By Robert Conca, Partner, and Andrew Steiger, Law Clerk of Shustak Reynolds & Partners, P.C. posted on Thursday, February 3, 2022.

Robert D. Conca

Partner

Location: San Diego, California
Phone: (619) 696-9500 (Ext. 121)
Email: [email protected]

The Financial Industry Regulatory Authority (“FINRA”) recently announced important changes to its rules which deal with continuing education for registered persons.[i] Updates to FINRA Rules 1210[ii] and 1240[iii] will create the new Maintaining Qualifications Program (“MQP”), and otherwise increase the flexibility of registered persons to return to their profession after a break. Some of the changes will go into effect as soon as March 15, 2022, while the rest will become effective on January 1, 2023.

Generally, the rules update aims to accomplish three goals:[iv]

1. Provide individuals who terminate their registration with the option to maintain their qualification to reregister for up to five (5) years by completing certain annual continuing education courses under the MQP.
2. Require that each registered person complete the “Regulatory Element” of their continuing education every year by December 31 for each registration category they hold.
3. Extend the “Firm Element” of the continuing education requirements to all registered persons and allow more of the preexisting firm trainings to satisfy an individual’s CE Firm Element.

Changes to Regulatory Element

The FINRA continuing education requirements for registered persons are split into a Regulatory Element and a Firm Element. FINRA develops tailored Regulatory Element content specific to each registration category, which will become available no later than October 1 of the year before it is due.[v] Registered persons will complete annually the Regulatory Element content for each representative or principal registration category they hold.[vi] Individuals who do not complete their initial Regulatory Element by the deadline will be automatically designated as CE inactive by FINRA.

Passing the applicable qualification exam or receiving a waiver for such examination under Rule 1210.03 also counts for the Regulatory Element requirement for that year.[vii] The Regulatory Element due date then follows the first full year as a registered person.[viii]

There is one major change to the Regulatory Element. It was previously due every three years, and now will be due annually. This content focuses on the regulatory requirements and industry standards pertaining to each registration category. Following January 1, 2023, all individuals registered with FINRA will instead need to complete Regulatory Element content by the end of each year they remain registered.

Changes to Firm Element

Each firm develops its own Firm Element content specific to the compliance and regulatory environment of its services and products. When developing the content each year, firms must consider their size, structure, scope of business and regulatory concerns.[ix] Even if the services/ products have not changed from the previous year, the circumstances surrounding them may nevertheless warrant new content.

There are two major changes to the Firm Element requirements to understand. First, beginning January 1, 2023, the annual Firm Element CE requirement will apply to all registered persons.[x] Second, the new rule expressly extends the definition of the Firm Element to include annual compliance meetings and anti-money laundering (“AML”) compliance program trainings. Completing either will earn credits towards satisfying an individual’s annual Firm Element requirement.

Maintaining Qualifications Program

Individuals may terminate their registration category voluntarily, such as for a break from practice to start a family. Previously, a registered person could reregister without sitting again for an examination, but only within two years after the U5 form submission terminating their registration.[xi] Under the updated rules, individuals will be given a new pathway to maintain their qualification to reregister for up to five years.

MQP Eligibility Conditions

If the registered person completes the annual continuing education courses developed and provided through the MQP, it will extend their grace period for reregistering to the five years following the termination of their representative or principal registration category. Eligibility for the MQP is predicated on the following conditions:

• Individuals must have been registered in the terminated registration category for which they elect to maintain their qualification under the MQP for at least one year immediately prior to the termination of that category and must not have been subject to a statutory disqualification during that one-year registration period.[xii]
• Individuals must make their election to participate in the MQP at the time of their Form U5 submission or within two years from the termination of a registration category.[xiii]
• Individuals must not have been subject to a statutory disqualification between the date of their Form U5 submission and the date they make their election to participate in the MQP.[xiv]
• Individuals must not have been CE inactive for two consecutive years at the time they make their election to participate in the MQP.[xv]

MQP Participation Conditions

While the MQP is designed to give additional flexibility to registered and qualified individuals, participation in the program has constraints of its own. MQP participants may only continue with the program if they meet the following participation conditions:

• MQP participants must complete annually by December 31 all prescribed CE content.[xvi]
• MQP participants will have a maximum of five years following the termination of a registration category in which to reregister without having to requalify by examination or having to obtain an examination waiver.[xvii]
• MQP participants who become subject to a statutory disqualification while they are participating in the MQP may not continue in the MQP.[xviii]
• MQP participants who become CE inactive for two consecutive years while they are participating in the MQP may not continue in the MQP.[xix]

Upcoming Deadline

The new MQP rules also include a look-back provision that extends the MQP option to persons who have terminated their registration category within the previous two years. Individuals who had been registered as a representative or principal within two years prior to March 15, 2022, and who wish to participate in the MQP to extend their eligibility to reregister, must indicate as such on their FINRA Financial Professional Gateway (“FinPro”) before March 15, 2022. Otherwise, the previous two-year eligibility window will continue to apply.

If you have questions about your eligibility to participate in the MQP, or about other compliance matters, we are here to help.
Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes.
We represent many broker-dealers, registered representatives, investment advisors, investors, and businesses.
Attorney Robert D. Conca can be reached in the firm’s San Diego office at (619) 696-9500.

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