[Federal Register Volume 85, Number 174 (Tuesday, September 8, 2020)]
[Notices]
[Pages 55535-55539]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-19719]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89732; File No. SR-FINRA-2020-026]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Temporarily Adopt (1) Supplementary Material
.12 (Temporary Extension of the Limited Period for Registered Persons
To Function as Principals) Under FINRA Rule 1210 and (2) Supplementary
Material .07 (Temporary Extension of the Limited Period for Persons To
Function as Operations Professionals) Under FINRA Rule 1220
September 1, 2020.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on August 28, 2020, Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to adopt: (1) Temporary Supplementary Material
.12 (Temporary Extension of the Limited Period for Registered Persons
to Function as Principals) under FINRA Rule 1210 (Registration
Requirements); and (2) temporary Supplementary Material .07 (Temporary
Extension of the Limited Period for Persons to Function as Operations
Professionals) under FINRA Rule 1220 (Registration Categories). The
proposed rule change would extend the 120-day period that certain
individuals can function as a principal or Operations Professional
without having successfully passed an appropriate qualification
examination through December 31, 2020.\3\
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\3\ If FINRA seeks to provide additional temporary relief from
the rule requirements identified in this proposed rule change beyond
December 31, 2020, FINRA will submit a separate rule filing to
further extend the temporary extension of time.
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The text of the proposed rule change is available on FINRA's
website at http://www.finra.org, at the principal office of FINRA and
at the Commission's Public Reference Room.
[[Page 55536]]
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of and basis for the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of these statements may be examined at
the places specified in Item IV below. The self-regulatory organization
has prepared summaries, set forth in sections A, B, and C below, of the
most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The COVID-19 pandemic is an unpredictable, exogenous event that has
resulted in unavoidable disruptions to the securities industry and
impacted member firms, regulators, investors and other stakeholders. In
response to COVID-19, earlier this year FINRA began providing temporary
relief to member firms from FINRA rules and requirements via frequently
asked questions (``FAQs'') on its website.\4\ Two of these FAQs \5\
provide temporary relief to address disruptions to the administration
of FINRA qualification examinations caused by the pandemic that have
significantly limited the ability of individuals to sit for these
examinations due to Prometric test center capacity issues.\6\
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\4\ See Frequently Asked Questions Related to Regulatory Relief
Due to the Coronavirus Pandemic, available at https://www.finra.org/rules-guidance/key-topics/covid-19/faq.
\5\ See https://www.finra.org/rules-guidance/key-topics/covid-19/faq#qe.
\6\ At the outset of the COVID-19 pandemic, all FINRA
qualification examinations were administered at test centers
operated by Prometric. Based on the health and welfare concerns
resulting from COVID-19, in March Prometric closed all of its test
centers in the United States and Canada and began to slowly reopen
some of them at limited capacity in May. At this time, not all of
these Prometric test centers have reopened at full capacity.
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FINRA published the first FAQ on March 20, 2020, providing that
individuals whom were designated to function as principals under FINRA
Rule 1210.04 prior to February 2, 2020, would be given until May 31,
2020, to pass the appropriate principal qualification examination.\7\
On May 19, 2020, FINRA extended the relief to pass the appropriate
examination until June 30, 2020. Most recently, on June 29, 2020, FINRA
again extended the temporary relief providing that individuals who were
designated to function as principals under FINRA Rule 1210.04 prior to
May 4, 2020, would be given until August 31, 2020, to pass the
appropriate principal qualification examination.\8\
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\7\ FINRA Rule 1210.04 (Requirements for Registered Persons
Functioning as Principals for a Limited Period) allows a member firm
to designate certain individuals to function in a principal capacity
for 120 calendar days before having to pass an appropriate principal
qualification examination.
\8\ See supra note 5.
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FINRA published the second FAQ on May 15, 2020, providing that
individuals whom were designated to function as Operations
Professionals under FINRA Rule 1220(b)(3)(B) prior to February 2, 2020,
would be given until June 30, 2020, to pass the applicable
qualification examination.\9\ On June 29, 2020, FINRA extended the
temporary relief providing that individuals who were designated to
function as Operations Professionals under FINRA Rule 1220(b)(3)(B)
prior to May 4, 2020, would be given until August 31, 2020, to pass the
appropriate qualification examination.\10\
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\9\ Pursuant to FINRA Rule 1220(b)(3)(B) (Qualifications), a
person registering as an Operations Professional may function in
that capacity for 120 days before having to pass an applicable
qualification examination.
\10\ See supra note 5.
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FINRA continues to closely monitor the impact of the COVID-19
pandemic on member firms, investors, and other stakeholders. One of the
impacts of COVID-19 continues to be serious interruptions in the
administration of FINRA qualification examinations at Prometric test
centers and the limited ability of individuals to sit for the
examinations.\11\ Although Prometric has begun reopening test centers,
Prometric's safety practices mean that currently not all test centers
are open, some of the open test centers are at limited capacity, and
some open test centers are delivering only certain examinations that
have been deemed essential by the local government.\12\ Furthermore,
Prometric has had to close some reopened test centers due to incidents
of COVID-19 cases. The initial nationwide closure in March along with
the inability to fully reopen all Prometric test centers due to COVID-
19 have led to a significant backlog of individuals who are waiting to
sit for FINRA examinations.\13\
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\11\ Information about the continued impact of COVID-19 on
FINRA-administered examinations is available at https://www.finra.org/rules-guidance/key-topics/covid-19/exams.
\12\ Information from Prometric about its safety practices and
the impact of COVID-19 on it operations is available at https://www.prometric.com/corona-virus-update. See also supra note 11.
\13\ Although an online test delivery service has been launched
to help address the backlog, the General Securities Principal Exam
(Series 24) and the Operations Professional Exam (Series 99) are not
available online. See supra note 11.
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In addition, firms are continuing to experience operational
challenges with much of their personnel working from home due to
shelter-in-place orders, restrictions on businesses and social activity
imposed in various states, and adherence to other social distancing
guidelines consistent with the recommendations of public health
officials.\14\ As a result, firms continue to face potentially
significant disruptions to their normal business operations that may
include a limitation of in-person activities and staff absenteeism as a
result of the health and welfare concerns stemming from COVID-19. Such
potential disruptions may be further exacerbated and may even affect
client services if firms cannot continue to keep principal or
Operations Professional positions filled as they may have difficulty
finding other qualified individuals to transition into these roles or
may need to reallocate employee time and resources away from other
critical responsibilities at the firm.
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\14\ See, e.g., Centers for Disease Control and Prevention, How
to Protect Yourself & Others, https://www.cdc.gov/coronavirus/2019-ncov/prevent-getting-sick/prevention.html.
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These ongoing, extenuating circumstances make it impracticable for
member firms to ensure that the individuals whom they have designated
to function in a principal or Operations Professional capacity, as set
forth in FINRA Rules 1210.04 and 1220(b)(3)(B), are able to
successfully sit for and pass an appropriate qualification examination
within the 120-calendar day period required under the rules, or to find
other qualified staff to fill these positions. The ongoing
circumstances also require individuals to be exposed to the health
risks associated with taking an in-person examination, because the
General Securities Principal and Operations Professional examinations
are not available online. Therefore, FINRA is proposing to continue the
temporary relief provided through the FAQs by adopting Rules 1210.12
and 1220.07 to extend the 120-day period during which an individual can
function as a principal or Operations Professional before having to
pass an applicable qualification examination until December 31,
2020.\15\ The proposed rule change would apply only to those
individuals who were designated to function as a principal or
[[Page 55537]]
Operations Professional prior to September 3, 2020. Any individuals
designated to function as a principal or Operations Professional on or
after September 3, 2020, would need to successfully pass an appropriate
qualification examination within 120 days.\16\
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\15\ See supra note 3.
\16\ FINRA notes that the proposed rule change would impact
members that have elected to be treated as capital acquisition
brokers (``CABs''), given that the CAB rule set incorporates the
impacted FINRA rules by reference.
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FINRA believes that this proposed continued extension of time is
tailored to address the needs and constraints on a firm's operations
during the COVID-19 pandemic, without significantly compromising
critical investor protection. The proposed extension of time will help
to minimize the impact of COVID-19 on firms by providing continued
flexibility so that firms can ensure that principal and Operations
Professional positions remain filled. The potential risks from the
proposed extension of the 120-day period are mitigated by the firm's
continued requirement to supervise the activities of these designated
individuals and ensure compliance with federal securities laws and
regulations, as well as FINRA rules.
FINRA has filed the proposed rule change for immediate
effectiveness and has requested that the SEC waive the requirement that
the proposed rule change not become operative for 30 days after the
date of the filing, so FINRA can implement the proposed rule change
immediately.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\17\ which requires, among
other things, that FINRA rules must be designed to prevent fraudulent
and manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest.
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\17\ 15 U.S.C. 78o-3(b)(6).
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The proposed rule change is intended to minimize the impact of
COVID-19 on firm operations by further extending the 120-day period
certain individuals may function as a principal or Operations
Professional without having successfully passed an appropriate
qualification examination under FINRA Rules 1210.04 and 1220(b)(3)(B)
until December 31, 2020. The proposed rule change does not relieve
firms from maintaining, under the circumstances, a reasonably designed
system to supervise the activities of their associated persons to
achieve compliance with applicable securities laws and regulations, and
with applicable FINRA rules that directly serve investor protection. In
a time when faced with unique challenges resulting from the COVID-19
pandemic, FINRA believes that the proposed rule change is a sensible
accommodation that will continue to afford firms the ability to ensure
that critical positions are filled and client services maintained,
while continuing to serve and promote the protection of investors and
the public interest in this unique environment.
B. Self-Regulatory Organization's Statement on Burden on Competition
FINRA does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. The proposed rule change is
intended solely to provide temporary relief given the impacts of the
COVID-19 pandemic crisis.\18\ As a result of the temporary nature of
the proposed relief, an abbreviated economic impact assessment is
appropriate.
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\18\ See also Regulatory Notice 20-08 (March 2020).
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1. Economic Impact Assessment
(a) Regulatory Objective
FINRA is proposing this temporary relief to address the public
health risks and corresponding challenges during the COVID-19 pandemic.
Social distancing, quarantining and other similar requirements to
promote the health and safety of citizens have resulted in serious
interruptions in the administration of FINRA qualification examinations
at Prometric test centers and the limited ability of individuals to sit
for the examinations. In recognition of these extraordinary times, the
proposed rule change would temporarily extend the time that individuals
can function as a principal or Operations Professional without having
successfully passed an appropriate qualification examination.
(b) Economic Baseline
As described above, FINRA Rules 1210.04 and 1220(b)(3)(B) allow
firms to designate certain individuals to function in a principal or
Operations Professional capacity for 120 calendar days before having to
pass an appropriate principal qualification examination. As also
described above, FINRA has provided temporary extensions to the 120-day
period through FAQs, most recently in June 2020.
Currently, approximately 157,000 individuals are registered as
principals and approximately 36,000 are registered as Operations
Professionals. Additionally, FINRA estimates that approximately 6,000
individuals pass the General Securities Principal (Series 24) exam each
year.\19\
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\19\ Statistic is based on average examination volume from 2017-
2019.
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(c) Economic Impact
The proposed rule change is intended solely to provide a temporary
mechanism for firms to address the difficulty of ensuring that the
individuals whom they have designated to function in a principal or
Operations Professional capacity are able to successfully sit for and
pass an appropriate qualification examination within the 120-calendar
day period required under the rules while the COVID-19 pandemic
continues to pose health and safety risks. The proposed rule change is
necessary to temporarily rebalance the attendant benefits and costs of
the obligations under FINRA Rules 1210 and 1220 in response to the
impacts of the COVID-19 pandemic.
(1) Anticipated Benefits
The benefits of the proposed temporary rule change will mainly
accrue to those individuals who are operating as principals or
Operations Professionals without having yet passed the appropriate
qualification examinations, as permitted under FINRA rules, as these
individuals will have additional time to pass their qualification
examinations. The additional time provided to those individuals to pass
the appropriate examinations will likely prevent any disruption to
their employment associated with not meeting the examination
requirement. Further, neither the principal examination nor the
Operations Professional (Series 99) examination are available via
remote testing. Therefore, the proposed temporary rule change will also
allow those individuals to avoid any health risks (and resulting costs)
associated with taking an in-person examination.
Firms employing principals and Operations Professionals who have
not yet passed their qualifying examinations will also benefit from
continuity in their business operations. If those firms were required
to prevent those individuals from functioning as principals or
Operations Professionals, this would likely have spillover effects on
firm procedures and services. Relatedly, investors at those firms will
benefit from the resulting business continuity.
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(2) Anticipated Costs
As previously stated, the public health risks stemming from the
COVID-19 pandemic have increased the costs associated with sitting for
in-person qualification examinations. FINRA carefully considered the
implications of extending the 120-calendar day period provided in FINRA
Rules 1210.04 and 1220(b)(3)(B) and the potential for any downstream
effects on retail investors and believes that there are potential
negative spillover effects on investors if firms' processes are
interrupted, as noted above. Further, FINRA believes that any risk
associated with the extension of time is mitigated by the fact that the
extension is temporary and by members' ongoing obligations to supervise
the activities of associated persons.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \20\ and Rule 19b-
4(f)(6) \21\ thereunder.
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\20\ 15 U.S.C. 78s(b)(3)(A).
\21\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
FINRA has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) normally does
not become operative for 30 days after the date of filing. However,
pursuant to Rule 19b-4(f)(6)(iii), the Commission may designate a
shorter time if such action is consistent with the protection of
investors and the public interest. FINRA has asked the Commission to
waive the 30-day operative delay so that the proposed rule change may
become operative immediately upon filing. As noted above, FINRA stated
that the temporary proposed rule change will help minimize the impact
of the COVID-19 outbreak on FINRA member firms' operations by allowing
them to keep principal and Operations Professional positions filled and
minimizing disruptions to client services and other critical
responsibilities. The ongoing extenuating circumstances of the COVID-19
pandemic make it impractical to ensure that individuals designated to
act in these capacities are able to take and pass the appropriate
qualification examination during the 120-calendar day period required
under the rules. Shelter-in-place orders, quarantining, restrictions on
business and social activity and adherence to other social distancing
guidelines consistent with the recommendation of public officials
remain in place in various states.\22\ Further, FINRA states that
Prometric test centers have experienced serious interruptions in the
administration of FINRA qualification examinations, resulting in a
backlog of individuals waiting to take these examinations. Following a
nationwide closure of all test centers earlier in the year, some test
centers have re-opened, but are operating at limited capacity or are
only delivering certain examinations that have been deemed essential by
the local government.\23\ FINRA has launched an online test delivery
service to help address this backlog. However, the General Securities
Principal (Series 24) and the Operations Professional (Series 99)
Examinations are not available online. FINRA states that the temporary
proposed rule change will provide needed flexibility to ensure that
these positions remain filled and is tailored to address the
constraints on member firms' operations during the COVID-19 pandemic
without significantly compromising critical investor protection.\24\
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\22\ See supra note 14.
\23\ See supra notes 11 and 12. FINRA states that Prometric has
also had to close some reopened test centers due to incidents of
COVID-19 cases.
\24\ FINRA states that member firms remain subject to the
continued requirement to supervise the activities of these
designated individuals and ensure compliance with federal securities
laws and regulations, as well as FINRA rules.
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The Commission also notes that the proposal provides only temporary
relief from the requirement to pass certain qualification examinations
in within the 120-day period in the rules. As proposed, this relief
would extend the 120-day period that certain individuals can function
as principals or Operations Professionals through December 31, 2020.
FINRA also noted that if it requires temporary relief from the rule
requirements identified in this proposal beyond December 31, 2020, it
may submit a separate rule filing to extend the effectiveness of the
temporary relief under these rules.\25\ For these reasons, the
Commission believes that waiver of the 30-day operative delay is
consistent with the protection of investors and the public interest.
Accordingly, the Commission hereby waives the 30-day operative delay
and designates the proposal operative upon filing.\26\
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\25\ See supra note 3.
\26\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule change's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-FINRA-2020-026 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2020-026. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than
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those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, on business days
between the hours of 10:00 a.m. and 3:00 p.m., located at 100 F Street
NE, Washington, DC 20549. Copies of such filing also will be available
for inspection and copying at the principal office of FINRA. All
comments received will be posted without change.
Persons submitting comments are cautioned that we do not redact or
edit personal identifying information from comment submissions. You
should submit only information that you wish to make available
publicly. All submissions should refer to File Number SR-FINRA-2020-026
and should be submitted on or before September 29, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
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\27\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-19719 Filed 9-4-20; 8:45 am]
BILLING CODE 8011-01-P