A broker-dealer firm discovers that one of its registered representatives (RRs) previously had their securities license revoked by another SRO for serious misconduct. The firm is considering hiring this individual for a clerical role that does not require registration. Under FINRA rules, what is the firm's obligation regarding this individual?
- AThe individual must reapply for a new securities license with FINRA before being hired in any capacity.
- BThe firm must disclose the disciplinary history to FINRA, and the individual may be subject to a statutory disqualification, even for a clerical role.
- CThe firm may hire the individual without any notification to FINRA, as the role is clerical.
- DThe firm must report the hiring to FINRA, but the individual can perform the clerical role immediately.
Show answer & explanationAnswer & explanation
Correct answer: B. The firm must disclose the disciplinary history to FINRA, and the individual may be subject to a statutory disqualification, even for a clerical role.
A statutory disqualification, such as a revocation by another SRO for serious misconduct, generally prevents an individual from associating with a FINRA member firm in any capacity, including clerical, unless FINRA grants an exception. The firm has an obligation to disclose this information.
Why the other options are wrong
- A. A revoked license means they cannot be registered. The issue here is their ability to associate in any capacity due to disqualification.
- C. Revocation for serious misconduct often leads to statutory disqualification, which must be reported regardless of the role.
- D. Statutory disqualification can prevent association in any capacity, requiring FINRA review.
Statutory Disqualification
Statutory disqualification refers to certain events (e.g., felony convictions, securities-related misdemeanors, SRO revocations) that bar an individual from associating with a FINRA member firm in any capacity, including clerical, unless FINRA grants a waiver or exception.
- Bars association with FINRA firm in ANY capacity.
- Triggered by specific events (felonies, securities-related misdemeanors, SRO revocations).
- Requires FINRA approval for any association.
- Firm must report such events.
Memory trick: Statutory Disqualification is FINRA's 'No-Entry' sign for bad actors.