Statutory Disqualification
With the registration process covered, the next question is: what can prevent someone from registering, or cause them to lose their ability to work in the industry? Statutory disqualification is the most severe barrier.
What Is Statutory Disqualification?
- Statutory disqualification is a condition that makes a person ineligible to associate with a FINRA member firm
- It is not a permanent ban in all cases; some disqualifying events have a time limit
- A disqualified person cannot work at a member firm unless the firm obtains special relief
Triggers for Statutory Disqualification
| Trigger | Details |
|---|---|
| Felony conviction | Any felony within the past 10 years (includes guilty plea or nolo contendere) |
| Securities-related misdemeanor | Any misdemeanor involving securities, insurance, banking, or financial activity within the past 10 years |
| Court injunctions/orders | Enjoined by a court from acting as an investment adviser, broker-dealer, or in any securities capacity |
| SEC/SRO expulsion or bar | Expelled or suspended from a Self-Regulatory Organization (SRO), or barred by the SEC |
| Willful regulatory violations | Found to have willfully violated federal securities laws |
| False filings | Filing false or misleading information with the SEC or an SRO |
Think of it this way: Statutory disqualification is like a red flag on your record. If you have one, no member firm can bring you on board unless they go through a formal process to get special permission.
The 10-Year Look-Back Period
- The 10-year clock runs from the date of conviction (not the date of the offense)
- After 10 years, the conviction alone no longer triggers statutory disqualification
- Applies to both felonies and securities-related misdemeanors
- A guilty plea or nolo contendere (no contest) plea counts the same as a conviction
Exam Tip: Gotchas
- All felonies within 10 years trigger disqualification, not just financial ones. A non-securities misdemeanor (like simple assault) does NOT trigger statutory disqualification.
- The 10-year clock starts from the conviction date, not the date of the offense.
Relief Through the MC-400 Process
- A statutorily disqualified person cannot associate with a member firm unless the firm applies for relief
- Relief is obtained through FINRA's Membership Continuance Application (MC-400) process
- The firm must demonstrate that:
- The individual will be adequately supervised
- The association is consistent with the public interest
- Appropriate conditions and restrictions will be imposed
- FINRA may approve the application with specific conditions (e.g., heightened supervision, restricted activities)
Exam Tip: Gotchas
- Nolo contendere (no contest) is treated the same as a guilty plea for disqualification purposes.
- Statutory disqualification is not always permanent. The MC-400 process can provide relief under the right conditions.