Failure to timely update information on an individual form U4 may lead to potential fines and suspensions for a registered person, especially if the act is willful. Examinations and sweeps performed by FINRA generally reveal exceptions.
Firms should not just sit back and wait for the regulators to uncover compliance failures related to Form U4. Consistent training and requests for disclosure updates can create a proactive approach. This may help reps to immediately provide the proper notice when they otherwise may have inadvertently forgotten to disclose an update. To learn about FINRA’s late disclosure fees and the process, you can access FINRA’s Late Disclosure Fee FAQs.
Based on recent regulatory actions, the following list contains key focus areas based on patterns of frequent Form U4 exceptions.
Financial Disclosures
Liens, judgments, and bankruptcies were by far the largest number of regulatory actions related to failure to disclose. As mentioned previously, FINRA is hard at work sweeping judicial records and other background searches to look for undisclosed representative financial actions.
In some cases, the representative may have known about and disclosed one tax lien but not an additional lien. In other instances, the representative did know about the lien and failed to inform the firm. Those violations lead to fines and suspensions, especially if the rep knowingly and incorrectly disclosed no exceptions.
Compliance departments should prioritize training in these areas. It is important to help representatives understand that parts of their financial life are not private when they are a registered person.
Personal and Employment Information
Registered representatives should make updates to name, address, and employment changes promptly and no later than 30 days after the event. Ensuring an employment record stays accurate is important. Certain fields on Form U4 are not only an employment record for internal use; information is publicly available on an industry database. This public database, BrokerCheck, can be used to research the background and experience of registered persons.
Outside business activities also continue to be a hot topic during regulatory exams and FINRA sweeps. Examiners will review state filings and google searches looking for outside employment exceptions.
A requirement that may be often overlooked involves formerly registered representatives. FINRA requires reps who are no longer registered to keep their residential addresses current for at least two years after their last FINRA registration is terminated. Former registered representatives can learn more about how to stay compliant with this requirement by visiting FINRA’s website: Inactive Reps – Updates to Address.
Simply forgetting is not an acceptable excuse for failing to update your Form U4 with new personal and employment information. In general, it is always better to overly disclose rather than leaving your fate in the hands of 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. There are specific disclosures with unique deadlines, so it is important to understand the time requirements.
When a representative learns of a regulatory event (i.e. compliant, arbitration, criminal case, etc.), fear, anger, and frustration often drive a representative to dive headfirst into fixing the problem and forget to notify their current firm. Representatives should update the firm as soon as they are notified of a pending action. This allows the firm to make the appropriate decisions on the impact of the U4 and timeliness for filing, as well as 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.