Weekly RoundUp
September 30, 2021

FINRA Adopts New Rules to Address Firm Misconduct

In This Weekly Roundup Issue. The Financial Industry Regulatory Authority (FINRA) adopted new rules to address firms with a significant history of misconduct; the Securities and Exchange Commission (SEC) issued an order approving rule changes to amend FINRA Rule 1240; and EU managers should consider practical issues when undertaking pre-marketing activities permitted by the Cross Border Distribution of Funds Directive. These developments are discussed in more detail below.

Regulatory Developments

FINRA Adopts Rules to Address Firms With a Significant History of Misconduct

On September 28, FINRA adopted new rules to address firms with a significant history of misconduct. New Rule 4111 (Restricted Firm Obligations) requires member firms that are identified as “Restricted Firms” to deposit cash or qualified securities in a segregated, restricted account; adhere to specified conditions or restrictions; or comply with a combination of such obligations. New Rule 9561 (Procedures for Regulating Activities Under Rule 4111) and amendments to Rule 9559 (Hearing Procedures for Expedited Proceedings Under the Rule 9550 Series) establish a new expedited proceeding to implement Rule 4111. The new rules and rule amendments become effective on January 1, 2022.

Order Approving a Proposed Rule Change to Amend FINRA Rules 1240 (Continuing Education Requirements) and 1210 (Registration Requirements)

On September 21, the SEC issued an order approving rule changes to amend FINRA Rule 1240 (Continuing Education Requirements). The amendment, among other things, (1) requires that the Regulatory Element of FINRA’s continuing education program for registered persons of FINRA members be tailored to each registration category and completed annually rather than every three years, and (2) provides a way for individuals to maintain their qualifications following the termination of registration through continuing education. The SEC also approved conforming amendments to Rule 1210 (Registration Requirements) to modify aspects of both the Regulatory Element (which focuses on regulatory requirements and industry standards) and the Firm Element (which focuses on, among other things, securities products, services and strategies the firm offers, firm policies, and industry trends). FINRA will announce the implementation dates of the rule changes in a Regulatory Notice to be published no later than 90 days following the SEC’s approval.

“The direct financial impact of a restricted deposit is likely to change such member firms’ behavior – and therefore protect investors."

The Cross-Border Distribution of Funds Directive – Practical Issues Arising from Implementation Across the EU

When it comes to the Cross Border Distribution of Funds Directive (the Directive), there are some practical issues for managers when undertaking pre-marketing activities in the European Union following the implementation of the Directive. Read the client alert to learn more about the matters that managers should bear in mind.

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