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Difficulty: HardSelf-Regulatory Organizations (SROs) and FINRA

A registered representative terminates employment with a FINRA member firm, and the firm submits a Form U5. Eight months after the termination, FINRA initiates an inquiry into potential order handling violations committed by the representative during their tenure at the firm. Which of the following statements accurately describes FINRA's regulatory jurisdiction over this former representative?

  1. FINRA retains regulatory jurisdiction over the former representative for two years following termination for actions that occurred while registered.Answer
  2. B
    FINRA loses all regulatory authority over the individual immediately upon the submission of Form U5, transferring investigative jurisdiction solely to state banking authorities.
  3. C
    FINRA retains permanent, lifetime jurisdiction over anyone who has ever registered, allowing it to bring administrative actions at any future date.
  4. D
    FINRA has statutory criminal jurisdiction and may sentence the former representative to prison if they fail to comply with an information request under Rule 8210.

Answer

FINRA retains regulatory jurisdiction over the former representative for two years following termination for actions that occurred while registered.
Under FINRA By-Laws, FINRA maintains continuing regulatory jurisdiction over a formerly registered associated person for two years following the effective date of termination of registration (filing of Form U5). This jurisdiction applies to conduct that occurred while the person was registered, allowing FINRA to compel testimony, request documents, and impose disciplinary sanctions.

Step-by-Step Solution

1
Identify the status of the individual and the timing of the regulatory inquiry.
The individual is a former registered representative whose Form U5 was filed eight months prior to FINRA's inquiry.
Regulatory jurisdiction rules depend on the timeframe following termination and the period during which the alleged conduct occurred.
2
Apply FINRA By-Law provisions regarding continuing jurisdiction after termination.
FINRA maintains continuing jurisdiction over formerly registered persons for two years post-termination for conduct that occurred during their period of registration.
This two-year window ensures registered representatives cannot evade regulatory scrutiny or discipline simply by resigning.
3
Distinguish SRO civil and administrative powers from governmental criminal prosecution.
FINRA's sanctions include fines, suspensions, and bars from industry association, but not criminal penalties like imprisonment.
FINRA is a self-regulatory membership organization overseen by the SEC, not a governmental agency with law enforcement or criminal sentencing authority.

Key Concept

FINRA Continuing Jurisdiction Post-Termination
Estimated Time:1m 15s
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Topics

Self-Regulatory Organizations (SROs) and FINRA

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