FirstMark Regulatory Solutions is a broker-dealer compliance consulting firm that offers a wide range of services including the filing of a FINRA new member application or “NMA” as it is referred to in the industry. The NMA filing is a substantial undertaking and FirstMark often receives inquiries about what FINRA expects of applicants – specifically, what are the qualifications to start a FINRA BD?
There are numerous requirements for membership in FINRA, all of which are spelled out at a high level in the Membership and Registration Rules. Specifically, NASD Rule 1014 specifies the fourteen standards of membership.
Here, we will focus on the fourth of the ten requirements that make up the tenth standard. That’s right, there are ten requirements in the tenth standard! This is NASD Rule 1014(a)(10)(D). For the most part, this section of the Rule addresses the adequacy of the applicant’s supervisory system and written procedures. But part of any supervisory system is the requirement to have qualified supervisors designated for each area of a broker-dealer’s business. Let’s break down what FINRA means by qualified.
First, there is qualification by examination. That means that each person to be associated with a broker-dealer who is to function in a managerial capacity (and FINRA requires at least two – more on that later) must be qualified by examination. And in this case, FINRA means the appropriate principal licensing examination. In a broker-dealer there are typically, there are sales persons who are registered representatives, and their managers/supervisors who are principals. There are various categories of representative and principal licenses. The representative license that affords the most flexibility is the Series 7. And that examination covers the sale of a broad range of products. Supervisors of Series 7 licensed employees generally must have a Series 24. These two licenses are referred to as the general securities representative and general securities principal examinations. There are also limited categories of registration, for example a firm selling only mutual funds and variable annuities may have its representatives pass the Series 6 examination and its principals pass the Series 26 examination. So as you can see, qualifications to start a FINRA BD are numerous.
There are also limited registration categories for the sale of private placements and other products as well as financial principal examinations. Also, if you plan on selling options or municipal securities, there are special principal examinations for each of those business lines. So clearly, the first thing that will need to happen is that the proposed supervisors, if they don’t have the licenses already, will need to take and pass the appropriate exams. And this should not be undertaken lightly. FINRA reports that one of the most common reasons for delays in processing applicatio
ns is the failure of the proposed principals to take and pass their qualification examinations. Finally, although there is no way to take licensing examinations unless you are sponsored by a broker-dealer, you may use your new member application as a sponsor. In other words, the new member applicant itself my sponsor you to take your examinations immediately upon filing with FINRA. FINRA allows a 90 day window to pass the examinations after filing the application. There are various work-arounds if the 90 day period does not work for a particular individual.
It is important to note that FINRA will not simply require that you pass the qualification examination. Instead, we go back to Rule 1014(a)(10)(D). It states that applicants who are charged with supervisory responsibilities must have one year of direct or two years of related experience in the subject area they are responsible for supervising. This generally means that a principal must have a year of experience as a principal in the area that is being supervised, or must have worked in a similar function for two years (perhaps under the supervision of a principal in the same function). There is some leeway here, and there are numerous ways to work around the requirement that will be acceptable to FINRA.
If you are seeking the answer to the question, “what are the qualifications to start a FINRA BD,” seek the services of an experienced FINRA NMA expert. Mitch Atkins, FINRA’s former South Region Director, has 21 years of experience with FINRA NMAs. While at FINRA he oversaw the membership application function for FINRA’s entire South Region. For immediate help with your NMA, contact Mitch Atkins, Principal of FirstMark Regulatory Solutions at 561-948-6511.