FINRA’s new member application process (also referred to as the “NMA” process) is a complex and time consuming process. The goal of the process is to obtain FINRA’s approval of a new broker-dealer. However, getting to that goal involves a significant commitment of time and resources. So before making this investment, it is important to be aware of a provision of the FINRA membership rules – Rule 1014(b)(1) to be exact – that establishes the presumption that an application for membership will be denied under certain circumstances (the FINRA rebuttable presumption of denial).
Those circumstances are enumerated in Rule 1014(a)(3)(A) and (C) through (E) and, they are essentially the following:
- A regulatory or licensing action;
- A regulatory action, a private civil action that is investment related, a criminal action, or in certain cases, is subject to unpaid arbitration awards or settlements;
- A termination for cause (or having been permitted to resign) for violating rules related to the securities industry;
- Being subject to heightened supervision or having otherwise been the subject of special supervisory requirements; and
- If FINRA has been given information indicating that an associated person or applicant poses a threat to investors.
The fact that there is a presumption of denial written into the rule does not necessarily mean that the application will be denied if these factors exist. In fact, The issue of the FINRA rebuttable presumption of denial may not be raised by staffers if they are not concerned about the issue. However, any of these factors that exist should be thoughtfully addressed in the FINRA NMA. Rule 1014(b) provides that these presumptions may be overcome (the applicant may rebut the presumption of denial). Overcoming this situation requires careful consideration of the reason(s) the FINRA rebuttable presumption of denial exists and many other factors. Sometimes the presumption can be overcome simply by explaining the circumstances that gave rise to the issue. Other times, more in-depth work is required such as a change to the structure of the application, the firm, or its employee list. Either way, it is important to understand what the issues are that triggered the FINRA rebuttable presumption of denial .
Mitch Atkins, FINRA’s former South Region Director, is a FINRA NMA expert. If you have questions about a FINRA NMA, contact Mitch Atkins, Principal of FirstMark Regulatory Solutions at 561-948-6511.