On September 22, the Financial Industry Regulatory Authority (FINRA) issued Regulatory Notice 20-33 that requested comment on (1) proposed formal procedures to bring actions against non-associated persons who cheat or misbehave during a FINRA qualification examination and (2) related amendments to FINRA’s registration requirements rule and eligibility proceedings rules.

Currently, FINRA cannot bring a disciplinary action against a person who engages in misconduct before associating with a firm. To help address this problem, amended FINRA Rule 1210.05 would enable FINRA to determine whether a non-associated person has cheated on the Securities Industry Essentials (SIE) examination and, if so, forfeit the examination results, prohibit retakes of the SIE examination, or both. In connection with the above, FINRA proposes the following:

  • adopting a new expedited proceeding rule with new FINRA Rule 9560 (Failure to Comply with the FINRA Qualification Examinations Rules of Conduct) and make corresponding amendments to FINRA Rule 9559 (Hearing Procedures for Expedited Proceedings Under the Rule 9550 Series);
  • amending FINRA Rule 1210.05 to permit FINRA to take action against non-associated persons for a broader range of violations of the Rules of Conduct (not just cheating), prohibit them from taking any FINRA qualification examination (not just the SIE examination) and to establish a qualification requirement that applies to persons who are prohibited from taking any FINRA qualification examination; and
  • amending FINRA Rule 9520 Series (Eligibility Proceedings) to address requests by associated persons and non-associated persons for relief from the proposed Rule 1210.05 qualification requirements.

FINRA encourages all interested parties to comment. Comments must be received by November 23. The Notice is available here.