Joining and the U4

Who counts as a person?

When the exam refers to a “person,” it doesn’t always mean a flesh-and-blood human being. The term covers both natural persons and corporate persons, and keeping the two straight matters for registration questions. 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 possess 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 (such as states, counties, and cities), and similar entities.

A natural person is much simpler: a flesh and blood human being. Every natural person is a person under the securities laws, whatever their age. What a child lacks is legal capacity: until a person has reached the age of majority (generally 18), they can’t enter into a binding contract, so they can’t open an account in their own name and an adult has to act for them. The same goes for someone a court has found mentally incompetent, and when a person dies it is the estate that acts.

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: the firm submits them promptly when it files the U4, and if FINRA doesn’t have them within 30 days of receiving the U4, the registration goes inactive. Everyone gets fingerprinted, and they are submitted to the Attorney General of the United States or its designee. In practice, the designee is the FBI: FINRA’s fingerprint vendor, First Advantage Biometrics (formerly Sterling Identity), sends the prints on to the FBI for processing. 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. Before applying to register you, the firm must investigate your good character, business reputation, qualifications, and experience. Separately, no later than 30 calendar days after your U4 is filed, it must verify that the U4 is accurate and complete, at a minimum by searching reasonably available public records. 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. The background information also includes the last 5 years of residential history. The firm’s verification covers the whole form, residential history included.

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 insurance, commodities, or other related licensing or designations including things like CFP® or similar. Business affiliations including any groups or similar work. Outside business activities must also be disclosed on the U4 and kept current.

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. Most amendments are due within 30 days, but an amendment that involves a statutory disqualification must be filed within 10 days after the disqualification occurs.

The U4 includes a predispute arbitration agreement: the applicant agrees to resolve disputes with their firm, customers, and others through FINRA arbitration rather than in court. The carve-outs are statutory employment discrimination claims, sexual assault or sexual harassment claims, and whistleblower disputes under a law that bans predispute arbitration agreements. Arbitration itself is covered in Code of Procedure and Code of Arbitration.

Disclosures on the U4

There are many disclosures required on the U4. Failing to disclose required information can result in a bar from the industry, which prohibits the person from associating with any FINRA member firm.

• Criminal: felony charges and convictions, and misdemeanor charges and convictions involving investments, fraud, theft, or similar offenses.
• Regulatory action: disciplinary actions by any domestic or foreign regulator or SRO, pending or final.
• Civil judicial: court actions, such as injunctions, related to investment activity, pending or final.
• Customer complaints: customer complaints, arbitrations, and lawsuits alleging sales practice violations.
• Terminations: resigning, being fired, or being permitted to resign after allegations of investment-related violations, fraud, or failure to supervise.
• Financial: bankruptcies, compromises with creditors, unsatisfied judgments, and liens. These don’t prevent registration; they simply have to be disclosed.

Disclosing these events does not automatically bar registration - but failing to disclose something that should have been reported can. Some events, however, can trigger statutory disqualification under Exchange Act Section 3(a)(39), which does bar registration (or requires special FINRA approval to register). These include any felony conviction, and any misdemeanor conviction involving securities, the theft of funds or securities, fraud, or similar wrongdoing, within the past 10 years, as well as regulatory bars or suspensions, and civil injunctions tied to investment-related misconduct. Short of these triggers, the disclosure items above don’t prevent registration on their own - they simply have to be disclosed, no matter how minor they may seem.

Civil actions involve money damages, not jail time. Criminal actions can also involve fines, but carry potential imprisonment, and require proof of willful intent - a criminal violation can’t be committed accidentally, while a civil violation can.