Effective registration

Effective registration

Individuals must file Form U-4 to apply for registration as an agent, which provides necessary criminal, legal, and regulatory disclosures, and the appropriate filing fee. In addition, a consent to service of process must be submitted with the initial application (no need to re-submit in the future). Depending on the broker-dealer’s scope of operations and the specific requirements imposed by any given state, a surety bond may be required to be posted on behalf of an agent.

The timeframe for registration paperwork to be processed is the same as it was with broker-dealers. If all the necessary documentation has been submitted, registration is granted on the 30th day (at noon) after filing. The state administrator can elect to speed up the process if they prefer (deeming registration effective in less than 30 days). Once registered, agents (or any registered persons) are prohibited from stating they were “approved” by the state administrator.

Financial requirements

Unlike broker-dealers, agents are not subject to minimum financial requirements (no minimum net capital). While there’s no need to maintain a certain asset level, all agents (and applicants) must disclose certain financial events like bankruptcy or compromises with creditors. Additionally, an agent’s application for registration could be denied due to insolvency.

Insolvency or bankruptcy isn’t necessarily a “death sentence” regarding registration. The administrator tends to handle these circumstances on a case-by-case basis. If the applicant is resolving their finances, they’ll likely be granted effective registration.

Form U-4 updates

Registered agents must update the state administrator through a Form U-4 amendment if any material information disclosed on the form changes, including:

• Name changes (e.g., due to marriage)
• Home address
• Office location
• Jurisdiction changes (state registration status)
• Outside business activities (employment outside of firm)
• New events related to:
  • Criminal actions
  • Regulatory actions (e.g., suspension or revocation)
  • Civil litigation involving securities
  • Certain customer complaints*
  • Financial status (e.g., bankruptcy)

*Only customer complaints involving accusations of theft or resulting in large settlements must be reported.

Generally, updates for most disclosures should be submitted within 30 days of the event. However, statutory disqualification events must be updated to Form U4 within 10 days.

Canadian agents

Canadian agents can gain limited registration through their (Canadian) broker-dealers. The rules and process we discussed previously apply in the same manner to agents. However, there is no requirement for an agent to be a member of a Canadian self-regulatory organization (SRO) or stock exchange.

Termination

If an agent remains “in good standing” and renews their registration annually (by December 31st), they may operate legally in a state. At some point, every agent’s registration will come to an end. People retire, switch jobs, change careers, and might even be fired. Although it sounds menacing, all these events are referred to as an agent’s termination. The state administrator must be notified when this occurs to cancel the agent’s registration.

The broker-dealer and agent are both responsible for notifying the state administrator when an agent’s employment is terminated. This is accomplished by filing Form U-5. The agent and a firm supervisor will sign the form and submit it to the appropriate state administrator(s).

If an agent resigns their position at a broker-dealer and joins another broker-dealer, all three parties must notify the appropriate state administrator(s). The agent and former broker-dealer will fill out, sign, and submit Form U-5, while the agent and the new broker-dealer will fill out, sign, and submit Form U-4.

When a termination occurs, the state administrator must be notified by the appropriate parties “promptly,” which generally means within 30 days of the event.

Termination doesn’t necessarily mean the employee is being fired. For example, they might take a sabbatical or other leave of temporary absence and terminate their registration during their period.