In our August 31 post about FINRA Rule 3110(e) (Supervision: Responsibility of Member to Investigate Applicants for Registration), we discussed the necessity of background checks and the expected depth and breadth of the investigation process. Rule 3110(e) also requires that FINRA member firms adopt written procedures to verify the accuracy and completeness of the information in an applicant’s Form U4.
While every member firm is required to create written procedures specifying its process for verifying the information provided in an applicant’s Form U4, FINRA understands that the verification process can vary from firm to firm. For example: one firm may verify an applicant’s identity using their driver’s license; another may use a passport for authentication instead. In the case that verification is not reasonably possible, FINRA does not expect firms to verify all of the information provided on Form U4. However, should that be the case, the firm must document the steps taken to verify the information, as well as the reason the information could not be verified.
Furthermore, the authentication process for some of the information requested on Form U4 is located on the form itself. The person signing on behalf of the firm, for instance, is certifying that the firm has a) communicated with the applicant’s previous employer(s) for the past three years and b) documented the name(s) of the person(s) contacted as well as the date(s) of said contact.
For most firms, FINRA expects the investigation and verification process to take place prior to filing an applicant’s Form U4. However, FINRA does allow firms to complete the verification process within a 30-day period after filing the Form U4 with FINRA. This window of 30 calendar days is provided to accommodate firms that might run into difficulty conducting the entire verification process before filing an applicant’s Form U4 – for example, if an applicant is hired immediately to fill a necessary role at a firm. If a firm becomes aware of any discrepancies during an investigation conducted after filing Form U4, the firm is required to file an amended Form U4 to include the correct information. Even after the initial verification process, a firm is required to file an amended U4 within 30 calendar days of learning of any facts or circumstances that require reporting.
If a firm is unable to complete the verification process within the 30-day window after filing Form U4 due to circumstances beyond the firm’s control, the firm must document the basis for the delay. For example, if a firm is relying on fingerprint results to verify criminal history, but the first set of prints is deemed “illegible” and requires resubmission – the delay is created by circumstances beyond the firm’s control. In addition to requiring documentation of the reason for the delay, the firm must also have written procedures in place requiring that the verification still be completed as soon as is practical.
