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Difficulty: Very hardSelf-Regulatory Organizations (SROs) and FINRA

A registered representative who was convicted of a financial felony five years ago applies for registration with a FINRA member firm. Which of the following statements accurately describes FINRA's regulatory jurisdiction and authority concerning this application?

  1. FINRA can deny registration under statutory disqualification provisions, and its decision is subject to appeal to the Securities and Exchange Commission (SEC).Answer
  2. B
    FINRA possesses statutory authority to initiate criminal proceedings and issue prison sentences against individuals who attempt to register following a conviction.
  3. C
    FINRA's regulatory mandate extends to commercial banking credit operations, allowing it to cancel the member firm's commercial banking license.
  4. D
    FINRA acts as a principal dealer in registration matters, charging markups on application processing fees rather than acting as a regulatory body.

Answer

FINRA can deny registration under statutory disqualification provisions, and its decision is subject to appeal to the Securities and Exchange Commission (SEC).
The correct option accurately reflects FINRA's authority as a Self-Regulatory Organization (SRO). Under federal securities laws, a felony conviction within the preceding 10 years creates a statutory disqualification. FINRA has the authority to deny registration or require an eligibility review, but because FINRA is overseen by the Securities and Exchange Commission (SEC), any final action taken by FINRA can be appealed to the SEC.

Step-by-Step Solution

1
Identify FINRA's role as a Self-Regulatory Organization (SRO).
Recognize that FINRA operates under SEC oversight and enforces industry rules and qualification standards for member broker-dealers and registered representatives.
FINRA is an SRO rather than a government agency or a commercial bank regulator.
2
Evaluate FINRA's statutory disqualification authority.
Determine that a felony conviction within the past 10 years triggers statutory disqualification under FINRA rules.
FINRA has the authority to deny association or mandate an eligibility proceeding for statutory disqualifications.
3
Determine the legal relationship and hierarchy between FINRA and the SEC.
Confirm that SRO disciplinary and eligibility decisions can be appealed to the SEC, which holds ultimate statutory oversight.
The SEC oversees all SROs and serves as the appellate body for SRO final actions.

Key Concept

SRO Jurisdiction and SEC Oversight of FINRA Statutory Disqualification
Estimated Time:1m 30s
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Topics

Self-Regulatory Organizations (SROs) and FINRA

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