[Federal Register Volume 85, Number 241 (Tuesday, December 15, 2020)]
[Notices]
[Pages 81258-81261]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-27481]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-90617; File No. SR-FINRA-2020-043]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Extend the Effective Date of the Temporary
Amendments Set Forth in SR-FINRA-2020-026 From December 31, 2020 to
April 30, 2021
December 9, 2020.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on December 4, 2020, the Financial Industry
Regulatory Authority, Inc. (``FINRA'') filed with the Securities and
Exchange Commission (``SEC'' or ``Commission'') the proposed rule
change as described in Items I and II below, which Items have been
prepared by FINRA. FINRA has designated the proposed rule change as
constituting a ``non-controversial'' rule change under paragraph (f)(6)
of Rule 19b-4 under the Act,\3\ which renders the proposal effective
upon receipt of this filing by the Commission. 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.
\3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to extend the effective date of the temporary
amendments set forth in SR-FINRA-2020-026 from December 31, 2020, to
April 30, 2021.\4\ Due to the impacts of COVID-19 on the administration
of FINRA qualification examinations at test centers, SR-FINRA-2020-026
extended 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.
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\4\ If FINRA seeks to provide additional temporary relief from
the rule requirements identified in this proposed rule change beyond
April 30, 2021, 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.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, FINRA 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. FINRA 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.\5\ Two of these FAQs \6\
provided 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.\7\
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\5\ 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.
\6\ See https://www.finra.org/rules-guidance/key-topics/covid-19/faq#qe.
\7\ 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. Currently, Prometric has
resumed testing in many of its United States and Canada test
centers, at either full or limited occupancy, based on local and
government mandates.
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FINRA published the first FAQ on March 20, 2020, providing that
individuals who were designated to function as principals under FINRA
Rule 1210.04 prior to February 2, 2020,
[[Page 81259]]
would be given until May 31, 2020, to pass the appropriate principal
qualification examination.\8\ On May 19, 2020, FINRA extended the
relief to pass the appropriate examination until June 30, 2020. 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.
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\8\ 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.
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FINRA published the second FAQ on May 15, 2020, providing that
individuals who 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.
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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.
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On August 28, 2020, FINRA filed with the Commission a proposed rule
change for immediate effectiveness to extend the temporary relief
provided via the two FAQs by adopting: (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).\10\
Pursuant to this rule filing, individuals who were designated prior to
September 3, 2020, to function as a principal under FINRA Rule 1210.04
or an Operations Professional under FINRA Rule 1220(b)(3)(B) have until
December 31, 2020, to pass the appropriate qualification examination.
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\10\ See Securities Exchange Act Release No. 89732 (September 1,
2020), 85 FR 55535 (September 8, 2020) (Notice of Filing and
Immediate Effectiveness of File No. SR-FINRA-2020-026).
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The COVID-19 conditions necessitating the extension of relief
provided in the FAQs and SR-FINRA-2020-026 persist and in fact appear
to be worsening.\11\ 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.\12\ Although Prometric has
been reopening its 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.\13\ 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 continued backlog of
individuals who are waiting to sit for FINRA examinations that are not
available online, including the General Securities Principal Exam
(Series 24) and the Operations Professional Exam (Series 99).\14\
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\11\ See, e.g., Meryl Kornfield, Jacqueline Dupree, Marisa Lati,
Paulina Villegas, Siobhan O'Grady and Hamza Shaban, New daily
coronavirus cases in U.S. rise to 145,000, latest all-time high,
Wash. Post, November 11, 2020, https://www.washingtonpost.com/nation/2020/11/11/coronavirus-covid-live-updates-us/.
\12\ 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.
\13\ 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 12.
\14\ Earlier this year, an online test delivery service was
launched for candidates seeking to take qualification examinations
remotely. Only certain qualification examinations are available
online. See supra note 12. FINRA is considering making additional
qualification examinations available remotely on a limited basis.
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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.\15\ 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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\15\ 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 who 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 extend the
effective date of the temporary relief provided through SR-FINRA-2020-
026 until April 30, 2021. The proposed rule change would apply only to
those individuals who have been designated to function as a principal
or Operations Professional prior to January 1, 2021. Any individuals
designated to function as a principal or Operations Professional on or
after January 1, 2021, would need to successfully pass an appropriate
qualification examination within 120 days.\16\
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\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
[[Page 81260]]
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 April 30, 2021. 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 temporary proposed rule change will
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act. As set forth in
SR-FINRA-2020-026, the proposed rule change is intended solely to
extend temporary relief necessitated by the continued impacts of the
COVID-19 pandemic and the related health and safety risks of conducting
in-person activities. FINRA believes that 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 that would otherwise result if the
temporary amendments were to expire on December 31, 2020.
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 \18\ and Rule 19b-
4(f)(6) thereunder.\19\
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\18\ 15 U.S.C. 78s(b)(3)(A).
\19\ 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 proposed extension of time 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. FINRA further stated that 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. FINRA also stated that
shelter-in-place orders, quarantining, restrictions on business and
social activity and adherence to social distancing guidelines
consistent with the recommendations of public officials remain in place
in various states.\20\ FINRA also observed that, 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.\21\ FINRA has launched an online test delivery service to
help address this backlog. However, FINRA states that the General
Securities Principal (Series 24) and the Operations Profession (Series
99) Examinations are not available online.\22\ FINRA also states that
the 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.\23\
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\20\ See supra note 15.
\21\ See supra notes 12 and 13. FINRA states that Prometric has
also had to close some reopened test centers due to incidents of
COVID-19 cases.
\22\ See supra note 14. FINRA is considering making additional
qualification examinations available remotely on a limited basis.
\23\ 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 an
extension to temporary relief from the requirement to pass certain
qualification examinations 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 April 30, 2021. FINRA also noted that if it requires a further
extension of temporary relief from the rule requirements identified in
this proposal beyond April 30, 2021, it may submit a separate rule
filing to extend the effectiveness of the temporary relief under these
rules.\24\ 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.\25\ Accordingly, the Commission
hereby waives the 30-day operative delay and designates the proposal
operative upon filing.\26\
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\24\ See supra note 4.
\25\ As noted above by FINRA, this proposal is an extension of
temporary relief provided in a prior filing where FINRA also
requested and the Commission granted a waiver of the 30-day
operative delay. See supra note 10, 85 FR at 55538.
\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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[[Page 81261]]
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-2020-043 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-2020-043. 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 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, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. 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-2020-043 and should be submitted
on or before January 5, 2021.
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. 2020-27481 Filed 12-14-20; 8:45 am]
BILLING CODE 8011-01-P