When a broker-dealer implements a significant change in the strategies and activities of the business, FINRA requires firms to file a continuing membership application (“CMA”) to modify its membership agreement. Through this requirement, FINRA seeks to help protect investors by ensuring that firms reflect these changes in their policies, procedures, and supervisory and compliance systems.

When is a CMA Required?

FINRA Rule 1017 specifies the reasons a broker-dealer must file a continuing membership application. The following are scenarios that require CMA filings:

  • Mergers;
  • Acquisitions;
  • Asset transfers (transfer of over 25% of revenue generating assets);
  • Change in ownership or control; and
  • Material change in business operations.

More specifically, FINRA defines a material change in operations which may include:

  • Adding a new market, business line, underwriting service, or acting as a dealer for the first time;
  • Removing or modifying a business restriction;
  • Adding a business that requires a higher net capital requirement;
  • Adding a substantial number of branches or personnel; and
  • Adding virtually any business line.

The CMA Process

Each FINRA CMA filing must be filed through the FINRA Gateway on the electronic Form CMA. Under Rule 1017, a FINRA CMA filing often requires detailed information. In some cases, multiple meetings with FINRA are necessary in order to discuss the CMA and allow firms to answer questions from examiners. FINRA will also schedule a membership interview during the process and may request additional follow-up information. The process may take up to 180 days depending on the complexities surrounding the application and the requested responses.

In some cases, the continuing membership process can be a long and grueling one. Often, CMAs can run into difficulty during the process because the application filed was not fully detailed, complete, or accurate. These errors increase the duration of the process and may result in FINRA rejecting an application that it considers to be “substantially incomplete”. Additionally, a firm’s failure to follow up on requests and responses may result in a lapse of the application and subsequent rejection. Firms must be proactive to avoid these setbacks.

The Consulting Advantage

We recommend consulting with a qualified compliance consultant whenever there is a change in business activities, staff, or procedures. It is important to bring in a compliance expert at the beginning of the process, if possible, in order to to get started on the right foot. Our company has years of expertise maneuvering through this process to help get our clients get to the best possible outcome. The  expertise of our consultants related to new and continuing membership applications is extensive with experience in many different and unique circumstances. Our strategic consulting has proven success in reducing the estimated processing time significantly for clients. Additionally, we have helped clients to avoid many common timely and costly mistakes.

Contact us today to learn more about how we can help you through the continuing membership process.

Lastly, for more about membership applications with FINRA, check out our previous blog posts on CMAs and New Membership Applications (“NMAs”).