Quick Answer
The Financial Industry Regulatory Authority (FINRA) governs how registered persons behave and what they must disclose. Firms file Form U4 to register and Form U5 to terminate, report events within 30 days, log customer complaints, and enforce limits on outside business, selling away, political contributions, and gifts. Know the deadlines and dollar thresholds cold.
The whole unit on one sheet: what you disclose, when you report, and the numbers the exam loves to test.
Form U4 and Form U5
- Form U4 (Uniform Application for Securities Industry Registration or Transfer): registers an individual through a member firm, filed before registered activities begin.
- Form U5 (Uniform Termination Notice for Securities Industry Registration): terminates registration, filed within 30 days of termination.
- The member firm files both, not the individual.
- Both are public through BrokerCheck, FINRA's free lookup tool.
- U4 must be updated within 30 days of any material change; this is a continuing obligation.
- U4 discloses felony/securities-misdemeanor charges (not just convictions), regulatory actions, terminations for cause, financial disclosures, and written customer complaints alleging $5,000 or more.
- The firm must amend the U5 until final disposition; individuals stay under regulator jurisdiction for at least 2 years after leaving.
Reportable Events and Red Flags
- Firms report certain events to FINRA within 30 days of knowing or should-have-known.
- Both the individual and the firm have separate duties; failure to report is its own violation.
- Charges trigger reporting (arrest, indictment), not just convictions.
- Financial events count too: tax liens, bankruptcy, unsatisfied judgments.
- Red flags: churning (excessive trading for commissions), concentration, unexplained wealth, never taking vacation, using personal email/phone for business, vulnerable customers in complex products.
- Firms are liable if they should have known; actual knowledge is not required.
Customer Complaints
- Written complaints (letters, emails, texts, even to a personal phone) must be logged; kept at least 4 years.
- $5,000 or more triggers U4/U5 disclosure, regardless of merit.
- Firms submit quarterly statistical summaries of all written complaints.
- Customers can always file with a regulator; a pre-dispute arbitration agreement never blocks that.
Outside and Away-From-Firm Activity
- Outside business activity (OBA): non-securities work outside the firm. Requires prior written notice, not approval. Passive investments (rental property, stocks) are exempt.
- Private securities transaction (selling away): a securities deal outside the course or scope of employment. Requires prior written notice; with compensation, the firm must also approve and supervise it as its own business.
- Compensation is broad: commissions, finder's/referral fees, expense reimbursements, non-cash benefits.
Numbers to Lock In
| Item | Value |
|---|---|
| Form U5 filing deadline | 30 days after termination |
| Form U4 update deadline | 30 days after a material change |
| Reportable-event window | 30 days |
| Complaint disclosure threshold | $5,000 or more |
| Complaint record retention | at least 4 years |
| Pay-to-play de minimis limit | $250 per election (official you can vote for) |
| Pay-to-play ban / look-back | 2 years |
| Annual gift limit | $300 per person, per year |
Political Contributions (Pay-to-Play)
- An associated person may give up to $250 per election to an official they are entitled to vote for.
- Exceeding $250, or giving any amount to an official you cannot vote for, bans the firm from that entity's municipal business for 2 years.
- Look-back: contributions within 2 years before the firm seeks municipal business count.
- The ban hits the firm even without its knowledge; the MSRB writes the rule and collects reports but does not enforce (FINRA enforces broker-dealers).
Gifts, Gratuities, and Non-Cash Compensation
- Cap is $300 per person per year, an aggregate annual amount, for gifts relating to the recipient's employer's business.
- Business entertainment has no dollar limit if the giver is present; handing over tickets and not attending is a gift subject to the $300 cap.
- Promotional items and personal life-event gifts are exempt.
- Non-cash compensation from product sponsors is generally prohibited; in-house incentives are allowed only on total production, never specific products.
Top Gotchas
- Both the individual and the firm can be sanctioned; each carries its own reporting duty.
- Filing "voluntary resignation" on a U5 when the person was terminated for cause is misleading information; willful misstatements trigger statutory disqualification.
- OBA needs notice only; a private securities transaction with compensation needs notice plus approval and supervision.
One-Breath Recap
Firm files U4 to start and U5 within 30 days to end, reports events in 30 days, logs every written complaint at the $5,000 line, notifies before outside business, gets approval before compensated selling away, keeps political gifts to $250 per election, and caps gifts at $300 a year. Deadlines and dollars win the points.
Need more than the recap? This is a condensed summary. If it is not enough, read the full Employee Conduct and Reportable Events unit for the complete lesson.