Joining and the U4

Persons don’t just breathe

One of the things to make sure we don’t get confused is what a person is. We need to make sure, when the test has a question that asks us “a person does this” or “what happens if this happens to a person”, or anything similar. We need to make sure we don’t pigeonhole ourselves into thinking that a person always means a “flesh and blood”, natural person. Natural persons will always register on the U4.

In simplest terms, a corporate person is a person who is not a natural person, but is deemed a “legal person”, because they are recognized by law, as having the capacity to process rights such as owning property, entering into a contract, and similar. Common examples of corporate persons would be: Corporations, Partnerships, Trusts, Governmental bodies and their political subdivisions (Country, State, and Cities), and similar entities.

A natural person is much simpler. Flesh and blood, human beings that have reached the age of majority (18), and are therefore considered an adult and can enter into binding contracts. If they can’t enter into binding contracts, they are not “a legal person”. Children are not legal persons. Those deemed mentally incompetent, or dead, are also not legal persons. It is why I prefer the plural of legal person to legal persons, as opposed to people. I don’t think corporations are “people”, but they are definitely “persons”.

Registration of corporate persons

There are many corporate persons in this industry that need registering. Brokers, Dealers (normal kind, Municipal, Government, etc), Investment Advisors, Commodities professionals, and similar corporate entities.

Individual FINRA Registration

To initially register with a FINRA member firm, you will need to complete a U4 application, and a fingerprint card.

Fingerprints

Everyone in the industry gets fingerprinted. It doesn’t matter if you were fingerprinted for another reason; insurance, teaching, etc. FINRA wants your fingerprints, and you must submit them with the U4 application. Everyone gets fingerprinted, and they are submitted to the Attorney General of the United States or its designee. In practice that designee is Sterling Identity, and then they submit to the AG. There are exemptions, most of the specifics are not necessary, but if an exemption is claimed for an associated person, the member shall make and keep current a statement “notice pursuant to rule 17f-2”, containing information about the exemption and its validity on an up-to-date basis.

The most common exemptions would be for employees of the member, who are not engaged in the sale of securities, does not advise on securities, does not handle/keep/maintain/process any securities/monies/original books, and does not have direct supervisory responsibilities. We often simplify this to the same as those that don’t need to register, if they are in a clerical, ministerial, or janitorial type role in the company. To be clear, just because you have one of those as a main job, if as a “side hustle” you also sell securities, you need to be registered and fingerprinted.

The U4 and fingerprint card are sent to FINRA’s Central Registration Depository (CRD) for them to review and keep on file. The CRD has copies of all employment records, all disciplinary history, and all licenses, active and inactive, of all registered persons in the Securities Industry. All of this information is available online through FINRA’s Brokercheck website. The CRD is where persons will check on registration status. Persons such as State Regulators, other SROs, and the SEC if needed.

Any changes to the U4, address change, name change, or similar, must be filed within 30 days. Failure will result in punishment up to the decision of FINRA.

Details about the U4

The U4 requirements are varied, and the Broker Dealer you will be working with will certainly help you fill it out.

Personal information including your name and any aliases that you have used will be required. Additional information like your social security number, birth day, gender, address, physical attributes are all included on the U4.

Background information about the applicant is also included. This is a 10-year employment history, all employment history of the past 10 years, and the last 3 must actually be verified by the firm. They will verify by calling or contacting some other way your former employers. The 10-year employment history, depending on the age of applicant, could include “recess at school”, if they are of an age, where 10 years ago included being in Middle School or High School. They want to know your history! The background information also includes the last 5 years of residential history, this does not have to be verified. Pay attention, 10 year work history, 3 of which is verified, and 5 years of residence. Lots of numbers they could mix around and make sure you’re paying attention!

Professional details that are included on the U4 would be any current registrations and licenses, along with any other business affiliations. Registrations and licenses would include and insurance, commodities, or other related licensing or designations including things like CFP® or similar. Business affiliations including any groups or similar work.

Amendments would be added to the U4 if anything changes. If you get a name change, or address, or any other information that is included on the U4 changes, you have 30 days to update it. Any disciplinary actions would also be included as amendments to the U4.

We will discuss later about the Code of Arbitration, but all member firms, and all representatives are bound to arbitration with each other, outside of extreme circumstances. As part of the U4, the applicant is signing a prearbitration agreement, meaning they agree to the Code of Arbitration, and will file and complaints via arbitration. The extreme circumstances would be discrimination or sexual harassment, which clearly, are rare. Most disagreements come to contract disputes, payment disagreements, or similar.

Disclosures on the U4

There are many disclosures required on the U4. Not disclosing them, could result in industry barring. Barring, being a “no, you cannot join now, and not only that, we are putting your name on our list of NEVER joining, so don’t bother applying again. Ever!”.

Criminal legal proceedings; Are there any active criminal proceedings against the person? Are there any recent judgements?

Regulatory disciplinary actions; Has any regulatory authority, domestic or international, filed any disciplinary actions? Are any pending? Have any been recently finalized?

Civil judicial actions; Are there any civil judgements currently ongoing? Have any recently been finalized?

Customer complaints; Have any customers filed recent complaints? Have any complaints been filed, that have not been resolved and submitted?

Terminations; Have you been fired? What were the reasons? Were they “due cause”? If so, what was the cause?

Financial events; Are there any Bankruptcies? Liens? These are not prohibitions against registering, they simply have to be disclosed.

To be clear, none of these are “you can’t register” (other than if you lie about them), you simply have to disclose them. It is recommended, no matter how innocent it seems, disclose every single thing they ask. If they find out you should have, and didn’t, it could get pretty bad.

To clear up a potential confusion; Civil action involves money, and punishments will not include jail. Criminal could involve money, but the punishments do likely involve imprisonment. Criminal actions can only be performed with “Willful Intent”. You cannot “accidently” commit a Criminal Violation, you can accidently commit a Civil Violation.