Financial Institutions Law Alert

As a result of the coronavirus pandemic (COVID-19) FINRA has provided guidance and selective relief to member firms.  FINRA’s website includes links to various issues and topics that are of concern to member firms and are available here.

Here is a summary of FINRA’s guidance:

Frequently Asked Questions

FINRA has collected a list of frequently asked questions resulting from the COVID-19 pandemic.  We provide brief summaries below.

  • Advertising Regulations
    • Customer Communication: If customers are unable to reach registered representatives due to increased call volumes during the pandemic, members may place a notice on their websites indicating to customers who they may contact concerning the execution of trades, their accounts, and access to funds or securities.  Members experiencing significantly increased call volumes or online account usage during the pandemic are encouraged to review their BCPs regarding customer communications and ensure customer access to funds and securities during a significant business disruption.  (Regulatory Notice 20-08)
    • Non-promotional Communications: Firms are not required to file non-promotional communications with FINRA.  For example, a retail communication regarding COVID-19 that does not make any financial recommendation or promote any product need not be filed with FINRA.  (FINRA Rule 2210(c)(7)).
  • Anti-Money Laundering (“AML”) Testing: Member firms have until December 31, 2020 to perform its annual independent testing of its AML compliance program. (FINRA Rule 3310).
  • Best Execution: While broker-dealers are not relieved of their best execution obligations in light of the pandemic, FINRA notes that the reasonable diligence required for best execution is assessed in the context of the characteristics of the security and market conditions, including price, volatility, relative liquidity, and pressure on available communications. (FINRA Rule 5310).
  • Broker-Dealer Registration: FINRA has temporarily suspended the requirement to update Form U4 or Form BR for temporary relocations during the pandemic.  However, members are required, on a best efforts basis, to provide written notification to its FINRA Risk Monitory Analyst if it relocates personnel to a temporary location that is not currently registered as a branch office or identified as a regular non-branch location.  FINRA does not expect to receive written notification regarding each associate person’s location if working from home.  (Regulatory Notice 20-08).
  • Business Continuity Planning (BCP)
    • Activation: Members are encouraged to notify FINRA if they activate their BCP.
    • Emergency Contact: Members are required to ensure that FINRA has a reliable means of contacting each member in the event of an emergency. Members may register and update their emergency contact persons through the FINRA Contact System (FCS).  (FINRA Rule 4370)
    • Teleworking Supervisory System: Members and their associated persons are permitted to use remote offices or telework during the pandemic. In such cases, members should establish a supervisory system that is reasonably designed to supervise the activities of associated persons while teleworking and document any such changes to its current written supervisory procedures. (Regulatory Notice 20-08).
    • Extensions for Regulatory Filings: Members that require extra time to respond to open inquiries, investigations or upcoming filings should contact their Risk Monitoring Analysts or the relevant FINRA department to seek extensions.
  • Filing Extensions for Annual Reports and FOCUS Reports: Any member that (1) meets the exemptive provisions in SEA Rule 15c3-3(k) or (2) files a Part IIA FOCUS Report is being provided a 30 calendar day extension for submitting to FINRA their annual report related to fiscal years ending in January 2020 through March 2020 and/or a 10 business day extension for submitting any FOCUS report to FINRA related to a period ending in February 2020 through April 2020. Written application and procedures required pursuant to SEA Rule 17a-5(a)(6) are waived for purposes of this extension.
  • Fingerprint Information: FINRA is providing a temporary extension of time for submission of Fingerprint information under Rule 1010(d).  Members that submitted, or will submit, an applicant’s initial or transfer Form U4 between February 15, 2020 and May 30, 2020, will have until June 29, 2020 to submit the necessary fingerprint information.
  • Individual Registration: FINRA is providing temporary relief from Rule 1010(c)’s manual signature requirement for Form U4.  Firms are permitted to electronically file an initial or transfer Form U4 without obtaining the individual applicant’s manual signature if it, prior to filing: (1) provides the applicant with a copy; (2) obtains the applicant’s written acknowledgement that the information has been reviewed and is accurate; (3) retains that written acknowledgement; and (4) obtains the applicant’s manual signature as soon as practicable.
  • Qualification Examinations: Due to the temporary closing of the Prometric test centers, FINRA is extending expiring qualification examination windows until May 31, 2020. Individuals who were designated to function as principals under Rule 1210.04 prior to February 2, 2020 will be given until May 31, 2020 to pass the appropriate examination(s).
  • Reporting Requirements: Members have until May 31, 2020 to report to FINRA statistical and summary information regarding written customer complaints pursuant to FINRA Rule 4530(d) that were received in the first quarter of 2020.
  • Supervision: Firms whose annual deadline for submitting Rule 3120 Reports (detailing member’s supervisory controls system) falls between March 1 and May 1, 2020 may take up to May 31, 2020 to complete and submit such reports.  Likewise, FINRA is providing comparable additional time for members to execute their Rule 3130 certification

For more details please click here.

Regulatory Operations

FINRA regulatory operations continue its regulatory responsibilities safeguarding market integrity and protecting investors.  In a March 23, 2020 update, FINRA acknowledged that there are challenges for member firms in the face of the COVID-19 pandemic.   In light of the shifting landscape, FINRA provides the following:

  • FINRA will prioritize risk monitoring, market surveillance and enforcement programs with a focus on matters that present the most risk in the new environment.
  • FINRA focus is on monitoring for fraud, illicit schemes, and other manipulation that takes advantage of the current environment and market volatility. Member firms are to stay vigilant, and notify FINRA of suspect activity.
  • FINRA requests member firms communicate with their Risk Monitoring Analysts and keep them updated as to specific challenges they may be facing that impact their ongoing financial operations and business continuity processes. FINRA will continue to engage in regular communications and may make targeted requests for information during this time, and will work to identify challenges that may be systemic.
  • FINRA is temporarily limiting new routine requests for information, recognizing that member firm resources are currently focused on employee safety, client service and critical operational issues during the pandemic. FINRA will continue to address situations where potential investor or market harm is suspected.
  • FINRA will provide targeted relief and guidance, and encourages member firms to contact FINRA should issues arise in meeting regulatory deadlines.

For more details please click here

Request for Comments - Period Extended

FINRA has two regulatory notices pending:

  • Regulatory Notice 20-05 - Proposal to Implement the Recommendations of the CE Council Regarding Enhancements to the Continuing Education Program for Securities Industry Professionals. The comment period has been extended to May 31, 2020.
  • Regulatory Notice 20-04 - Proposed Amendments to the Capital Acquisition Broker (CAB) Rules. The comment period has been extended to May 15, 2020.

For more information please click here.

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