs and RRs that have been registered with FINRA within the past 10 years? A Contact member firms B Use FINRA BrokerCheck C Contact the SEC D Contact the state securities administrator(s)

B use FINRA BrokerCheck Through FINRA BrokerCheck, consumers can research current and former BDs and RRs registered with FINRA within the past 10 years.

Under SEC rules, member firms that maintain records utilizing an electronic recordkeeping system may preserve the records in all the following ways, except: A Time-stamped audit trail B Separate duplicate copy sent to FINRA C Separate duplicate copy in an alternate location D Backup electronic recordkeeping system

B Acceptable storage media includes original hard copies, microfilm, microfiche, and optical disc. As an alternative, firms may maintain a time-stamped audit trail system. A separate duplicate copy needs to be maintained in an alternate location or a backup electronic recordkeeping system must be in place. Firms are allowed to utilize a third party to maintain records if the third party provides proper maintenance and allows unlimited and unhindered access of these records to the firms. Firms should not send duplicate copies to FINRA.

FINRA retention requirements:

Broker-dealer communications are subject to spot check by FINRA for up to 3 years from last use. Broker-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.

Broker-dealers and RRs are not permitted to give gifts more than what dollar amount per person per year to another person if the gift is given in relation to the business of that person's employer? A $150 B $125 C $175 D $100

Broker-dealers and RRs are not permitted to give gifts in excess of $100 per person per year to another person if the gift is given in relation to the business of that person's employer.

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. 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. For example, if a registered representative received a gift, such as a picture frame or travel mug with the logo of the mutual fund sponsor, the gift rule would not be violated. Even though certain gifts are allowed, members still need to keep records of all gifts received.

finras Brokercheck disclosure

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

Currently, when must a registered person take and complete the regulatory element of their CE? A 2 years from their initial registration and every 5 years thereafter B 2 years from their initial registration and every 3 years thereafter C 1 year from their initial registration and annually thereafter D 1 year from their initial registration and every 2 years thereafter

C Starting in 2023, RRs are required to complete the Regulatory Element training on the anniversary of their initial securities registration and every year thereafter.

Suspicious activity reports (SARs) include detailed information about transactions that are or appear to be suspicious and need to be filed with FinCEN if a financial institution suspects such activity involving at least: A $100,000 or more B $50,000 or more C $5,000 or more D $15,000 or more

C Suspicious Activity Reports (SARs) include detailed information about transactions that are or appear to be suspicious. A SAR needs to be filed within 30 calendar days with FinCEN if a financial institution suspects such activity involving at least $5,000 or more.

How long can FINRA retain jurisdiction over one of its members or registered associated persons after they are no longer in the industry? A 18 months B 6 months C 2 years D 1 year

C 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.

Which of the following is not considered a red flag for money laundering activity under the USA PATRIOT Act? A The investor provides identification that is inconsistent with the information on the new account form B The investor requests that their transactions are processed in a way that circumvents the firm's normal documentation process C The investor is overly concerned with the interest-rate risk associated with Treasury notes D The investor places unsolicited orders that do not make economic sense

C According to the USA PATRIOT Act, as part of their anti-money laundering training programs, broker-dealers must train RRs and other employees to detect suspicious activities (red flags) that may indicate money laundering. An investor who is overly concerned with the interest-rate risk associated with Treasury notes is not displaying suspicious activity.

A method used by con artists to gain the trust of people by identifying with a large target group is: A Identity theft B Phishing C Affinity fraud D DoS

C 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.

Broker-dealers, investment companies, and investment advisers must provide its customers with a notice of its privacy policies and practices at the time the relationship is established, and every: A 2 years after B Quarter after C Year after D 6 months after

C Broker-dealers, investment companies and investment advisers must provide its customers with a notice of its privacy policies and practices at the time the relationship is established (initial notice) and every year after (annual notice).

customer confirmations

Confirmations are generally sent on or before the settlement date.

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. Examples include letters, emails, and text messages. FINRA rules require member firms to create a system to supervise both incoming and outgoing correspondence. This includes not only traditional hard-copy letters, but email and text messages as well. The supervisory procedures for a particular firm will depend on the nature of its business. Therefore, some firms will require review of each piece of correspondence, while others may use spot checks.

penny stock consideration

Customers must be given a risk disclosure document that outlines the risks of investing in penny stocks and questions to ask concerning the stocks being considered Customer must be provided with a current quote on the security being considered Customer must be provided with the information concerning the broker-dealer's compensation in connection with a trade A suitability analysis must be conducted on any "NEW" customer prior to recommending or selling a penny stock that obtains the customer's financial situation and objectives along with their investment experience Customers must be given a report on the analysis and the reasons for determining suitability of the penny stock transaction Established customers are exempt from the suitability analysis requirement Established customers are those with assets held at the firm for more than 1 year who have made a deposit of cash or securities into the account or have done at least 3 unsolicited penny stock transactions from separate issuers on 3 separate occasions

Within what time period can a terminated person reinstate their registration without retesting? A 4 years B 3 years C Never D 2 years

D 2 years Any person whose registration was revoked or has been terminated for a period of 2 or more years immediately preceding the date of a new application is required to re-qualify by examination.

A registered representative wants to engage in a private securities transaction. Which of the following is true? A Notification to the issuer that the representative is a FINRA member is required B It is a violation of FINRA rules C It is permissible if it doesn't exceed $15,000 D Notification to the representative's member firm is required

D A private securities transaction cannot be undertaken unless the registered representative's member firm is notified.

regulations best interest form BI and customer relationship summary form (form CRS)

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. 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. Conflict of Interest Obligation - Firms must establish, maintain, and enforce written policies designed to address conflicts of interest associated with any recommendations Compliance Obligation - Firms must establish, maintain, and enforce written policies to achieve compliance with Regulation BI Form CRS, which is a form that briefly describes the firm's relationship with their clients, must be delivered to each retail customer and filed with the SEC. Investment advisers are required to deliver and file the same information using Form ADV Part 3. can be standard form or firm created but must contain these specific headings: introduction, relationship and services, fees, cost, conflict, standard of conduct, disciplinary history, additional information Existing retail customers opening new accounts must receive Form CRS prior to the new account opening. Firms must update their form CRS with the SEC within 30 days of the event causing a material change. Customers must receive the updated Form CRS within 60 days. Firms must deliver Form CRS to a retail customer within 30 days of a request. The recordkeeping requirement for Form CRS is 6 years from date of last use for broker-dealers and 5 years for investment advisers. delivered to each new retail customer: broker dealer must deliver before placing an order or opening an account and at the time recommendation is made for: account type, securities transaction, investment strategy, investment advisers must delver before or at contract relationship establishment

employees exempt from registration

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.

retention 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.

regulatory request

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. The response to regulatory requests must be timely.

What must an RR do if they care to engage in any for compensation outside business activity? A Send an updated resume to their firm B Disclose how much they have made in the past and how much they anticipate making in the future C Submit new fingerprints to their supervising principal D Provide prior written notification to their BD

FINRA requires RRs who engage in any outside business activities to provide prior written notification to their firms. Broker-dealers may restrict or prohibit activities which they believe may represent a conflict of interest of those activities. However, this does not include work for which the RRs is not compensated, such as volunteer work for charities.

FINRA requirements retail communication

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, whichever is earlier. Records of retail communications must be maintained for 3 years from the date of last use. These records must indicate who prepared and who approved each piece of sales literature and advertising.

OBA outside business activities

FINRA states that you may not be an employee, independent contractor, trustee, sole proprietor, officer, director, or partner of another person because of any business activity outside the scope of the relationship with your firm, unless you have provided written notice to your firm. Acting as a trustee for a trust account as a registered representative would have several potential conflicts of interest. Therefore, it is considered an OBA and must be disclosed to the firm in writing and treated as any other outside business activity.

the 5% markup policy

In most situations, investors should not be charged more than 5% for buying or selling a security. 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.

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.

institutional communications

Institutional communications are not required to be filed with FINRA. directed only to institutional investors. This type of communication includes printed media, websites, emails, texts, and faxes.

Fraudulent Interstate Transactions

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

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.

do not call lists

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. 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.

3 steps. money laundering

Placement - Introducing funds to be laundered into the legitimate financial system. Layering - Separating the proceeds of criminal activity from their origins through layers of complex financial transactions to hide the source of the funds. Integration - Reintroducing the now clean funds back into the financial system by providing an apparently legitimate explanation for the illicit proceeds.

CE requirements

RRs are required to complete FINRA mandated continuing education. these CE requirements include a regulatory element and firm element.

selling away

RRs may not sell investments the broker dealer does not offer unless they disclose the transaction to their firm. this practice is considered selling away

registered persons holdings a position of trust

Registered persons must also decline being named as executor, trustee, or power of attorney on behalf of any customer.

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. The member firm may disapprove the designation of beneficiary or place conditions upon it if it is accepted. If disapproved, the registered person may not accept the beneficiary designation.

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.

Dodd-frank act

SEC created regulation S-ID, known as "red flags rule" Identifying relevant red flags of possible identity theft, including: Alerts, notifications, or other warnings received from consumer reporting agencies or service providers, such as fraud detection services Presentation of suspicious documents, such as documents that appear to have been altered or forged Presentation of suspicious personal identifying information, such as a suspicious address change Unusual use of, or other suspicious activity related to, a covered account Notice from customers, victims of identity theft, law enforcement authorities, or other persons regarding possible identity theft relating to covered accounts held by the financial institution or creditor Detecting these red flags Responding appropriately to red flags once detected and updating the identity theft program

limitation coverage

SIPC coverage provides each separate customer with protection up to $500,000, of which no more than $250,000 can be for cash claims.

prohibitions relating to interstate commerce and the mail

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

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 Once barred, association with a member firm can only occur upon the SEC granting express permission. 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.

maintaining qualifications programs (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). individuals choosing to opt into the program will be required to complete all CE requirements during the time their license are inactive. 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.

"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.

pay to play rules

The SEC rule limits the dollar amount of political contributions to $350 by an associated person that is legally entitled to vote for that constituent. It further limits the contribution amount to $150 if the associate is not entitled to vote for that constituent.

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 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 The WSP and the businesses in which a firm engages must be reviewed at least annually.

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.

special deals with underwriters

The relationship between registered reps and underwriters also falls under FINRA's scrutiny. RRs are prohibited from taking additional compensation from a mutual fund underwriter if it is not disclosed in the prospectus.

exam retake requirements

There is a 30-day waiting period to retake the exam if a person fails the first or second attempt. After the third attempt, there is a 180-day waiting period for a retake.

telephone consumer protection act of 1991:

This act was passed in response to public concerns about perceived telemarketing abuses. 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. FINRA requires firms to update their FIRM DO NOT CALL LIST and add the information from the national do not call list

annual compliance meeting

This meeting may be conducted in person or via video conference, interactive classroom setting, or other electronic means. The firm must address compliance issues that directly impact registered personnel. The firm must keep a record of attendee names and the topics presented.

FINRA 3241

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

registration forms

U4Form used for individual registrationCreates a person's CRD or IARD fileMust be updated annually within 30 days of year end U5Form used to terminate an individual's registrationMust be filed by former employer within 30 days of termination U6Form used to report disciplinary action taken by a regulatorIncludes serious written customer complaintsPending items are still filedIf resolved without action, to clear an individual's name, it's reported on a U6 amendment form

political contribution

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. There is one exception to this rule, which is considered a de minimis rule. The prohibition would not apply if the only contributions to officials of issuers are made by MFPs entitled to vote for such officials, provided the contributions are not more than $250 by each MFP to each official, per election.

customer protection rule

Under SEC rules, broker-dealers must ensure the safekeeping of customer funds and securities.

status of persons serving in the armed forces of the United States

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.

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. Consumers must be given the ability to opt out of the firm's policies on disclosing nonpublic financial information to nonaffiliated third parties.

Securities and Exchange Commission (SEC) Rule 30 of Regulation S-P

adopt written policies and procedures that address the protection of customer information and records. protect personally identifiable information (PII)

retail communications

are any printed or electronic communication directed to more than 25 retail investors in any 30-day period. Retail communications include sales literature and advertising.

Bank Secrecy Act

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.

fidelity bond

blanket coverage purchased by brokerage firms to protect against employee dishonesty (theft or embezzlement) or other acts not covered by SIPC. Member firms must review their fidelity coverage annually. Fidelity bond coverage is equivalent to 120% of the firm's minimum net capital requirement.

disclosure of control

broker dealers that have a control relationship in the security they are offering or selling must disclose the relationship to the investor. this is considered conflict of interest. This relationship must be disclosed, at least verbally, prior to the transaction. If the initial disclosure is verbal, there must be a follow-up written disclosure at or before the completion of the transaction, usually by settlement date.

financial crimes enforcement network (FinCen)

broker dealers turn SARs into FinCen within 30 days; a branch of the treasury department. SARs must be filed within 30 days of a suspicious activity involving $5,000 or more. Under criminal law, a 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.

disclosure

broker dealers, investment companies and investment advisers must provide customers with an INITIAL NOTICE of their privacy policies and practices at the time if relationship is established and an ANAUAL NOTICE every year.

regulatory element

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. RRs are required to complete the regulatory element training annually. All registered individuals must complete their regulatory element training by December 31 of each year, and the regulatory element must be completed for each registration category held. For those registering for the first time by passing a qualification exam in a given year, their due date for completion of the regulatory element will be December 31 of the following year. failing to complete the training by December 31 will have their registration deemed "inactive." 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.

securities investor protection act of 1970 SIPA

created the Securities Investor Protection Corporation (SIPC) to protect customer accounts in the event their broker-dealer goes bankrupt. SIPC provides insurance coverage on customer accounts held in "street name" in the event the customer's cash and securities are liquidated after the broker-dealer declares bankruptcy SIPC is a non-profit organization that is funded through member assessments. It is not part of the U.S. government, like FDIC.

nonpublic personal data

credit score, financial products or services, info resulting from transactions

business continuity plans

document that explains how a business interruption will be handled. 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 plan delivered to every customer in writing at account opening, available on the firms website, and mailed to customers if requested. review plan annually and a copy is not required to be sent out to FINRA. it must be available upon request and emergency contact information must be provided.

PII personally identifiable information

driver's license number Passport number Street address Email address

potential red flags

excessive trading- churning making blanket recommendations (including selling only one share class of mutual funds to all customers, repeated customer complaints of the sam e or similar nature and improper suitability determination for the sole purpose of generating revenue (selling only products that generate the highest revenue).

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 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 once the account is open the employee must notify the carrying firm of their association with their employing firm, 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. A notification must be sent to the carrying member regarding the associated person's new employment with the broker-dealer. 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 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.

customer

is a consumer who has an ongoing relationship with the financial institution.

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.

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.

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

Suspicious Activity Report (SAR)

is to report known or suspected violations of law or suspicious activity observed by financial institutions subject to the Bank Secrecy Act (BSA). The SAR has been instrumental in enabling law enforcement to initiate or supplement investigations into major money laundering or terrorist financing, as well as other criminal cases.

Initial Privacy Notice

must be provided to customer before disclosing nonpublic personal information about consumer to a nonaffiliated third party.

background checks U4 / u5

new hire form and must verify the prior 3 years of employment history u4 If the new hire has previously been employed by another member firm, the principal must also review the applicant's U5 form firms must complete the verification process no later than 30 calendar days after filling the U4 with FINRA

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.

Office of Foreign Assets Control (OFAC)

publishes a list of individuals and companies associated with certain targeted countries. It also lists individuals and entities, including terrorists and narcotics traffickers, who are not country-specific. Together, these individuals and companies are called specially designated nationals (SDNs) 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. Each broker-dealer must designate a compliance officer to oversee execution of its customer identification program.

CTR

reports of deposits, withdrawals, exchanges of currency, or other payments or transfers involving a transaction in cash totaling more than $10,000. Identity of the person(s) involved in the transactions, including the Social Security number, date of birth, address, and other described methods of individual identification The identity of the individual conducting the transactions (if different than the person involved in the transaction) The amount and type of transaction(s) The financial institution where the transaction(s) takes place The report must be filed within 15 days

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. This form must be kept on record at the financial institution for 5 years and produced at the request of examiners or auditors to verify compliance.

USA PATRIOT act

requires broker dealers and every financial institution establish a anti money laundering program that includes at a minimum: 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

regulation S-P

requires financial regulators, including the SEC to implement policies and procedures that restrict a financial institutions ability to disclose nonpublic personal information about consumers

customer complaint

rr that receives a written complaint must be given to a manager immediately, record complaint must be retained for 4 years Certain customer complaints must be reported to finra, 30 days of the discovery of the event member firms are required to provide quarterly reports summarizing the customer complaints received.

electronic filling requirements for uniforms forms

submit form u4, or other uniform forms electronically, 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. manual signature on the form, person applying must be fingerprinted, 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.

form U5 (terminating registration)

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. 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.