FINRA Rule 1220 Explained: Registration Categories
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Are you seeking to understand FINRA Rule 1220? This guide provides a thorough overview of FINRA Rule 1220, which details the various registration categories for individuals involved in the investment banking or securities business.
By reading this page, you will gain insights into the different roles defined by FINRA, the specific qualifications and responsibilities for each category, and the conditions under which certain exemptions or waivers may be granted.
Whether you are new to the financial industry or a seasoned professional, this guide will assist you in navigating the intricacies of FINRA Rule 1220 and help you meet all necessary registration requirements.
InnReg is a global regulatory compliance and operations consulting team serving financial services companies since 2013. If you need assistance with compliance or fintech regulations, click here.
What Is FINRA Rule 1220?
FINRA Rule 1220 outlines the various registration categories for individuals associated with member firms in the investment banking or securities business. This section provides a detailed breakdown of each category, the required qualifications, and each role’s specific responsibilities.
Principal Registration Categories
A "principal" is anyone associated with a member firm who is actively managing the firm's investment banking or securities business. This includes:
Chief Executive Officers
Chief Financial Officers
Officers, partners, managers, and directors
Individuals with management-level responsibilities or decision-making authority
Below are the various categories of principal registration:
General Securities Principal (GSP)
Requirement: Every principal must register as a GSP unless their activities fall into other specific categories (e.g., Government Securities Principal, Investment Company & Variable Contracts Product Principal, Direct Participation Program Principal, or Private Securities Offerings Principal).
Qualifications: Existing General Securities Representatives can register as GSPs by passing the required exams unless exempted.
Specific Principal Categories
1. Compliance Officer
Requirement: Every person designated as a Chief Compliance Officer on Schedule A of Form BD must register with FINRA as a Compliance Officer.
Qualifications: Existing General Securities Representatives can register as Compliance Officers provided that prior to or concurrent with such registration, they pass the GSP qualification examination.
2. Financial and Operations Principal & Introducing Broker-Dealer Financial and Operations Principal (FINOP)
Requirement: Each member firm must designate either a FINOP or an Introducing Broker-Dealer Financial and Operations Principal, depending on the specific subsection of SEC rule 15c3-1 under which the firm operates.
Qualifications: Must pass either the Financial and Operations Principal qualification examination or the Introducing Broker-Dealer Financial and Operations Principal qualification examination.
3. Investment Banking Principal
Requirement: Principals supervising investment banking activities must register in this category.
Qualifications: Must be registered as an Investment Banking Representative and pass the GSP qualification examination.
4. Research Principal
Requirement: Principals approving research reports on equity securities or who supervise the overall conduct of a Research Analyst must register as Research Principals.
Qualifications: Must become registered as a Research Analyst and pass the GSP qualification examination or register as a Supervisory Analyst and pass the GSP qualification examination.
5. Securities Trader Principal
Requirement: Principals supervising securities trading activities must register in this category.
Qualifications: Must register as a Securities Trader and pass the GSP qualification examination.
6. Registered Options Principal
Requirement: Firms engaged in options transactions with the public must have at least one Registered Options Principal.
Qualifications: Must pass the Registered Options Principal qualification examination.
Exceptions: If the principal's options activities are limited solely to activities that may be supervised by a General Securities Sales Supervisor, they can register as a General Securities Sales Supervisor instead of registering as a Registered Options Principal.
7. Other Principal Categories
These include Government Securities Principal, General Securities Sales Supervisor, Investment Company and Variable Contracts Products Principal, Direct Participation Programs Principal, and Private Securities Offerings Principal.
Representative Registration Categories
A "representative" is any associated person engaged in the investment banking or securities business of a member firm, such as:
Supervision
Solicitation
Conduct of business in securities
Training of associated persons for the functions listed above
General Securities Representative (GSR)
Requirement: All representatives must register as GSRs unless their activities fall into specific categories.
Qualifications: Must pass the Securities Industry Essentials (SIE) exam and the General Securities Representative qualification examination.
Specific Representative Categories
1. Operations Professional
Requirement: Individuals with direct responsibility for covered functions, any person designated by senior management as a supervisor, manager, or other person responsible for approving or authorizing the work of other persons in direct furtherance of the covered functions, and individuals with authority to commit a Member’s capital (or commit a Member to any material contract or agreement) in regards to the covered functions must register as Operations Professionals.
Qualifications: Must pass the Securities Industry Essentials (SIE) exam and the Operations Professional qualification examination.
2. Securities Trader
Requirement: Individuals engaged in proprietary trading, the execution of transactions on an agency basis, or the direct supervision of these activities (concerning transactions in equity, preferred, or convertible debt securities affected otherwise than on a securities exchange) must register as Securities Traders. Additionally, each person is primarily responsible for designing, developing, or significantly modifying an algorithmic trading strategy relating to equity, preferred, or convertible debt securities, and the day-to-day supervisor of these activities must register as Securities Traders.
Qualifications: Must pass the Securities Industry Essentials (SIE) exam and the Securities Trader qualification examination.
3. Investment Banking Representative
Requirement: Individuals advising on or facilitating debt or equity securities offerings through a private placement or public offering or advising on or facilitating M&A activities must register in this category.
Qualifications: Must pass the Securities Industry Essentials (SIE) exam and the Investment Banking Representative qualification examination.
4. Research Analyst
Requirement: Individuals functioning as research analysts must register as Research Analysts.
Qualifications: Must pass the Securities Industry Essentials (SIE) exam and the Research Analyst qualification examinations.
5. Other Representative Categories
These include Investment Company and Variable Contracts Products Representative, Direct Participation Programs Representative, and Private Securities Offerings Representative.
Key Provisions and Requirements
Examination and Qualification Requirements
Individuals must pass the relevant qualification exams for their designated roles.
FINRA may grant waivers in exceptional cases based on experience and other qualifications.
Continuing Education and Maintaining Registration
All registered representatives and principals must complete continuing education requirements to maintain registration.
The Maintaining Qualifications Program allows individuals who are not registered with a Member Firm to maintain their qualifications for up to five years by completing annual continuing education.
Conduct and Confidentiality of Examinations
Strict rules govern the conduct and confidentiality of qualification exams.
Unauthorized use of study materials or receiving assistance during exams is prohibited and subject to disciplinary actions.
Insight from the Experts
"FINRA Rule 1220’s role-specific registration ensures that individuals in key positions have the necessary qualifications. This approach enhances accountability and oversight, promoting a structured and compliant environment within financial firms."
What Is the Purpose of Rule 1220?
FINRA Rule 1220 ensures that individuals performing specific functions within a securities firm are appropriately qualified and registered.
The primary goals of this rule are to maintain the integrity of the securities industry and protect investors by ensuring that all personnel engaged in key roles possess the necessary knowledge and skills.
Here’s why Rule 1220 is important:
Ensure Competency and Qualifications:
By requiring individuals to pass relevant qualification exams, Rule 1220 guarantees that those who manage, supervise, or engage in investment banking and securities business have the expertise needed to perform their duties responsibly and effectively.
Enhance Supervision and Accountability:
The rule clearly defines various principal and representative roles, ensuring that individuals in supervisory positions are adequately qualified. This helps establish a robust framework for oversight, reducing the risk of misconduct and enhancing the overall accountability within firms.
Protect Investors:
By mandating rigorous registration and qualification standards, Rule 1220 helps safeguard investors' interests. Qualified professionals are better equipped to provide sound advice, manage risks, and handle clients' investments with a high level of competence.
By implementing these measures, FINRA Rule 1220 plays a vital role in upholding high standards of professional conduct and ensuring the securities industry operates with integrity and transparency.
Example 1
General Securities Principal
Jane, a senior manager at an investment firm, is responsible for supervising the firm’s securities business. To comply with FINRA Rule 1220, she registers as a General Securities Principal and passes the required exams, ensuring she meets all regulatory requirements for her role.
Example 2
Compliance Officer
Michael, recently appointed Chief Compliance Officer at a brokerage firm, registers as a Compliance Officer under FINRA Rule 1220. Since he was previously registered as a General Securities Representative, he must pass the GSP qualification examination concurrently.
Note: The practical examples are fictional and created solely to enhance understanding of FINRA Rule 1210. They are not based on actual events or individuals and should not be interpreted as real-life scenarios.
FINRA Rule 1220 Violations and Cases
Understanding how FINRA Rule 1220 is applied in real-world situations can provide valuable insights into compliance and regulatory expectations. Below are examples of violations and cases that illustrate the consequences of non-compliance and the importance of adhering to the rule's requirements.
01
Unregistered Principal and Management Failures
A FINRA-registered broker-dealer since 2009 faced charges for violations of FINRA rules related explicitly to improper personnel registration under Rule 1220. From July 2019 to June 7, 2021, the firm allowed an individual to operate as a principal without the proper registration. Despite knowing that the individual was not registered, the firm permitted this person to act as the chief executive officer, make decisions regarding employee status and compensation, and actively engage in the firm's securities business.
In addition, the firm’s president/chief operating officer and chief compliance officer were registered principals, yet they failed to ensure proper registration for the individual functioning as a principal. These actions constituted violations of both FINRA Rule 1220, which mandates appropriate registration for principals, and FINRA Rule 2010, which requires members to observe high standards of commercial honor and equitable principles of trade.
As a result of these violations, the firm consented to a censure and a fine of $10,000. This case highlights the critical importance of adhering to FINRA registration requirements to maintain the integrity and compliance of financial operations.
02
Improper Registration of Supervisors
An online brokerage firm headquartered in New York, NY, and a FINRA member since 1986, was recently charged with failing to properly register two individuals who supervised securities trading activities in violation of FINRA Rules 1220(b)(4) and 2010. These individuals were tasked with overseeing customer trading activities, which included reviewing surveillance exceptions related to SEC Regulations NMS and SHO, as well as monitoring for potentially manipulative trading behaviors.
Despite the significance of their roles, the firm did not ensure these supervisors were registered with FINRA as Securities Traders, as required by the rules. This oversight contravened FINRA Rule 1220(b)(4), which mandates appropriate registration for those directly supervising trading activities. Moreover, this failure also violated FINRA Rule 2010, which obliges members to maintain high standards of commercial honor and just and equitable principles of trade.
The firm agreed to a censure and a $10,000 fine to settle these charges.
Frequently Asked Questions About FINRA's Registration Categories Rule
Understanding how FINRA Rule 1220 is applied in real-world situations can provide valuable insights into compliance and regulatory expectations. Below are examples of violations and cases that illustrate the consequences of non-compliance and the importance of adhering to the rule's requirements.
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