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Difficulty: HardSelf-Regulatory Organizations (SROs) and FINRA

A registered representative at a FINRA member firm is under investigation for potential market manipulation and undisclosed outside business activities. When FINRA staff request an interview and personal financial records pursuant to Rule 8210, the representative refuses, arguing that FINRA lacks governmental subpoena power, and immediately submits a resignation terminating their Form U4 association. Which of the following statements correctly describes FINRA's jurisdictional authority and the consequence of the representative's refusal?

  1. A
    FINRA can petition a federal court to issue a criminal subpoena enforcing compliance, because FINRA operates as a federal regulatory agency with statutory law enforcement authority delegated by the SEC.
  2. FINRA lacks statutory subpoena power over the general public, but associated persons are contractually obligated under Rule 8210 to comply; failure to cooperate results in severe sanctions such as a permanent industry bar, and FINRA retains jurisdiction for two years post-termination.Answer
  3. C
    FINRA immediately loses all investigative authority and disciplinary jurisdiction the moment a registered representative's Form U5 is filed and their association with a member firm terminates.
  4. D
    FINRA must transfer the investigation to the Federal Reserve Board, as SRO authority is strictly limited to monitoring firm net capital requirements rather than individual associated person conduct.

Answer

FINRA lacks statutory subpoena power over the general public, but associated persons are contractually bound under Rule 8210 to cooperate with investigations; failure to comply typically results in a permanent bar from the securities industry, and FINRA maintains jurisdiction over former representatives for two years following Form U5 termination.
As a self-regulatory organization (SRO), FINRA derives its authority over registered representatives through contractual agreement (Form U4) rather than statutory governmental subpoena power. Under FINRA Rule 8210, associated persons are mandatory participants in FINRA investigations and must supply requested testimony and documentation. Failing to comply results in severe disciplinary sanctions, up to a permanent bar from associating with any FINRA member firm. Additionally, resigning does not terminate SRO authority; FINRA retains full disciplinary jurisdiction over associated persons for two years following the submission of Form U5.

Step-by-Step Solution

1
Analyze FINRA's regulatory structure and authority mechanism.
FINRA is a private, non-governmental self-regulatory organization (SRO). It lacks statutory subpoena power over non-members but holds contractual authority over member firms and associated persons via registration.
SRO jurisdiction is derived from consent and registration contracts (such as Form U4) rather than statutory police powers.
2
Evaluate the representative's obligation under FINRA Rule 8210.
Rule 8210 requires associated persons to provide testimony, books, and records upon request. Refusal to comply is a serious violation that routinely leads to a permanent industry bar.
Member firms and associated persons agree to adhere to FINRA rules as a condition of operating in the securities industry.
3
Determine the effect of resignation and Form U5 termination on FINRA jurisdiction.
Under Article V of the FINRA By-Laws, FINRA retains jurisdiction over a formerly registered person for two years after the effective date of termination of registration.
The two-year window prevents individuals from evading disciplinary action for misconduct committed while registered simply by resigning.

Key Concept

FINRA Rule 8210 Authority & Post-Termination Jurisdiction
Estimated Time:2m 0s
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Topics

Self-Regulatory Organizations (SROs) and FINRA

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