Quick Answer
The Administrator may deny, suspend, revoke, cancel, condition, restrict, bar, or censure a registration. Disciplinary actions need a public-interest finding plus a specific ground; cancellation needs neither. Due process requires prior notice, a hearing opportunity, and written findings, subject to a summary-order exception and a 90-day and a 1-year timing rule.
Now that you understand how agents register and maintain their registrations, the next critical area is how those registrations can be taken away. The USA gives the Administrator broad authority to act against agents, but with important safeguards.
What Can the Administrator Do to an Agent's Registration?
The Administrator may take several actions against an agent's registration:
- Deny an initial registration application
- Suspend an existing registration (temporary)
- Revoke an existing registration (disciplinary; more severe than a suspension)
- Cancel a registration (non-punitive)
- Condition or restrict a registration (limit specific activities)
- Bar or censure the agent
Disciplinary actions (deny, suspend, revoke, bar, censure, condition, restrict) require two conditions: (1) the action must be in the public interest AND (2) it must be based on one or more of the specified grounds below.
Cancellation is the exception. It is not a disciplinary action, and it requires neither a public-interest finding nor any of the grounds below. It has its own separate triggers, covered further down.
What Grounds Support Action Against an Agent?
| Ground | Details |
|---|---|
| Filing deficiencies | Application was incomplete, false, or misleading in a material respect |
| Willful violation | Willful violation of the USA, predecessor act, any rule/order, or federal securities laws (SA 1933, SEA 1934, IAA 1940, ICA 1940, CEA) |
| Criminal conviction | Conviction within the past 10 years of any misdemeanor involving a security or the securities business, or any felony (regardless of subject matter) |
| Injunction | Permanently or temporarily enjoined from engaging in the securities business |
| Prior order of this Administrator | Subject to an order of this state's Administrator denying, suspending, or revoking registration as a broker-dealer, agent, investment adviser, or investment adviser representative. Another regulator's order is not this ground |
| Other state/federal action | Subject to an adjudication or determination, after notice and opportunity for hearing, within the past 10 years, by another state's securities or commodities regulator or by a court, finding a willful violation |
| Dishonest or unethical conduct | Engaged in dishonest or unethical practices in the securities business |
| Insolvency | Insolvent (liabilities exceed assets, or cannot meet obligations as they mature). An agent is a registrant, so the agent's own insolvency IS a ground. The only proviso: a BD or IA firm may not be sanctioned merely because one of its partners, officers, or directors is insolvent |
| Foreign jurisdiction violation | Willful violation of a foreign securities/banking law, or subject to a foreign regulator's action within the past 5 years |
| Lack of qualifications | Not qualified based on training, experience, and knowledge. Two limits: the Administrator may not rest an order solely on lack of experience if training or knowledge otherwise qualifies the applicant, and an agent supervised by a registered BD need not meet a broker-dealer's own qualification standard |
| Failure to supervise | Failed to reasonably supervise agents or employees. This ground is conditioned on the registrant being a broker-dealer (or an investment adviser as to its representatives), so it does not reach an individual agent |
| Failure to pay filing fee | Denial only; Administrator must vacate the order when the deficiency is corrected |
Exam Tip: Gotchas
Both felonies (any type, including non-securities felonies) and securities-related misdemeanors within the past 10 years are grounds for action. A non-securities misdemeanor (e.g., a DUI) is NOT grounds for action. Insolvency is also a ground against an agent (an agent is a registrant); the only limit is that a BD or IA firm cannot be sanctioned solely because one of its partners, officers, or directors is insolvent.
What Due Process Does the Administrator Owe an Agent?
The Administrator cannot act without following proper procedures:
- Three things are required before a final order: prior notice (to the applicant or registrant, and to the employer or prospective employer if the registrant is an agent), an opportunity for hearing, and written findings of fact and conclusions of law. All three, not just the first two
- Exception: The Administrator may summarily postpone or suspend a registration pending final determination of a proceeding (effective immediately). The Administrator must promptly notify the registrant (and the employer, if the registrant is an agent) of the order and its reasons. A hearing is not automatic: the registrant must request one in writing, and the matter is then set down for hearing within 15 days of that request. If no hearing is requested and none is ordered, the summary order stays in effect until modified or vacated.
- The 90-day rule: The Administrator may not institute a suspension or revocation proceeding solely on the basis of a final judicial or administrative order the applicant disclosed before the registration's effective date, unless the proceeding is instituted within 90 days after registration. A stayed order, or one still subject to review or appeal, is not "final" for this purpose, and the rule does not apply to renewal registrations.
How Does Cancellation Differ from Revocation?
These two actions are fundamentally different:
| Action | Nature | Basis |
|---|---|---|
| Cancellation | Non-punitive | Agent no longer exists, has ceased doing business, is subject to an adjudication of mental incompetence or to the control of a committee, conservator, or guardian, or cannot be located after reasonable search |
| Revocation | Punitive (disciplinary) | Based on misconduct or violation of grounds listed above |
Exam Tip: Gotchas
- Cancellation is NOT discipline. An agent whose registration is cancelled because they moved out of the industry has no disciplinary record. Revocation is a disciplinary sanction that must be disclosed on Form U4.
How Does Withdrawal of Registration Work?
An agent may voluntarily withdraw from registration:
- Withdrawal is initiated by filing a withdrawal application
- Withdrawal becomes effective 30 days after receipt of the application, or a shorter period the Administrator determines, unless a revocation or suspension proceeding is pending when the application is filed, or a proceeding is instituted within 30 days after filing
- If a proceeding is pending or instituted, withdrawal becomes effective at the time and on the conditions the Administrator sets by order
- Even after withdrawal takes effect cleanly, the Administrator may institute a revocation or suspension proceeding within 1 year afterward, for willful violations only, and may enter the order as of the last date the registration was effective
Exam Tip: Gotchas
- Withdrawal is not a clean escape, even when it works. The classic scenario: the withdrawal takes effect with no proceeding pending, and six months later the Administrator discovers willful violations. The answer is that the Administrator can still act, because of the 1-year window. Note the two limits: it reaches willful violations only, and the order is backdated to the last date registration was effective.
What Should You Check on Exam Day?
- Disciplinary actions need both a public-interest finding and a listed ground; cancellation needs neither
- Insolvency is a ground against an agent directly; a BD or IA firm cannot be sanctioned merely because one partner, officer, or director is insolvent
- Failure to supervise reaches the BD (or the IA, as to its representatives), not an individual agent directly
- Due process requires prior notice, a hearing opportunity, and written findings, except for a summary order pending a proceeding
- The 90-day rule covers only a final judicial or administrative order the applicant disclosed before effectiveness, not any pre-registration fact
- Withdrawal takes 30 days to become effective, but the Administrator can still act on willful violations within 1 year afterward