[Continued from FINRA Membership Interview – Part I]
What happens during the FINRA Membership Interview?
During the FINRA Membership Interview, the participants will discuss substantially all of the aspects of the firm’s proposed business. Emphasis will be placed on the FINRA, SEC, or MSRB rules applicable to the firm’s intended business, as well as the firm’s supervisory structure, the background and experience of the firm’s principals and representatives, and plans for future direction and expansion. Questions about how the firm will process transactions and how it will supervise activities to maintain FINRA compliance, among other things, must be answered by the individual(s) who will be responsible for those functions.
The focus of the Membership Interview and a majority of the discussions will most generally relate to the firm’s ability to meet the Standards for Admission set forth in NASD Rule 1014. FINRA staff may inquire about any topic related to the NMA application / CMA application or the operation of the proposed broker-dealer; so, it is imperative that the firm and its principals be well prepared for the Membership Interview. As indicated above, one of the principal purposes of the Membership Interview is for such persons to demonstrate their knowledge and qualifications. Failure to do so can be catastrophic to the NMA application.
So, how do you prepare for the Membership Interview?
The firm and its principals and associated persons should be prepared to discuss the proposed business activities of the new broker-dealer and respond to the FINRA staff’s queries directly. We offer assistance with preparing for the Membership Interview as part of our broker-dealer services for our clients.
- What are the reasons behind starting the new broker-dealer?
- What is the business plan? Will the firm be associated with a RIA?
- How do you anticipate growing the firm? Will you recruit reps directly?
- Who are the control persons of the new broker-dealer?
- How will you support the ongoing operations and financing for the new broker-dealer?
Moreover, the principals of the firm should be prepared to discuss their experience, qualifications, and direct supervisory experience for each business line and firm operations to be supervised by them.
- Discuss your prior experience?
- Discuss your direct supervisory experience?
- How many years have you performed these functions?
- How many hours are you committed to the new broker-dealer per week?
- Do the firm’s policies & procedures cover all anticipated activities?
- Who will be the Chief Compliance Officer? Will he/she be involved in sales activities, as well?
It is important to remember when starting the broker-dealer application process, the firm and its principals are the ones applying to operate the new broker-dealer. Accordingly, they are the ones who should, as a general matter, respond to the questions presented by the FINRA staff. Consultants and law firms may attend the Membership Interview as well, but they should reserve comment only as absolutely required.