Failure to timely update information on individual Form U4 disclosure may lead to potential fines and suspensions for a Registered Person. This is especially the case if the act was done intentionally.
Examinations and sweeps performed by FINRA generally reveal exceptions. The Firm should not just sit back and wait for the regulators to uncover compliance failures. Consistent training and requests for updates can create a proactive approach for Firms and offer Representatives. As a result, they may be able to immediately provide the proper notice to avoid situations where they may have inadvertently forgotten to update disclosures.
Firms can learn more about FINRA’s late disclosure fees and the process from the Late Disclosure Fee FAQ. Based on reviews from regulatory actions, the following list highlights patterns of exceptions often noted.
Liens, judgments, and bankruptcies were by far the largest number of regulatory actions related to failure to disclose. As mentioned previously, FINRA often performs sweeps of judicial records and other background searches to look for undisclosed Representative financial actions. In some cases, the Representative may have known of one tax lien but not an additional lien. In other instances, the Representative did know about the lien but did not think to inform the Firm. Those violations lead to fines and suspension, especially related to attestations with disclosures of no exceptions if found willful. Compliance departments should prioritize training in these areas. Additionally, they should help Representatives to understand that as a Registered Person, parts of their financial life are not private.
Personal and Employment Information
Name changes, address changes, and employment changes need to be updated promptly. These updates must happen no later than 30 days of the event. Form U4 is not only an employment record for internal use, but certain fields are connected to Broker Check which is the public database used to research the background and experience of Registered Persons. Ensuring an employment record stays accurate is important. Even for Reps who are no longer registered, FINRA continues to require addresses to be kept current for up to 2 years. For more information, see Inactive CRD Updates to Address.
Outside business activities continue to be a hot topic during regulatory exams and FINRA sweeps. Examiners review state filings and google searches to look for outside employment exceptions. A response of “I forgot” is not an acceptable excuse for not updating Form U4 with new personal and employment information. It is better to overly disclose rather than leaving your fate and memory to the regulators.
Regulatory and Legal Disclosures
Statutory disqualification events require updates to the Form U4 within 10 days. Other events require updates within 30 days. Specific disclosures must be reported in less than 30 days, so it is important to understand the time requirements. When a Representative learns of a regulatory event (compliant, arbitration, criminal case, etc.), the fear, anger, and/or frustration often drives a representative to dive headfirst into fixing the problem and forget to notify their current Firm. If a Representative updates the Firm upon notification of a pending action, the Firm can make the appropriate decisions on not only the impact of the U4 and timeliness for filing but also any potential business implications.
Our expert consultants work with clients across the nation to provide consulting solutions for Representative disclosures and CRD updates. Contact us to learn more about how we can help you and your firm.