Document ID: SEC-2015-1311-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2015-08-06T04:00Z

[Federal Register Volume 80, Number 151 (Thursday, August 6, 2015)]
[Notices]
[Pages 47018-47020]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-19289]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75581; File No. SR-FINRA-2015-015]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Approving a Proposed Rule Change To Provide a 
Web-Based Delivery Method for Completing the Regulatory Element of the 
Continuing Education Requirements

July 31, 2015

I. Introduction

    On June 4, 2015, the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to change the method of delivery for the 
Regulatory Element of the Continuing Education (``CE'') program. The 
proposed rule change was published for comment in the Federal Register 
on June 17, 2015.\3\ The Commission received four comment letters on 
the proposed rule change.\4\ This order approves the proposed rule 
change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 75154 (June 11, 
2015), 80 FR 34777 (``Notice'').
    \4\ See letters from Kevin Zambrowicz, Associate General Counsel 
& Managing Director and Stephen Vogt, Assistant Vice President & 
Assistant General Counsel, Securities Industry and Financial Markets 
Association, dated July 7, 2015 (``SIFMA Letter''); Daniel Kosowsky, 
Chief Compliance Officer, Morgan Stanley Smith Barney LLC and Rose-
Anne Richter, Chief Compliance Officer, Morgan Stanley & Co. LLC, 
dated July 8, 2015 (``Morgan Stanley Letter''); David T. Bellaire, 
Executive Vice President & General Counsel, Financial Services 
Institute, dated July 8, 2015 (``FSI Letter''); and Michele Van 
Tassel, President, Association of Registration Management, dated 
July 8, 2015 (``ARM Letter'').
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change

A. Web-Based Delivery

    As FINRA described in the Notice, the CE requirements under FINRA 
Rule 1250 consist of a Regulatory Element and a Firm Element. The 
Regulatory Element applies to registered persons and consists of 
periodic computer-based training on regulatory, compliance, ethical, 
and supervisory subjects and sales practice standards, which must be 
completed within prescribed timeframes.\5\ There are four Regulatory 
Element programs: (1) The S106 for Investment Company and Variable 
Contracts Representatives; (2) the S201 for registered principals and 
supervisors; (3) the S901 for Operations Professionals; and (4) the 
S101 for all other registration categories. Currently, the Regulatory 
Element may be administered in a test center or at a firm that meets 
the requirements in Rule 1250 for in-firm delivery of CE.\6\
---------------------------------------------------------------------------

    \5\ See Notice, supra note 3 at 34778 (describing the Regulatory 
Element in more detail, including the timeframes for completing the 
Regulatory Element). Currently, candidates have three and a half 
hours to complete their CE session.
    \6\ See id. at n. 8 (describing in-firm delivery procedures).
---------------------------------------------------------------------------

    FINRA proposed to amend FINRA Rule 1250 to provide that the 
Regulatory Element program will be administered through Web-based 
delivery or such other technological manner and format as specified by 
FINRA, and to eliminate the requirements for in-firm delivery of the 
Regulatory Element.\7\ FINRA proposed to implement Web-based delivery 
for the S106, S201, and S901 Regulatory Element programs on October 1, 
2015, and to implement Web-based delivery for the S101 Regulatory 
Element program on January 4, 2016. FINRA also proposed to phase-out 
test-center delivery by no later than six months after January 4, 
2016.\8\
---------------------------------------------------------------------------

    \7\ FINRA also proposed to delete Incorporated NYSE Rule 345A 
(Continuing Education for Registered Persons) and Incorporated NYSE 
Rule Interpretation 345A (Continuing Education for Registered 
Persons). According to FINRA, these rules are substantially similar 
to FINRA Rule 1250.
    \8\ Under the proposal, firms will not be able to establish new 
in-firm delivery programs after October 1, 2015. Firms that have 
pre-existing in-firm delivery programs that are established before 
October 1, 2015 will not be able to use that delivery method for the 
S106, S201, and S901 Regulatory Element programs after October 1, 
2015, and they will not be able to use that delivery method for the 
S101 Regulatory Element program after January 4, 2016.
---------------------------------------------------------------------------

    In proposing these changes, FINRA noted that Web-based delivery 
will provide registered persons the flexibility to complete the 
Regulatory Element at a location of their choosing and at any time 
during their 120-day window for completion of the Regulatory Element, 
consistent with their firm's requirements. In addition, there will be 
no three and a half hour time limitation, as there is currently. FINRA 
also noted that the Web-based format will include safeguards to 
authenticate the identity of the CE candidate (e.g., by asking the 
candidate to provide a portion of his

[[Page 47019]]

Social Security Number (``SSN'') and date of birth). Before commencing 
a Web-based session, each candidate must agree to the Rules of Conduct 
for Web-based delivery. If FINRA discovers that a candidate has 
violated the Rules of Conduct, the candidate will forfeit the results 
of the session and may be subject to disciplinary action by FINRA. 
FINRA considers violations of the Rules of Conduct to be conduct 
inconsistent with high standards of commercial honor and just and 
equitable principles of trade, in violation of FINRA Rule 2010.

B. Proctor Registration

    Currently, NASD Rule 1043 requires an associated person who is 
designated by a firm as a proctor for the purposes of in-firm delivery 
of the Regulatory Element to be registered as a Proctor with FINRA 
through the filing of a Form U4 (Uniform Application for Securities 
Industry Registration or Transfer).\9\ In light of the Web-based 
delivery proposal, FINRA proposed to eliminate NASD Rule 1043, and to 
automatically terminate the Proctor registration category in the CRD 
system on January 4, 2016.
---------------------------------------------------------------------------

    \9\ Currently, an associated person who is already registered in 
another registration category may be designated as a proctor by a 
firm without having to register as a Proctor with FINRA.
---------------------------------------------------------------------------

C. Fee for Web-Based Delivery

    Currently, the fee for test-center and in-firm deliveries is $100 
per session, although in-firm deliveries receive a three-dollar rebate 
per session.\10\ FINRA proposed to establish a $55 fee for each 
candidate who completes the Regulatory Element via the Web-based 
delivery method.\11\ However, FINRA is not proposing any changes to the 
session fees for test-center and in-firm deliveries until it has 
completed the phase-out process.
---------------------------------------------------------------------------

    \10\ There are also additional fees for taking the session 
outside of the United States, failing to appear on time for an 
appointment, or cancelling or rescheduling an appointment. See 
Section 4 of Schedule A to the FINRA By-Laws. See also Notice, supra 
note 3 at 34779.
    \11\ FINRA also proposed to amend its fee schedule to clarify 
that registered persons will not be required to complete the 
Regulatory Element in a test center or in-firm during the phase-out 
period.
---------------------------------------------------------------------------

III. Comment Letters

    The Commission received four comment letters that supported the 
proposed rule change.\12\ In particular, the commenters noted that the 
proposal would modernize FINRA's CE requirements,\13\ remove burdens 
associated with the test center delivery method (e.g., the time spent 
traveling to a test center),\14\ and reduce the fees and other costs 
associated with the Regulatory Element.\15\ Commenters also supported 
the flexibility associated with Web-based delivery.\16\ Moreover, two 
commenter supported FINRA's proposed timeline for implementing Web-
based delivery.\17\ One of these commenters stated that a phased 
approach will provide firms with the flexibility needed to address 
technology, operations, and process issues that may arise.\18\ This 
commenter additionally requested that, if FINRA proposes materially new 
technology, delivery platforms, or other measures in the future, FINRA 
solicit comments on the proposed changes through a Regulatory Notice 
and seek and receive FINRA Board approval of the changes before 
implementing the changes.\19\
---------------------------------------------------------------------------

    \12\ See supra note 4. These commenters also provided comments 
relating to the implementation of this proposed rule change. In 
particular, one commenter requested that FINRA continue to make CE 
training data and test results available to firms. See FSI Letter at 
1 and 3. Two commenters requested that FINRA provide clarification 
on the level of information that will be available to firms 
regarding an individual's initiation of, and progress on, a 
particular CE session. See SIFMA Letter at 5 and ARM Letter at 2. 
Commenters also requested that FINRA consider the use of identifiers 
other than the SSN for candidates who do not have an SSN. See SIFMA 
Letter at 5, Morgan Stanley Letter at 1, and ARM Letter at 2-3. Two 
commenters requested that FINRA provide firms with an appropriate 
degree of flexibility with respect to individual CE deadlines if 
they encounter unexpected but demonstrated technical difficulties. 
See SIFMA Letter at 4 and ARM Letter at 2. In addition, these two 
commenters requested that FINRA provide guidance on the 
implementation of Web-based delivery, including clarification 
regarding how it will handle reasonably foreseeable technology and 
operational issues that may arise with the implementation and use of 
the Web-based CE program. See SIFMA Letter at 5 and ARM Letter at 2. 
One commenter suggested that FINRA provide help guides, user 
instructions, and frequently asked questions to minimize confusion 
about completing the CE requirements through the new process, and 
conduct information sessions for FINRA member firms to better 
prepare for questions and issues about the new CE delivery method 
and related completion process. See ARM Letter at 2. The Commission 
understands that FINRA will provide guidance on these issues. 
Finally, one commenter encouraged FINRA to continue to review its 
rulebook, interpretations, and fees. See SIFMA Letter at 6.
    \13\ See SIFMA Letter at 4, Morgan Stanley Letter at 1, FSI 
Letter at 1-3, and ARM Letter at 3.
    \14\ See SIFMA Letter at 4, Morgan Stanley Letter at 1, FSI 
Letter at 1-3, and ARM Letter at 1 and 3.
    \15\ See SIFMA Letter at 4, Morgan Stanley Letter at 1, FSI 
Letter at 2, and ARM Letter at 1 and 3.
    \16\ See SIFMA Letter at 4 and FSI Letter at 2.
    \17\ See SIFMA Letter at 4 and ARM Letter at 2.
    \18\ See SIFMA Letter at 4.
    \19\ See id. See also ARM Letter at 3.
---------------------------------------------------------------------------

IV. Discussion and Commission Findings

    After careful review of the proposed rule change and the comment 
letters, the Commission finds that the proposed rule change is 
consistent with the requirements of the Act and the rules and 
regulations thereunder that are applicable to a national securities 
association.\20\ Specifically, the Commission finds that the proposed 
rule change is consistent with Section 15A(b)(6) of the Act,\21\ which 
requires, among other things, that FINRA rules be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, and, in general, to protect investors 
and the public interest as it changes the delivery method for CE to 
make it more flexible and efficient, as well as, less costly for the 
industry. In addition, it will provide candidates the amount of time 
that they feel they need to complete their CE session, enabling them to 
use the resource material included in the CE program. Having additional 
time to take the CE session may result in better learning outcomes, 
which should enhance investor protection.
---------------------------------------------------------------------------

    \20\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \21\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

    FINRA stated in the Notice that it has provided safeguards to 
preserve the integrity of the CE program.\22\ Moreover, as FINRA and 
the commenters noted, the proposed rule change would provide 
flexibility with respect to completing the Regulatory Element by 
eliminating the need to go to a test center to complete a Regulatory 
Element session.\23\ The proposal also will reduce the fees and other 
costs associated with the Regulatory Element.\24\ In addition, FINRA 
stated that Web-based delivery of the Regulatory Element will improve 
its ability to update the content in response to rule changes and other 
industry demands.\25\ Specifically, FINRA will be able to update the 
Regulatory Element content directly and more efficiently because the 
update will no longer involve a multi-layered release and quality 
control process, which is required when FINRA employs vendors to 
deliver CE.\26\ The ability to update the content of the Regulatory 
Element directly will make the process

[[Page 47020]]

more efficient for FINRA and should promote better education of 
associated persons and consequently enhance investor protection.\27\
---------------------------------------------------------------------------

    \22\ See Notice, supra note 3 at 34779-80. The Commission notes 
that under FINRA's Sanction Guidelines, the recommended penalty for 
cheating on the Regulatory Element is a bar. See id. at n. 17. The 
Commission expects both FINRA and its member firms to take 
appropriate measures to avoid any abuse that could be associated 
with Web-based delivery of CE. As FINRA noted in the Notice, firms 
may impose conditions on their associated persons regarding 
completion of their CE requirements in a Web-based environment. See 
id. at n. 14.
    \23\ See id. at 34780 and supra notes 14 and 16.
    \24\ See Notice, supra note 3 at 34780 and supra notes 14-15.
    \25\ See Notice, supra note 3 at 34780.
    \26\ See id.
    \27\ FINRA stated that the proposed rule change would ``allow 
FINRA to adopt different delivery methods in the future based on 
technology changes without having to amend the rule each time.'' See 
id. at 34779. This statement was based on the addition of the phrase 
``or such other technological manner and format as specified by 
FINRA,'' to Rule 1250(a)(6). The Commission notes, however, that 
FINRA must comply with the requirements of Section 19(b) of the Act.
---------------------------------------------------------------------------

    For the reasons stated above, the Commission finds that the 
proposed rule change is consistent with the Act and the rules and 
regulations thereunder.

V. Conclusion

    IT IS THEREFORE ORDERED, pursuant to Section 19(b)(2) of the 
Act,\28\ that the proposed rule change (SR-FINRA-2015-015) be, and 
hereby is, approved.
---------------------------------------------------------------------------

    \28\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
---------------------------------------------------------------------------

    \29\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-19289 Filed 8-5-15; 8:45 am]
BILLING CODE 8011-01-P