Leaving and the U5
Form U5 is the termination form - the document that ends a registered representative’s association with a member firm, just as the U4 is the starting document. It is always filled out by the firm, whether the rep is retiring, transferring to another firm, or being terminated for cause. One important catch to keep in mind: leaving doesn’t end FINRA’s reach. While a FINRA complaint or disciplinary action is pending against the rep, the termination of their registration doesn’t take effect, and the firm still has to answer the U5’s questions about whether the rep was under internal review, or resigned after allegations of misconduct, when they left.
The U5 must be filed within 30 days to notify FINRA of a registered rep’s termination of association with that member firm. Any changes, updates, or corrections to incorrect or inaccurate information must be amended and filed, again, within 30 days of discovering the need for the amendment to the U5.
There are two versions. The full Form U5 ends the rep’s association with the firm, and it is the one most likely to be tested. A partial Form U5 ends a registration with specific SROs or states while the rep stays associated with the firm - for example, when a firm moves its headquarters to a new state and ends the rep’s registration in the old state while registering them in the new one.
Once no longer associated with a member firm, the former registered rep, whose registration has been terminated, has 2 years to reappoint, or they will need to retest, unless they use FINRA’s Maintaining Qualifications Program. A rep who was registered for at least 1 year, and isn’t statutorily disqualified, can elect into it when the U5 is filed (or later, within 2 years of the termination) and keep the qualification for up to 5 years by completing continuing education every year. The 2 years is also reflective in that FINRA maintains jurisdiction over the registrant for 2 years after leaving the industry.
Military service is an exception. If a registered representative is called away for active duty, they clearly cannot serve as a registered rep anymore. Their registration is placed on “inactive” status instead of being terminated, and they have no clock starting. This is a different status from the “CE inactive” registration of someone who missed their Regulatory Element. If they are actively deployed, for say 1 year, the clock doesn’t run during that year; it only starts 90 days after their active service ends. They don’t lose half of their time to find a new association, even if they are serving for 1 full year.
Statutory disqualifications
These are serious, but unlike how they sound, they are not a sure fire, 100% guaranteed, denial. There are ways to apply with these on your record, it is just much more expensive, and much harder. Even if you apply through the exception, there is no guarantee FINRA will accept you anyway.
The most commonly thought of statutory disqualifications
Although there are several other types, these are the most tested and seen examples.
Expulsion, suspension, or bar
If the person has been expelled, suspended, or barred from participating, or being associated with a member, an SRO, or any foreign equivalent of an SRO, international exchange, or similar for any securities or commodities, they would have a statutory disqualification.
Regulatory orders
If a person has, by order of the SEC, or another appropriate regulatory agency, or foreign securities authority, had their registration (corporate person), or appointment (natural person), denied, suspended for a period not exceeding 12 months, or revoked as a broker, a dealer, a municipal securities dealer, a security-based swap dealer, or similar, they would have a statutory disqualification. Note that the 12-month limit applies only to a suspension - a denial or a revocation is not time-limited the same way.
An order by the Commodity Futures Trading Commission, or any foreign financial regulatory authority, in a similar way as the SEC above, would also qualify, and the person would have a statutory disqualification.
Causing another’s disciplinary action
If a person, while associated with a broker, dealer, municipal securities dealer, or similar securities professional, is found to be the cause of any effective suspension, expulsion, or similar such order by the SEC, or any other similar appropriate regulatory authority, they too would have a statutory disqualification.
Knowingly associating with a disqualified person
Any person who knowingly associates with someone they should know, with reasonable diligence and care, is guilty of any of the outlined problems (basically, they’ve been suspended, expelled, barred from some regulatory authority) - the not-SD person, upon knowingly associating with someone who is statutorily disqualified, would themselves get a statutory disqualification.
Felony convictions in past 10 years
All felony convictions within the past 10 years would also be a statutory disqualification. Felony convictions, not charges. Pleading no contest, or “nolo contendere”, is the same as guilty. The law does not care how minor the felony might seem, a felony conviction for littering 7 years ago, would also be a statutory disqualification.
Certain misdemeanor convictions in past 10 years
Misdemeanor convictions in the past 10 years count only if the crime involved securities, the taking of funds or securities (such as by theft, embezzlement, forgery, or extortion), fraud, or similar dishonesty such as bribery, perjury, or false statements. Misdemeanor theft of anything else, such as shoplifting merchandise, is not a statutory disqualification, although it must still be disclosed on Form U4. Again, only convictions count, including a plea of no contest (nolo contendere), not charges. A misdemeanor conviction for an unrelated offense, even a serious-sounding one, is not a statutory disqualification.
Additional information on charges
If any charges, become convictions that would fall under the statutory disqualification list, the firm must report to FINRA within 10 days to amend the U4. The firm could also always file a U5 as well, to terminate the now convicted representatives employment. Any other SD-related action, would also have to be reported within 10 days, but the most common, would be a charge becoming a conviction, or a plea of “no contest”. Remember, nolo contendere, or pleading “no contest”, is identical in FINRA’s eyes as a guilty conviction.
Moving won’t help (or hurt)
The classification of a conviction is fixed by the law of the jurisdiction where it occurred - not by where the person lives now. For example, suppose someone was convicted of a drug-related felony in one state, then four years later moved to a state where the same conduct is only a misdemeanor. Because the conviction was a felony where it occurred, it remains a statutory disqualification for 10 years regardless of where the person lives now, unless that felony is expunged.