On June 16, 2011, the Securities and Exchange Commission (“SEC”) approved a plan by the Financial Industry Regulatory Authority (“FINRA”) to require qualification exams and continuing education for the licensing of certain back-office professionals at brokerage firms. The new licensing requirement comes on the heels of massive financial scandals perpetrated by Bernie Madoff and Allen Stanford, both of whom orchestrated multi-billion dollar Ponzi schemes and caused billions of dollars in investor losses.
FINRA’s new licensing requirement will increase the amount of oversight in the securities industry, with the goal of avoiding or at least decreasing we represent investment fraud victims. The new rule will extend FINRA’s oversight to so-called “back-office” personnel, or operations professionals who have decision-making or supervisory authority. Traditionally, only front-line professionals such as brokers, traders, and investment bankers fell under the purview of FINRA registration requirements.
The new rule will require back-office professionals to take an examination that will test general knowledge of the securities industry, regulatory requirements, and ethics. Those who hold a Series 6, Series 7, or a supervisory license will be exempt from the examination, but they still will have to register separately as operations professionals. Continuing education requirements also will be imposed on those who pass the exam and obtain the requisite “back-office” license.
The effective date for the new FINRA rule will be announced within the next two to three weeks. Broker-dealers then will have 60 days from the effective date of the new rule to identify covered employees. Those identified employees who do not have a Series 6 or 7 or a supervisory license would have 12 months to pass the new qualifying exam.
While there is no way to shed the securities industry of all dishonest professionals, we view this additional FINRA oversight as a step in the right direction toward a goal of investor protection. At Dimond Kaplan & Rothstein, P.A., we represent investment fraud victims. We believe that many of these investors would not have suffered investment losses if securities regulators had done their job.