More studying? Are you kidding? Often this is the question that FirstMark Regulatory Solutions gets when discussing the FINRA general securities principal registration requirements with clients who have already taken the Series 7 and 63 exams.
The question of who is required to have a FINRA general securities principal registration can get complicated. In a FINRA new member application (also called an NMA), the requirements are relatively simple. If you supervise the business or other persons doing the business, you must be registered as a principal. But it never is that simple. So the following discussion touches on some of the common FINRA general securities principal registration requirements that are encountered during a FINRA NMA. The FINRA general securities principal examination is called the Series 24 exam. This is most frequently an issue when a new member applicant’s owners or key players have not previously been registered in the securities industry. And in many cases, the issue is that these individuals are already sitting for the Series 7 and 63 examinations, so studying for a third examination isn’t exactly a pleasing idea. Whatever the case, there is a clear answer to this question.
FINRA will require that anyone who is “actively engaged in the management of the member’s investment banking or securities business, including supervision, solicitation, conduct of business or the training of persons associated with a member for any of these functions are designated as principals” take and pass the Series 24 (FINRA General Securities Principal) examination. FINRA also requires that persons holding the following positions take and pass the Series 24 examination: sole proprietors, officers, partners, managers of offices of supervisory jurisdiction (OSJs), and corporate directors (in most instances).
Often in a FINRA NMA, the issue arises as to the circumstances under which owners or directors may avoid principal registration altogether. The answer is that generally that they cannot. However, FINRA has outlined limited circumstances in which this may be permitted. For example, directors who are considered “outside directors” meaning that the director will not be employed by the broker-dealer and will serve only in a passive role (not engaged in decision-making on day-to-day operational issues). However, directors who are registered in any capacity with the broker-dealer cannot avoid principal registration. This is because any registration with the broker-dealer makes them actively involved – FINRA has no provision for “inactive” registrations.
Specific activities that generally have been viewed as moving someone across the line into the principal registration requirement include: hiring and firing, setting or implementing policy, negotiating or executing agreements, directing other employees’ actions, participation in management or executive committee meetings, and holding oneself out as a person with authority to make decisions.
The advice I usually give to owners and shareholders, or anyone who will be involved in the decision-making process, is that they get the license. This will save untold headaches down the road. And FINRA has made this a bit easier by allowing persons who are already registered to be elevated to principal status with a 90 day period to complete the examination. So during this “grace” period the registered person is permitted to act as a principal without actually having passed the examination. Be careful, however, as this requires very specific steps to be effective.
Caution! The FINRA General Securities Principal Registration Exam is not easy!
And a gentle word of warning – some say that the Series 24 is a harder examination to pass than the others, even the Series 7. So take a little extra time to study for the Series 24. This is important because a non-passing score will require that you sit out for 30 days before attempting to re-take the examination. In the context of a FINRA NMA, this can cause a fairly substantial delay. And FINRA could lapse the application if the examination failure is near the end of the 180 days permitted by the NASD Membership and Registration Rules for the FINRA NMA.
If you have questions about FINRA’s new member application process or desire to file a FINRA NMA, seek the services of FINRA NMA expert. Mitch Atkins, FINRA’s former South Region Director, has 21 years of experience with FINRA NMAs. For immediate help with your FINRA NMA, contact Mitch Atkins, Principal of FirstMark Regulatory Solutions at 561-948-6511.