To register with FINRA, a person must complete and file Form U-4, officially called the Uniform Application for Securities Industry Registration or Transfer. Firms typically streamline the process and help new employees complete the form.
Form U-4 requires a significant amount of background information, including:
*Member firms must independently verify an applicant’s previous three years of employment history, which is typically confirmed by communicating directly with the applicant’s previous employer(s) by phone or email.
**An outside business activity (OBA) is any instance in which a registered person receives compensation outside of their firm. For example, a registered representative driving for Uber on the weekends would be considered an OBA. Representatives must report OBAs in writing to their firm. If the employing firm believes the activity is detrimental to the firm, it can deny the OBA. Although firms have the right to deny an OBA (meaning they can tell an employee not to engage in it), representatives are not technically asking for permission when they provide written notice. The issue arises only if the firm responds after the notice is submitted.
Certain actions in a person’s past may prevent them from working in the financial industry. While any criminal-related event must be reported on Form U-4 (even if the charge was dropped), only convictions (including guilty and “no contest” pleas) may prevent a career in the securities field.
These disqualifying events are called statutory disqualifications. The following events related to criminal activity and/or rule violations could cause a registration application to be automatically denied:
*An injunction is a court order prohibiting a person from performing a specified activity. For example, a court may impose an injunction that prohibits an individual from working in the securities industry.
Many firms ask for disclosure of past criminal convictions (and sometimes even arrests) early in the hiring process. This is why: if a felony or securities-related misdemeanor exists, it may prevent the person from working in the industry.
In some cases, a firm may apply for an exception and attempt to register a person with a prior disqualifying event. For example, a broker-dealer might view a felony conviction from eight years ago as potentially forgivable and request an exception. This process is called an Eligibility Proceeding. The request is filed with FINRA and then forwarded to the Securities and Exchange Commission (SEC). The SEC ultimately decides whether an exception is granted.
To verify the information on Form U-4, firms conduct background investigations on new hires. FINRA rules require firms to investigate the good character, business reputation, qualifications, and experience of every representative they plan to register.
In addition to the background check, fingerprints are collected and sent to the Federal Bureau of Investigation (FBI). Many firms handle fingerprinting while the applicant completes Form U-4, but FINRA rules require fingerprints to be filed within 30 days of U-4 submission. If the FBI considers the fingerprints illegible (unreadable), the firm may re-submit an applicant’s fingerprints up to three times. Fingerprints must be kept on file at the broker-dealer’s principal place of business for at least three years.
All firm employees are subject to fingerprinting unless all of the following apply:
If a person’s fingerprints are legible, the FBI performs a background check, and the results are typically sent to FINRA within a few days. Firms can then access the results and confirm that the information provided by the new hire matches the FBI’s findings. This helps verify the person’s background information and confirms the employee isn’t wanted for any outstanding crimes.
Once the information on the U-4 is confirmed through the background check, the employee signs the U-4. In addition to attesting that the information on the form is accurate, the signature also approves a pre-dispute arbitration agreement embedded in the U-4. As discussed in a previous chapter, this prevents representatives from suing their employer unless allegations of harassment or discrimination exist.
After the U-4 is signed, the firm submits it to FINRA’s Central Registration Depository (CRD). The CRD is a database containing information on registered representatives across the industry. Customers can access some U-4 information about their representatives through FINRA’s BrokerCheck (you might even be in there right now). The CRD also contains information on FINRA member firms, which are financial firms registered with FINRA (e.g., broker-dealers).
Sometimes Form U-4 must be updated because previously provided information becomes inaccurate or outdated. This can be for routine reasons, such as name* or address changes, which must be updated within 30 days of the change. Other updates involve more serious events.
If an event involving a statutory disqualification occurs while the representative is already registered, the U-4 must be updated within 10 days of the event. For example, a representative convicted of a securities-related misdemeanor while registered would fall into this category. In many cases, the event results in the representative’s registration being revoked and termination from employment.
*Most name changes are filed because of marriage. Although a name change must be reported, a change in marital status is not reportable. Therefore, a representative who gets married but does not change their name is not required to update Form U-4.
When a representative’s employment ends at a firm, the firm must submit Form U-5 to FINRA within 30 days. If FINRA terminates the registration due to a rule violation, the registration is considered “revoked” (this is bad!). By contrast, a person’s registration is considered “canceled” when they voluntarily resign, quit, or retire. Revocation is punitive (a punishment), but cancellation is not. The reason for termination is not disclosed unless it relates to an unethical or illegal event.
Section 7 of Form U-5 requires the employing firm to disclose whether the former representative was subject to any of the following at or prior to termination:
After a person’s registration is revoked or canceled, FINRA maintains regulatory power over them for two years. For example, suppose a person quits their securities-related job and their registration is canceled. If the former firm receives a legitimate customer complaint alleging fraud soon after the person leaves, FINRA can still revoke the person’s license (as long as it’s within two years of termination). This can prevent the person from re-entering the industry later.
Form U-6 is filed when a representative or firm is subject to disciplinary action or when a reportable event occurs. Reportable events include criminal convictions and financial disclosures (bankruptcy and compromises with creditors). The results of disputes handled through arbitration are also disclosed on this form. Like the U-4 and U-5, information reported on the U-6 is available on BrokerCheck.
FINRA Rule 4530 requires member firms to file reports when certain events occur, typically involving legal or ethical violations.
A member firm must file promptly (but no later than 30 days after the event) if the member firm or any of its representatives:
*This reporting event involves a firm disciplining a representative.
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