FINRA Requirements for Broker-Dealers

To become a broker-dealer and operate legally in the U.S., firms must meet specific requirements set by FINRA (Financial Industry Regulatory Authority), which regulates member brokerage firms and exchange markets. Here’s a detailed overview of the key FINRA requirements for broker-dealers:

Key FINRA Requirements for Broker-Dealers:

1. Membership Application Process:

   • New Member Application (NMA): Submit an NMA through the FINRA Gateway system. This application provides detailed information about the firm, its business plan, key personnel, and compliance systems.
   • Form BD: Complete and file Form BD (Uniform Application for Broker-Dealer Registration), which includes information about the firm’s structure, ownership, and business operations.

2. Financial and Net Capital Requirements:

   • Broker-dealers must meet specific net capital requirements, which vary depending on the type of business conducted. For example, firms that hold customer funds have higher capital requirements than those that do not.
   • The firm must maintain minimum net capital at all times, and it must file monthly or quarterly financial reports with FINRA, demonstrating compliance with these requirements.

3. Designated Supervisory and Compliance Personnel:

   • Appoint key supervisory and compliance personnel, such as a Chief Compliance Officer (CCO) and designated principals, who are responsible for overseeing the firm’s compliance with securities laws and regulations.
   • Supervisory personnel must pass relevant FINRA exams, such as the Series 24 (General Securities Principal) exam.

4. Registration and Examination of Associated Persons:

   • All associated persons of the firm, including representatives and principals, must be registered with FINRA.
   • Required exams include:
     • Series 7: For general securities representatives.
     • Series 24: For general securities principals.
     • Series 63, 65, or 66: For state law requirements.
   • Associated persons must meet FINRA’s standards for competence, ethics, and professional qualifications.

5. Written Supervisory Procedures (WSP):

   • Develop and maintain comprehensive Written Supervisory Procedures (WSP) that outline how the firm will supervise its business activities and ensure compliance with applicable laws and regulations.
   • WSP should cover areas such as sales practices, customer communications, trade monitoring, and reporting requirements.

6. Anti-Money Laundering (AML) Program:

   • Implement an AML program that includes policies and procedures to detect and prevent money laundering activities. This program must be approved by senior management and reviewed annually.
   • Designate an AML compliance officer and conduct regular training for staff.

7. Cybersecurity and Data Protection:

   • Establish robust cybersecurity measures to protect customer data and the firm’s systems from cyber threats. This includes developing an information security program that addresses risk management, incident response, and data privacy.

8. Customer Protection Rule:

   • Comply with the SEC’s Customer Protection Rule (Rule 15c3-3), which requires broker-dealers that hold customer funds and securities to maintain a reserve account and properly segregate customer assets from the firm’s assets.

9. Business Continuity Plan (BCP):

   • Develop and maintain a BCP that ensures the firm can continue critical operations during a disruption. The plan should address emergency contact information, data backup, and recovery procedures.

10. Reporting and Recordkeeping:

    • Maintain accurate and complete records of all business activities, including customer transactions, communications, and financial statements.
    • Submit required reports to FINRA, such as FOCUS reports (Financial and Operational Combined Uniform Single Report), and comply with regulatory filing deadlines.

11. Continuing Education (CE) Requirements:

    • All registered persons must participate in FINRA’s CE program, which includes Firm Element (ongoing training specific to the firm’s business) and Regulatory Element (periodic training on regulatory requirements).

12. Disclosure of Regulatory Actions:

    • Broker-dealers must disclose any disciplinary actions, regulatory sanctions, or customer complaints involving the firm or its associated persons.

13. Annual Assessment and Fees:

    • Pay annual fees and assessments to FINRA, which are based on the firm’s business activities, number of registered representatives, and other factors.

By fulfilling these FINRA requirements, broker-dealers can ensure compliance and maintain their registration, allowing