The FINRA Membership Application takes several forms, and frankly has received a fair amount of criticism over the years. The primary concerns that broker-dealers have voiced over the years are that the application process takes too long and is too complicated. FINRA has addressed these concerns in recent years by creating a centralized group based in New York (also called the “MAP” group) that exclusively deals with membership applications. This created areas of specialty expertise for these staffers and results in better processing effectiveness. In the past, the local FINRA district handled MAP applications. Now, the local offices assist the New York MAP Group in processing applications, but the New York MAP Group primarily carries the ball.
There are two primary types of FINRA membership applications. The first is the CMA or Continuation of Membership Application and the second is the NMA or the New Member Application. The NMA is what is filed by a firm desiring to create a new FINRA broker-dealer or to register an existing company as a FINRA broker-dealer. This means the applicant is usually entering the FINRA space for the first time, and FINRA wants to get to know the applicant. The NMA process involves a significant amount of work on the part of the applicant because applications must include all information required to run a broker-dealer in a compliant manner. For example, an applicant must submit a full set of written supervisory policies and procedures which cover every aspect of their business and are reasonably designed to achieve compliance with applicable rules and regulations. An applicant must also submit a full business continuity plan and an anti-money laundering compliance program. These programs must be tailored to the individual circumstances of the applicant.
The CMA is filed when an existing FINRA member desires to make a material change to its business, or when it is being acquired or it is acquiring a material amount of assets or new business lines. FINRA Rules outline what constitutes a material change and how much of a broker-dealer can be acquired before an application is required. A broker-dealer being acquired by new owners must essentially go through the same FINRA membership application process as a new applicant. FINRA will conduct the same background checks on the purchaser of an existing broker-dealer as it will conduct on a new member. Some will say that it is easier to acquire an existing broker-dealer than it is to file a new FINRA membership application. Experience has shown that this is often untrue. There are many potential pitfalls with acquiring an existing broker-dealer, or even acquiring just its assets. Each situation must be evaluated on its own merits.
A Pass on a FINRA Membership Application?
If in doubt about what might be considered a material change under FINRA rules, there is a process to formally ask FINRA that question. This is called the Materiality Consultation, or MATCON. If a broker-dealer is considering a change that it believes is not material, but wants to get a formal, written opinion from FINRA on the issue, it may file a MATCON with FINRA which details the proposed change. FINRA will then provide a written response (often within 30 days) indicating its view on whether the proposed change would be considered material under its rules, and thus would require a FINRA membership application filing.
Finally, FINRA has recently implemented an expedited review process for applications that meet certain criteria. FirstMark’s experience with this process has been very favorable.
It is important to note that undertaking any of these courses of action is a significant commitment of time and resources. This complex process, while improved in recent years, can be most effectively navigated with the guidance of a FINRA NMA expert. Mitch Atkins, FINRA’s former South Region Director, has over 21 years of experience with the FINRA Membership Application Program, and can help you intelligently navigate the process. Contact Mitch Atkins at FirstMark Regulatory Solutions 561-948-6511.