Associated Persons and the Registration Framework

The Series 24 starts most personnel questions by asking who is an associated person versus who is a registered person. Article I(rr) defines the wider FINRA jurisdictional net; the associated-person registration requirement then carves out who actually has to pass exams and register.

"Associated Person" - FINRA By-Laws Article I, Paragraph (rr)

The Article I(rr) definition is broad. An associated person of a member includes:

• Every sole proprietor, partner, officer, director, or branch manager of any FINRA member
• Every natural person engaged in the investment banking or securities business who directly or indirectly controls or is controlled by the member, whether or not such person is registered or exempt from registration
• Every employee of the member, except for clerical/ministerial-only personnel covered by the registration-exemptions framework

A few characteristics of the definition the exam tests:

• The reach extends to anyone with policy-making authority at the firm, even if they never speak to a customer or touch a security
• Includes part-time employees, statutory employees, and individuals working at affiliates under common control
• "Associated person" status pulls the individual into FINRA's jurisdiction, fingerprinting requirements, and statutory-disqualification screening
• The FINRA "associated person of a member" net is broader than the parallel Exchange Act "person associated with a broker or dealer" net in the way the exam tests: it also reaches any natural person who is registered or who has applied to register, even before the application is approved

Exam Tip: Gotchas

• "Associated person" is broader than "registered person". A human-resources officer with only non-securities employment duties can be associated without needing registration. A chief financial officer (CFO) is different: the principal-registration rule expressly includes that role. Lack of customer contact does not exempt a CFO from principal-registration requirements.
• Common-control affiliates pull individuals into the AP definition. An employee at a sister entity under the same parent as the B/D can still be an associated person, even though they technically work for a non-B/D affiliate.

Two-Tier Test for Registration

After confirming that someone is an associated person, the second step asks whether the person also has to register:

A person engaged in the investment banking or securities business of the firm must:

• Pass the Securities Industry Essentials (SIE) exam plus an appropriate representative-level qualification exam
• Be registered in at least one principal-supervised category under the registration-categories framework to perform supervisory functions

Think of it this way: Article I(rr) decides who FINRA can discipline. The associated-person registration requirement decides who has to take exams. A back-office accountant doing internal-only audit work is associated (FINRA jurisdiction applies) but not registered (no securities-business duties). A sales representative doing customer trades is both.

Exam Tip: Gotchas

• The test runs in two steps, not one. A question that asks "must this person register?" is really two questions: is the person an associated person, and is the person engaged in the securities business? Failing either test means no registration is required.

Two-Principal Minimum

Every FINRA member, other than a member with only one associated person, must have at least two officers or partners registered as General Securities Principals (or two registered in a principal category that matches the member's scope of business):

• A firm whose business is limited to mutual funds and variable products may use Investment Company and Variable Contracts Products Principals (Series 26) instead of Series 24
• A firm conducting an options business needs at least one Registered Options Principal (Series 4) in addition to the two-principal minimum
• The two-principal rule guarantees continuity of supervision, even if one principal is unavailable
• The count that matters is associated persons, not principals or full-time staff: a sole proprietor who hires even a part-time registered representative no longer has only one associated person
• FINRA may waive the minimum where the facts indicate conclusively that only one associated person should be required to register as a principal

Permissive Registration

A firm may register an associated person who is not currently engaged in a covered function, including individuals at a foreign securities affiliate. Permissive registration:

• Allows the firm to keep the person's qualifications active without a current securities role
• Subjects the permissively-registered person to all FINRA rules that apply to registered persons, including continuing education
• Is commonly used for executives, technology staff, or affiliated-foreign-firm personnel who may rotate into a covered function later

Exam Tip: Gotchas

• Permissive registrations carry real obligations. Regulatory Element requirements apply to permissive registrants. For a first registration, the standard first deadline is December 31 of the following calendar year, followed by annual completions while registered.

What Should You Check on Exam Day?

• Can you state the two-step test: is the person an associated person under Article I(rr), and does the person engage in the securities business?
• Do you know a policy-making officer with no customer contact is still an associated person, even without a qualifying exam?
• Can you state the two-principal minimum, and name the exceptions for mutual-fund-only firms and firms with an options business?
• Do you know a permissively-registered associated person is still subject to the annual Regulatory Element continuing education requirement?