Reporting Requirements to FINRA

A single reportable event can trigger more than one duty at once: reporting that it happened, filing the underlying paperwork, and, on a fixed quarterly schedule, rolling it into a statistics filing.

What Events Must a Firm Report Within 30 Calendar Days?

• FINRA's event-reporting rule requires a member firm to promptly report specified events to FINRA, and in any case not later than 30 calendar days after the firm knows or should have known the event exists.
• Do not confuse this clock with the 30-day Form U4 amendment clock covered later in this unit. They run on different triggers and satisfy different duties, and one event can start both.
• FINRA's own findings and actions are excepted. For the violation finding, the regulatory-proceeding event, and the denial, expulsion, suspension or bar event, a firm does not report a finding or action by FINRA itself. It reports the other regulators.
• Reportable events include:
  • a finding that the firm or an associated person violated a securities-, insurance-, commodities-, financial-, or investment-related law, rule, regulation, or standard of conduct. The finding can come from any domestic or foreign regulatory body, from a self-regulatory organization, or from a business or professional organization. It does not have to come from a government regulator;
  • a written customer complaint alleging theft, misappropriation of funds or securities, or forgery. Customer is wider here than in the complaint-records rule. It reaches any person, other than a broker or dealer, the firm only sought to do securities business with, not just an existing customer;
  • being named a defendant or respondent in a regulatory proceeding;
  • being denied registration, expelled, enjoined, directed to cease and desist, suspended, barred from associating with a member, denied membership or continued membership in a self-regulatory organization, or otherwise disciplined;
  • being indicted, convicted of, or pleading guilty or no contest to a felony or certain misdemeanors; and
  • being subject to a statutory disqualification, or selling a financial instrument, giving investment advice, or financing those activities, with someone who is subject to one. That dealing-with-a-disqualified- person branch does not reach dealings with a member, or an associated person, already approved to be one, or otherwise permitted to be one under FINRA rules and the federal securities laws.
• The same 30-calendar-day clock applies separately when the firm reaches its own conclusion, apart from any outside finding, that it or an associated person violated a covered law, rule, or standard.
• That own-conclusion report is narrower than it sounds. FINRA expects it only for conduct with widespread or potential widespread impact on the firm, its customers, or the markets, or conduct that comes from a material failure of the firm's systems, policies, or practices involving numerous customers, multiple errors, or significant dollar amounts.
• For an associated person the test is widespread or potential widespread impact, a significant monetary result, or multiple instances of the conduct. If the firm disciplines that person and reports the discipline, it does not also report the same event as its own conclusion.
• The reporting duty runs in one direction only: each associated person must promptly report a specified event to the firm. The firm, not the person, reports it to FINRA.

Exam Tip: Gotchas

• Keep the direction straight: the associated person's duty is to tell the firm. The firm's duty is to tell FINRA. A question describing a person who reports "directly to FINRA" is describing the wrong party.
• The dealing-with-a-disqualified-person carve-out has two routes out, not one. Approval is the obvious route. Being otherwise permitted under FINRA rules and the federal securities laws is the second.

What Counts as a "Finding", and How Many Reports Does One Event Need?

• The violation event turns on the word found, and not every adverse outcome counts. A formal adverse final action does, including a consent decree in which the respondent neither admits nor denies the findings, and a settlement order or a letter of acceptance, waiver and consent. A formal finding counts even if it is being appealed.
• Informal resolutions do not count. The rule names an informal agreement, a deficiency letter, an examination report, a memorandum of understanding, a cautionary action, and an admonishment.
• That list is open, not closed. The rule ends it with "and similar informal resolutions of matters", so a resolution of the same kind under another name is still not a finding.
• One more exclusion carries a figure. A violation of a self-regulatory organization rule that the regulator has designated minor under a plan the SEC approved is not a "finding", if the fine is $2,500 or less and the sanctioned person does not contest it.
• Report one event under one heading, the most appropriate one. Do not file the same event twice under two different headings.
• Related events from the same facts are a different matter, and each one is separately reportable. Being named a respondent in a self-regulatory organization's proceeding is one report. A later finding that the firm violated that organization's rules is a second report.
• The reporting duties survive the person's departure. A firm reports an event about a former associated person if the event happened while the person was associated with the firm. The firm need not report it if its own records and the central registration system cannot establish that the person was ever associated with it.

Exam Tip: Gotchas

• The $2,500 in the minor-violation exclusion is not the $2,500 in the internal-discipline event further down this lesson. One decides whether a regulator's action is a "finding" at all. The other decides whether a firm's own discipline of its person is reportable.

Which Reportable Event Is About Status Rather Than Conduct?

• One event is easy to miss because it does not describe anything the firm or person did. A firm must report that it, or an associated person, holds one of these roles at a firm a regulator has acted against.
• The roles: director, controlling stockholder, partner, officer, or sole proprietor of, or otherwise associated with, a broker, dealer, investment company, investment adviser, underwriter, or insurance company.
• The action: that firm was suspended, expelled, or denied or had its registration revoked by any domestic or foreign regulatory body, jurisdiction, or organization.
• The same report is due if the firm or person is associated in that capacity with a bank, trust company, or other financial institution that was convicted of, or pleaded no contest to, a felony or misdemeanor.

When Must a Firm File the Underlying Documents, Beyond Reporting the Event?

• A separate duty requires the firm to promptly file copies of certain documents with FINRA, on top of reporting the event itself.
• The firm does not have to file them separately where FINRA's registration and disclosure staff already asked for the same documents, and the firm produced them to that staff within 30 days of the request.
• That relief has a limit. It does not override another FINRA rule or policy that requires the same documents sooner than 30 days. Where a shorter deadline applies, the shorter deadline controls.
• The documents are:
  • an indictment, information, or other criminal complaint, or a plea agreement, for conduct that falls under the felony-or-misdemeanor reporting event above;
  • a securities- or commodities-related, or financial-related insurance, private civil-litigation complaint naming the firm;
  • a securities- or commodities-related, or financial-related insurance, arbitration claim against the firm, filed outside FINRA's own forum; and
  • criminal papers, a plea agreement, a private civil complaint, or an arbitration claim against an associated person, wherever Form U4's disciplinary-disclosure question reaches that filing, regardless of any dollar threshold Form U4 sets for its own purposes, and again unless the arbitration claim was filed in FINRA's own forum.

Exam Tip: Gotchas

• Reporting that something happened and filing the paperwork behind it are two different duties. A firm that reports an event under the 30-day rule has not automatically satisfied the separate duty to file the underlying documents, and satisfying one does not excuse the other.

What Dollar Thresholds Apply to a Civil Litigation or Arbitration Claim?

• A reportable civil-litigation or arbitration event has three branches, and they do not all share the same qualifier:
  • being a defendant or respondent in securities- or commodities-related civil litigation or arbitration;
  • being a defendant or respondent in financial-related insurance civil litigation or arbitration; or
  • being the subject of a claim for damages brought by a customer, broker, or dealer, that relates to financial services or a financial transaction. This third branch is wider than the other two: it is not limited to securities, commodities, or insurance matters.
• Any of the three becomes reportable once it is disposed of by judgment, award, or settlement.
• The amount to compare against the threshold includes attorneys fees and interest, not the bare principal. Where liability is joint and several, the parties aggregate the amount and each reports it as if separately liable for the whole.
• General threshold: an amount exceeding $15,000.
• Narrower threshold: when the member firm itself is the defendant, respondent, or subject of the claim, the amount must exceed $25,000 before the event is reportable.

Exam Tip: Gotchas

• $15,000 and $25,000 are not interchangeable. $15,000 is the general disposition threshold; $25,000 applies specifically when the member firm is the one being sued or claimed against.

What Triggers a Report of a Firm's Own Discipline of an Associated Person?

• A firm must report when it disciplines an associated person. Four kinds of discipline are named, and the dollar test reaches only two of them.
• No dollar test: a suspension, or a termination. Either one is reportable whatever it is worth.
• Dollar test of more than $2,500: withholding compensation or other remuneration, or imposing a fine. Below that figure, neither is reportable on its own.
• No dollar test: any other discipline that would significantly limit the person's activities, on a temporary or a permanent basis.

When Are Quarterly Complaint Statistics Due?

• A firm must report statistical and summary information on written customer complaints to FINRA.
• Deadline: the 15th day of the month following the calendar quarter in which the firm received the complaints.
• A theft, misappropriation, or forgery complaint reported as a 30-day event also goes into this quarterly filing. The 30-day report does not take its place.
• The scope is wider for an existing customer than for a prospect. For someone the firm has engaged with, any written grievance about the firm or an associated person goes in.
• For someone the firm only sought to engage, only a securities-related written grievance goes in, plus any complaint that is itself reportable as a 30-day theft, misappropriation, or forgery event.

Exam Tip: Gotchas

• This deadline is a fixed calendar date, the 15th day of the month following the quarter. Every calendar quarter ends on the last day of a month, so that date is also 15 days after quarter-end. The two framings agree, and neither one is a trap.
• The real trap is the neighbouring 30-calendar-day event clock. That one runs from when the firm knows or should have known, not from a date on the calendar, so it lands on a different day for every event.

How Do the Reporting Deadlines Compare Across Events?

Does Filing Form U4 or Form U5 Excuse a Separate Report?

• Filing required information on Form BD, Form U4, or Form U5 does not, by itself, eliminate a firm's separate reporting duty. Two narrow exceptions run the other way, and they are not the same size.
• The Form U4 exception is the narrower one. It reaches only the externally driven events in the first reporting list. It does not reach the firm's internal discipline of an associated person, and it does not reach the firm's own conclusion that a violation happened.
• For one of those covered events, a firm need not report separately if it discloses the event on Form U4, consistent with that form's own requirements, and marks the disclosure as satisfying this duty.
• The Form U5 exception is wider. A firm need not separately report any specified event, including internal discipline of an associated person, or the firm's own-conclusion report, if it discloses the event on Form U5 consistent with that form's requirements. Nothing requires the firm to mark the Form U5 disclosure.
• Neither exception touches the quarterly complaint statistics filing. That report stands on its own regardless of what the firm discloses on a registration form.

Exam Tip: Gotchas

• The two non-duplication exceptions are different sizes. The Form U4 exception excuses less and requires a marked disclosure. The Form U5 exception excuses more, including internal discipline, and requires no marking. Neither one touches the quarterly statistics filing.

What Should You Check on Exam Day?

• Confirm which 30-day clock applies: a specified event, the firm's own conclusion, discipline, or a disposed civil claim all share the same clock.
• Separate the duty to report an event from the duty to file the underlying documents; one does not satisfy the other.
• Pair $15,000 with the general disposition and $25,000 with the firm itself being sued or claimed against.
• Treat the quarterly statistics deadline as a calendar date, not a day count from quarter-end.
• Remember the Form U4 and Form U5 exceptions excuse different amounts, and only Form U4 requires marking the disclosure.