2024 NASAA Conference: Regulatory Initiatives and Updates
Remote supervisory locations, Form U4 revisions and more
By Bill Reilly
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NASAA Conference Highlights
During the September 2024 NASAA conference it was evident that NASAA members continued to work with industry groups and other regulators to advance regulation of the securities markets and their core mission of investor protection. New initiatives were discussed and updates were provided on ongoing matters from remote supervisory locations and Form U4 revisions to continuing education.
Remote Supervisory Locations – Rule 3110.19
One of the areas discussed related to the timely topic of Remote Supervisory Locations (RSLs) adopted by FINRA in Rule 3110.19 and effective June 1, 2024. In general, to use the RSL designation, a firm and the associated person at each location must meet specified eligibility requirements and conditions, including conducting and documenting a risk assessment, and providing a list of RSLs to FINRA on a periodic basis.
After FINRA adopted the changes, some states requiring branch office registrations or notice filings recognized the RSL designation. States that recognize the RSL designation, as of September 10, 2024, are listed on the SRO/Jurisdiction and Setting Schedule -Web CRD. Firms should conduct a review of the source document, in this instance branch office requirements and the Exam Validity Extension Program (EVEP) program requirements, for individual states, before proceeding.
For those states that have not accepted the RSL designation, but in which branch office registrations or notice filings are required, firms should review the individual state requirements to determine the need to register the location with a state.
Form U4 Revisions
NASAA members announced that state securities regulators and FINRA are in the process of substantial revision of the Form U4. Once the revisions are completed, the working group will revise the Forms U5 and U6. Comments should be provided as soon as possible to the NASAA CRD/IARD Steering or CRD/IARD Forms and Process Committees.
Client Trusted Contacts
The use of client trusted contacts was commenced based upon a NASSAA model rule approved by the membership in 2016. FINRA followed with trusted contact provisions in Rule 2165 in 2018. In order to gauge the use of trusted contacts, states have sent inquiry letters to firms to determine the presence of written supervisory policies and procedures, and rates of obtaining trusted contact documents from clients.
Investment Adviser Representative Continuing Education (IARCE)
As of September 2024, 18 states have adopted the Investment Adviser Representative Continuing Education (IARCE) requirements. Under the program, Investment Adviser Representatives (IARs) must complete 12 hours of continuing education training annually. Failure to complete the program requirements, after a two-year period, will result in the suspension of the ability to renew an IAR registration with a state adopting the regulation.
In 2023, the NASAA membership announced the creation of the Exam Validity Extension Program (EVEP), which provides an opportunity for registered representatives and IARs, upon termination from a firm, to extend their NASAA qualification exams (Series 63, 65 and 66) for a period up to five years by opting into the program(s), paying an annual fee and maintaining certain continuing education requirements. Firms can determine which states adopted the provisions in the SRO/Jurisdiction and Setting Schedule -Web CRD.
Dishonest or Unethical Practices /Failure to Pay Arbitration Award
In May 2022, the NASAA membership adopted a model rule, which states are adopting, that would make it a dishonest or unethical practice for registrants to fail to pay any investment-related, customer-initiated arbitration award or judgment, fine, civil penalty, order of restitution, order of disgorgement, or similar monetary payment obligation imposed by any state securities regulator, the SEC, or FINRA. Registrants may also avoid licensing actions under the model rule by entering into and staying current with alternative payment arrangements related to obligations covered by the model rule.
SEC Marketing Rule
Some states have already adopted, by reference, the 2023 SEC Marketing Rule; others are considering doing the same. NASAA Model Regulations and Rules are open to consideration for adoption by each state. However, they must be adopted by a state in order to be enforced by the adopting state.
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Bill Reilly
Bill Reilly is a respected financial services professional with over 35 years of consulting and regulatory experience. Bill leverages his industry expertise and relationships with state and federal regulators and self-regulatory organizations to guide broker-dealers, investment advisers and law firms providing legal representation through both proactive and reactive regulatory processes and compliance issues.
