Regulatory Action Disclosure Deadline is Approaching

In May 2009, the SEC approved amendments to Forms U4 and U5 as well as FINRA Rule 8312 (FINRA BrokerCheck Disclosure). The amendments make significant changes to disclosure questions on the Forms, including the addition of questions about certain regulatory actions. These additional regulatory action questions are designed to allow FINRA and other regulators to identify persons subject to statutory disqualification under the federal securities laws.

In light of the additional disclosure questions, FINRA member firms are required to amend the Form U4 for all of their registered persons. To ensure that firms had enough time to complete the forms accurately, FINRA delayed the effective date solely for the new regulatory action disclosure questions until 180 days from the effective date of the remainder of the proposed rule change, namely November 14, 2009. During this time period, FINRA will allow firms, at their discretion, to file provisional “no” answers to the six new regulatory action questions. The regulatory action disclosure questions will appear in a manner designed to show that any answers provided in response to such questions are provisional until such time as those questions become effective. Any “no” answers filed in response to the new regulatory action disclosure questions that are not amended before November 14, 2009, will become final and the firm and subject registered person will be deemed to have represented that the person has not been the subject of any finding addressed by the question(s).

Other amendments to Forms U4 and U5, and FINRA Rule 8312 include: (1) disclosure of arbitrations or civil litigation of allegations of sales practice violations made against a registered person in arbitration or litigation in which that person is not a named party; (2) raise the monetary threshold for reporting of settlements of customer complaints, arbitrations or civil litigation on the Forms from $10,000 to $15,000, and make a conforming change to reflect this revised monetary threshold in the description of “Historic Complaints” in FINRA Rule 8312; (3) revise the definition of “Date of Termination” in Form U5, and enable firms to amend the “Date of Termination” and “Reason for Termination” sections of the Form U5, subject to certain conditions and notifications; and (4) make additional clarifying, technical and conforming changes to the Forms. These amendments became effective on May 18, 2009.