Initially, when a firm receives FINRA approval to become a broker/dealer, the membership agreement has specific criteria which defines the types of business the firm may engage. If the firm wants to make changes to certain lines of business, operations, or otherwise, then it must submit a CMA, also known as the Continuing Membership Application, to obtain FINRA approval.
Why does a Firm need to file a Continuing Membership Application (CMA)?
There are several events that will trigger a firm to file a Continuing Membership Application such as a merger with or acquisition of another member firm, transfer of 25 percent or more in the aggregate of the firm’s assets, a change in equity ownership or partnership capital of the firm that results in one person or entity directly or indirectly owning or controlling 25 percent or more of the equity or partnership capital, or a material change in business operations. There are numerous changes that FINRA considers material. Among those changes are removing or modifying a business restriction, adding a business that requires a higher net capital requirement, or adding a significant number of branches or personnel. It should be noted that adding a number of branches or personnel doesn’t always trigger the requirement to file a FINRA CMA application. Certain firms will be eligible for FINRA’s safe harbor expansion.
Filling out FINRA’s Continuing Membership Application can be a complex task. The application is broken down into 14 sections, or as FINRA calls it, 14 standards. The firm must satisfy all 14 standards by providing a substantial amount of detailed information.
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Considerations and Planning
It is not a good idea to rush through the application, and the firm should take careful consideration in planning and deciding what information to provide. Once all information is gathered, a Continuing Membership Application (CMA) can be filed through FINRA Gateway on the electronic Form CMA. Much like the process for filling out Form NMA, an examiner will be assigned to review the application. FINRA’s Membership Application Program Group defines the criteria examiners are to follow while reviewing applications. The examiner has 30 days to review the CMA submitted and if additional information is needed, an initial request will be sent to the firm requesting additional information. The firm has 30 days to respond to FINRA’s request and the process can continue to go back and forth for several months. A CMA can take up to six months to obtain approval, or less if the changes are not material and all information is provided promptly. In some circumstances, such as changes in ownership, FINRA may request a membership interview to meet the new proposed owners. The quickest way to get through the CMA process is to provide FINRA everything it needs when initially filling out the CMA.
For more posts related to the Continuing Membership Application, please see New Product Considerations for Broker-Dealers and Interim Restriction on Continuing Membership Application.