Document ID: SEC-2023-1069-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2023-09-28T04:00Z

[Federal Register Volume 88, Number 187 (Thursday, September 28, 2023)]
[Notices]
[Pages 66916-66918]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-21135]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98488]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Declaration of Effectiveness of the Fingerprint Plan 
of the Financial Industry Regulatory Authority, Inc.

September 22, 2023.
    On September 22, 2023, the Financial Industry Regulatory Authority, 
Inc. (``FINRA'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') a new fingerprint plan (``Plan'') \1\ 
pursuant to Rule 17f-2(c) \2\ under the Securities Exchange Act of 1934 
(``Exchange Act'' or ``Act'').\3\ The Plan supersedes and replaces 
FINRA's current fingerprint plan, which was declared effective for the 
Commission by the Division of Trading and Markets, pursuant to 
delegated authority, on November 2, 2021 (``2021 Fingerprint 
Plan'').\4\
---------------------------------------------------------------------------

    \1\ Attached hereto as Exhibit A. See also Letter from Richard 
Pullano, Vice President and Associate General Counsel, FINRA, to 
Devin Ryan, Assistant Director, Office of Chief Counsel and Moshe 
Rothman, Assistant Director, Office of Clearance and Settlement, 
Division of Trading and Markets, dated September 22, 2023 (``FINRA 
Letter'').
    \2\ 17 CFR 240.17f-2(c).
    \3\ 15 U.S.C. 78a et seq.
    \4\ See Exchange Act Release No. 93511 (November 2, 2021), 86 FR 
61801 (November 8, 2021), https://www.sec.gov/files/rules/other/2021/34-93511.pdf (Declaration of Effectiveness of the Fingerprint 
Plan of the Financial Industry Regulatory Authority, Inc. (``2021 
Declaration'')). See also Letter from Richard E. Pullano, Vice 
President and Associate General Counsel, FINRA, to Devin Ryan, 
Assistant Director, Office of Chief Counsel, Division of Trading and 
Markets, Commission, dated October 28, 2021, https://www.sec.gov/files/rules/other/2021/finra-incoming-fingerprint-plan-cover-letter.pdf (``FINRA October 2021 Letter'').
---------------------------------------------------------------------------

    As discussed in the FINRA Letter, historically FINRA has processed 
fingerprints submitted from registered transfer agent and registered 
clearing agency (hereinafter referred to as ``transfer agents'' and 
``clearing agencies'') personnel who are required to be fingerprinted 
using FINRA's fingerprint processing platform.\5\ FINRA states that the 
new Plan is necessary because FINRA must retire its fingerprint 
processing platform, due to the termination of support of essential 
software used by the platform.\6\ Because its fingerprint processing 
platform will no longer be supported, FINRA states that there is an 
exigent need to provide an option for transfer agents and clearing 
agencies that are currently using FINRA to meet the Exchange Act 
fingerprinting requirement.\7\ Accordingly, FINRA is adopting a new 
Plan to reflect that it has arranged for its FBI-approved channeler 
(``FBI-Approved Channel Partner'') \8\ to serve, on an interim basis, 
as a fingerprinting option for transfer agents and clearing agencies 
that elect to use it.\9\ FINRA states that it will continue to work 
with SEC and FBI staff to find a more permanent solution that does not 
involve FINRA acting in a channeler role for transfer agents and 
clearing agencies.\10\ Importantly, FINRA explains that the new Plan 
will continue, without any changes, the processes established under the 
2021 Fingerprint Plan for broker-dealer personnel,\11\ as well as 
FINRA's officers, directors, employees and contractors, and will extend 
such processes to personnel of transfer agents and clearing agencies 
with respect to the use of its FBI-Approved Channel Partner.\12\
---------------------------------------------------------------------------

    \5\ See FINRA Letter at 1. See id. at 3, n.8. See also 2021 
Declaration at 5-6, 12 (describing fingerprinting processing for 
transfer agent and clearing agency personnel). As FINRA notes, as a 
result of the 2021 Fingerprint Plan transition, the percentage of 
fingerprints processed through FINRA's fingerprint platform 
decreased by 97 percent. See FINRA Letter at 1, n.3.
    \6\ See FINRA Letter at 1. FINRA states that, for over 20 years, 
it directly channeled fingerprints of transfer agent and clearing 
agency personnel to the Federal Bureau of Investigation (``FBI'') 
using a proprietary platform that used vendor-provided software and 
specialized communications equipment. Although FINRA continues to 
process fingerprints submitted by transfer agents and clearing 
agencies, it soon will no longer have the ability to directly 
channel fingerprints to the FBI as its fingerprint processing 
platform must be retired. Specifically, in addition to the vendor 
discontinuing the software used for the platform and ceasing to 
support the software, FINRA learned in late 2022 that other software 
(an unrelated server product) that is integral to the platform's 
operation will no longer be supported after October 10, 2023. See 
id. at 1-2.
    \7\ See id. at 1-4. FINRA states that it will continue to 
channel fingerprints for these personnel consistent with the 2021 
Fingerprint Plan until the Plan is declared effective or September 
29, 2023, whichever is earlier. See Exhibit A, at 1, n.1.
    \8\ See Exhibit A at 1, n.3. See also 2021 Declaration at 2, n.6 
(discussing the FBI's conditional approval of FINRA using a 
specified FBI-Approved Channel Partner).
    \9\ See FINRA Letter at 3-4.
    \10\ See id. at 3. FINRA states that no additional action is 
needed by the FBI to implement this interim measure because the 
FBI's 2021 approval of FINRA's outsourcing of its fingerprint 
channeling responsibilities extends to all entities identified in 
Exchange Act section 17(f)(2), including transfer agents and 
clearing agencies. See FINRA Letter at 3, n. 10 (citing letter from 
Chasity S. Anderson, FBI Compact Officer, National Crime Prevention 
and Privacy Compact Council Office, FBI, to Derek W. Linden, 
Executive Vice President, FINRA, dated September 28, 2021), https://www.sec.gov/files/rules/other/2021/fbi-compact-officer-approval-letter.pdf.
    \11\ See id. at 1, 4. For purposes of the Plan, broker-dealer 
personnel includes personnel of FINRA members and other broker-
dealers required to be fingerprinted pursuant to Exchange Act 
section 17(f)(2) and Rule 17f-2 thereunder. The term ``members,'' as 
used in the Plan, includes Capital Acquisition Brokers, Funding 
Portals and applicants for FINRA membership. See Exhibit A at 1-2, 
n.2.
    \12\ See id. at 1, 4. FINRA's 2021 transition to the FBI-
Approved Channel Partner provides broker-dealers an efficient option 
to comply with the fingerprinting requirements in section 17(f)(2) 
and enables FINRA to fulfill its critical regulatory 
responsibilities for those entities. The 2021 transition similarly 
enables FINRA to efficiently fingerprint its officers, directors, 
employees and contractors consistent with New York General Business 
Law Section 359-e and Exchange Act section 17(f)(2) and thereby 
safeguard against potential threats to FINRA personnel, facilities 
and records. As a result of the 2021 transition, the percentage of 
fingerprints processed through FINRA's fingerprint platform 
decreased by 97 percent. See id. at 1, n.3. See also 2021 
Declaration at 4-6, 11-13.
---------------------------------------------------------------------------

    For the reasons discussed below, the Commission finds that, 
pursuant to Rule 17f-2(c) of the Exchange Act, the Plan is not 
inconsistent with the public interest and the protection of investors 
and, therefore, declares the Plan to be effective.
1. Applicable Standard
    Section 17(f)(2) of the Act provides, in pertinent part, that 
``every member of a national securities exchange, broker, dealer, 
registered transfer agent and registered clearing agency . . . and 
national securities association shall require that each of its 
partners, directors, officers, and employees be fingerprinted and shall 
submit such fingerprints, or cause the same to be submitted, to the 
Attorney General of the United States for identification and

[[Page 66917]]

appropriate processing.'' \13\ However, in accordance with Exchange Act 
Rule 17f-2(c), the fingerprinting requirement of section 17(f)(2) may 
be satisfied by submitting appropriate and complete fingerprint cards 
to, among others, a registered national securities association (such as 
FINRA) which, pursuant to a plan filed with and declared effective by 
the Commission, forwards such fingerprint cards to the Attorney General 
or its designee for identification and appropriate processing.\14\ 
Under Rule 17f-2(c), such a fingerprinting plan--like FINRA's 2021 
Fingerprint Plan and this Plan--shall not become effective unless it is 
declared effective by the Commission, which requires the Commission to 
find that the plan is ``not inconsistent with the public interest or 
the protection of investors.'' \15\
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78q(f)(2). Hereinafter, ``Attorney General of the 
United States'' referred to as ``Attorney General.''
    \14\ 17 CFR 240.17f-2(c).
    \15\ See id. The Commission may also impose any terms and 
conditions relating to the provisions of the plan and the period of 
its effectiveness as it may deem necessary or appropriate in the 
public interest, for the protection of investors, or otherwise in 
furtherance of the purposes of the Act. See id.
---------------------------------------------------------------------------

    FINRA states that the purpose of the Plan is to facilitate 
compliance with section 17(f)(2) of the Exchange Act and Rule 17f-2 
thereunder by providing a program for, among others, transfer agents 
and clearing agencies, to have the fingerprints of their partners, 
directors, officers, and employees processed by the Attorney 
General.\16\ FINRA also states it is providing, on an interim basis, 
transfer agents and clearing agencies an option to use an FBI-Approved 
Channel Partner with which FINRA has contracted to enable them to 
satisfy their fingerprinting requirements.\17\ The Plan will continue, 
without any changes, the processes established under the 2021 
Fingerprint Plan for broker-dealer personnel, as well as FINRA's 
officers, directors, employees and contractors, and will extend such 
processes to personnel of transfer agents and clearing agencies with 
respect to the use of its FBI-Approved Channel Partner.\18\
---------------------------------------------------------------------------

    \16\ See Exhibit A at 1.
    \17\ See FINRA Letter at 3-4. See also id. at 3, n.10 and 
accompanying text.
    \18\ See id. at 1, 4. See also 2021 Declaration at 4-6, 11-13.
---------------------------------------------------------------------------

2. Transfer Agents and Clearing Agencies
    Under the Plan, the FBI-Approved Channel Partner will be the 
central point of intake for fingerprints from those transfer agents and 
clearing agencies that elect to use it for their personnel who are 
required to be fingerprinted under section 17(f)(2).\19\ The FBI-
Approved Channel Partner will offer state-of-the-art collection 
services for those fingerprints at locations nationwide.\20\ After 
either collecting fingerprints directly or receiving them from transfer 
agents or clearing agencies (or their authorized agents), the FBI-
Approved Channel Partner will transmit the fingerprints to the FBI for 
processing, track their status, and securely make both the statuses and 
results available to FINRA, which, in turn, will securely make the 
fingerprint statuses and results available to the transfer agent or 
clearing agency.\21\
---------------------------------------------------------------------------

    \19\ See FINRA Letter at 3.
    \20\ See id. at 3-4. FINRA also states that under the Plan, 
``Fingerprints will be collected electronically at those locations 
in the domestic United States. Fingerprints collected outside of the 
domestic United States must be captured and transmitted for 
processing consistent with protocols established by the FBI.'' See 
id. at 4 n.11.
    \21\ See id. at 4. FINRA has also states it ``intends to make 
the statuses and results available electronically through a secure 
method that meets FBI requirements; however, FINRA may deliver the 
fingerprint results in hard copy in the unlikely event secure 
electronic delivery is unavailable.'' See id. at 4 n.12.
---------------------------------------------------------------------------

3. Commission's Declaration of Effectiveness of the Plan
    In accordance with Rule 17f-2(c) of the Act, the Commission has 
reviewed the procedures detailed in the Plan and declares the Plan to 
be effective, finding that it is not inconsistent with the public 
interest and the protection of investors.
    The Commission observes that most of FINRA's 2021 Fingerprint Plan, 
which the Commission found previously to be not inconsistent with the 
public interest and the protection of investors,\22\ will remain 
largely unchanged.\23\ As a result, the Commission has no reason to 
revisit its prior finding with respect to those unchanged provisions.
---------------------------------------------------------------------------

    \22\ See 2021 Declaration at 2-3, 6-7, 9.
    \23\ As discussed in Section 2, supra, the Plan will continue, 
without any changes, the processes established under the 2021 
Fingerprint Plan for broker-dealer personnel, as well as FINRA's 
officers, directors, employees and contractors.
---------------------------------------------------------------------------

    With respect to FINRA's decision to arrange for its FBI-Approved 
Channel Partner to serve, on an interim basis, as a fingerprinting 
option for transfer agents and clearing agencies, the Commission 
observes the following representations made by FINRA. FINRA states that 
the 2021 Fingerprint Plan's transition to the FBI-Approved Channel 
Partner provides broker-dealers an efficient option to comply with the 
fingerprinting requirements in section 17(f)(2) and enables FINRA to 
fulfill its critical regulatory responsibilities for those 
entities.\24\ The 2021 Fingerprint Plan similarly enables FINRA to 
efficiently fingerprint its officers, directors, employees and 
contractors consistent with New York state law and Exchange Act section 
17(f)(2) and thereby safeguard against potential threats to FINRA 
personnel, facilities and records.\25\ FINRA further states that making 
the services of FINRA's FBI-Approved Channel Partner available to 
transfer agents and clearing agencies as an interim measure will 
provide those entities the ability to continue satisfy their Exchange 
Act requirement to fingerprint their personnel following the retirement 
of FINRA's fingerprint processing platform, while FINRA works with all 
appropriate parties to find a permanent solution.\26\
---------------------------------------------------------------------------

    \24\ See FINRA Letter at 1, n.3.
    \25\ See id.
    \26\ See FINRA Letter at 3-4.
---------------------------------------------------------------------------

    The Commission agrees with FINRA's observation that these 
statutorily-mandated fingerprint-based background checks--whether 
performed by FINRA itself for transfer agents and clearing agencies 
under the 2021 Fingerprint Plan or FINRA's prior plan \27\ or by an 
FBI-Approved Channel Partner under this Plan--will continue to help 
protect investors and serve the public interest.
---------------------------------------------------------------------------

    \27\ See Exchange Act Release No. 53751 (May 2, 2006), 71 FR 
27299 (May 10, 2006), https://www.sec.gov/files/rules/other/2006/34-53751.pdf (Declaration of Effectiveness of the Fingerprint Plan of 
the National Association of Securities Dealers, Inc.).
---------------------------------------------------------------------------

    Based on the foregoing, the Commission finds that, pursuant to Rule 
17f-2(c) of the Exchange Act, the Plan is not inconsistent with the 
public interest and the protection of investors and, therefore, 
declares the Plan to be effective.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
---------------------------------------------------------------------------

    \28\ 17 CFR 200.30-3(a)(17)(iii).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.

Exhibit A

Financial Industry Regulatory Authority; Fingerprint Plan

    The Financial Industry Regulatory Authority, Inc. (``FINRA'') 
submits this fingerprint plan (``Plan'') pursuant to Rule 17f-2(c) 
under the Securities Exchange Act of 1934 (``Exchange Act''). This 
Plan supersedes and replaces FINRA's current fingerprint plan, which 
was declared effective by the Securities and Exchange Commission 
(``Commission'') on November 2, 2021 (the ``2021 Fingerprint 
Plan'').\1\
---------------------------------------------------------------------------

    \1\ Securities Exchange Act Release No. 93511 (November 2, 
2021), 86 FR 61801 (November 8, 2021) (Declaration of Effectiveness 
of the Fingerprint Plan of the Financial Industry Regulatory 
Authority, Inc.). Pursuant to the 2021 Fingerprint Plan, FINRA 
channels fingerprints for transfer agents and clearing agencies. 
FINRA will continue to channel fingerprints for these personnel 
consistent with the 2021 Fingerprint Plan until the Plan is declared 
effective or September 29, 2023, whichever is earlier. The Plan will 
continue without changes the processes established under the 2021 
Fingerprint Plan for broker-dealer personnel, as well as FINRA's 
officers, directors, employees and contractors.

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

[[Page 66918]]

    The purpose of this Plan is to facilitate compliance with 
section 17(f)(2) of the Exchange Act by providing a program for 
FINRA members,\2\ other broker-dealers, transfer agents, clearing 
agencies, and FINRA to have the fingerprints of their partners, 
directors, officers, and employees processed by the Attorney General 
of the United States or its designee (hereinafter ``Attorney 
General'').
---------------------------------------------------------------------------

    \2\ For purposes of the Plan, the term ``members'' includes 
Capital Acquisition Brokers, Funding Portals and applicants for 
FINRA membership.
---------------------------------------------------------------------------

1. Members and Other Broker-Dealers

    FINRA partners with an FBI-approved private channeler (``FBI-
Approved Channel Partner'') \3\ to process fingerprints and 
identifying information from personnel of members and other broker-
dealers required to be fingerprinted pursuant to Exchange Act 
section 17(f)(2) and Rule 17f-2 thereunder. The FBI-Approved Channel 
Partner fingerprints such personnel or accepts fingerprints of such 
personnel (either in electronic or hard copy format) and submits 
such fingerprints to the Attorney General for processing consistent 
with protocols and requirements established by the Attorney 
General.\4\
---------------------------------------------------------------------------

    \3\ The FBI-Approved Channel Partner is one of a limited number 
of entities approved by the FBI to submit fingerprints to the FBI 
and receive the results on behalf of an organization using that 
information for authorized non-criminal justice purposes (e.g., 
employment suitability, licensing determinations, etc.). The FBI 
reviews and approves all outsourced channeling relationships 
consistent with its outsourcing standards and protocols. As outlined 
in the September 28, 2021 letter from the FBI's National Crime 
Prevention and Privacy Compact Council Office (``CCO Letter''), the 
FBI has reviewed and conditionally granted permission to FINRA to 
use a specified FBI-Approved Channel Partner contingent upon FINRA 
filing a fingerprint plan with the Commission and the Commission 
declaring that fingerprint plan effective. See CCO Letter, available 
at https://www.finra.org/registration-exams-ce/classic-crd/fingerprints. The terms of the CCO Letter are incorporated by 
reference in the Plan.
    \4\ On its website, FINRA informs its members and other broker-
dealers of the availability of fingerprint services and any fees 
charged by FINRA in connection with those services and the 
processing of fingerprints pursuant to this Plan. See https://www.finra.org/registration-exams-ce/classic-crd/fingerprints.
---------------------------------------------------------------------------

    FINRA receives results from the FBI-Approved Channel Partner 
after the fingerprints have been processed by the Attorney General 
and makes those results available to authorized recipients (i.e., to 
a member or other broker-dealer that submitted the fingerprints and 
to regulators, as appropriate, for licensing, registration and other 
regulatory purposes), consistent with protocols and requirements 
established by the Attorney General. With respect to members and 
other broker-dealers, FINRA also reviews any Criminal History Record 
Information returned by the Attorney General to identify persons who 
may be subject to statutory disqualification under the Exchange Act 
and to take action, as appropriate, with respect to such persons.
    FINRA maintains copies of fingerprint processing results 
received from the Attorney General with respect to fingerprints 
submitted by the FBI-Approved Channel Partner pursuant to this Plan 
in accordance with FINRA's records policy.\5\ Any maintenance of 
fingerprint records by FINRA shall be for FINRA's own administrative 
purposes; FINRA is not undertaking to maintain fingerprint records 
on behalf of FINRA members pursuant to Exchange Act Rule 17f-
2(d)(2). FINRA records in FINRA systems the status of fingerprints 
of personnel of members and other broker-dealers submitted to the 
Attorney General.\6\ Through these systems, FINRA makes available to 
a member or other broker-dealer that has submitted fingerprints the 
status and results of such fingerprints after submission to the 
Attorney General.
---------------------------------------------------------------------------

    \5\ FINRA's records policy is to maintain all records for at 
least five years.
    \6\ These systems include the Central Registration Depository 
(CRD[supreg]) and the Funding Portal Registration Depository 
(FPRD[supreg]).
---------------------------------------------------------------------------

2. Transfer Agents and Clearing Agencies

    FINRA is partnering with an FBI-Approved Channel Partner to 
provide transfer agents and clearing agencies the option to process 
fingerprints and identifying information for their personnel who are 
required to be fingerprinted pursuant to Exchange Act section 
17(f)(2) and Rule 17f-2 thereunder. The FBI-Approved Channel Partner 
fingerprints such personnel or accepts fingerprints of such 
personnel (either in electronic or hard copy format) \7\ from a 
transfer agent or clearing agency that elects to use it and submits 
such fingerprints to the Attorney General for processing consistent 
with protocols and requirements established by the Attorney General. 
After receiving the processed results, FINRA makes them available to 
the submitting transfer agent or clearing agency (i.e., an 
authorized recipient of the results) consistent with protocols and 
requirements established by the Attorney General.
---------------------------------------------------------------------------

    \7\ See supra note 4.
---------------------------------------------------------------------------

3. FINRA Personnel

    FINRA partners with the FBI-Approved Channel Partner to obtain 
fingerprints and identifying information from FINRA personnel who 
are required to be fingerprinted under Exchange Act section 17(f)(2) 
and consistent with its Policy to Conduct Fingerprint-Based 
Background Checks (``Fingerprint Policy'').\8\ The FBI-Approved 
Channel Partner transmits fingerprints to the Attorney General for 
identification and processing consistent with protocols and 
requirements established by the Attorney General and securely makes 
the results available to FINRA after the fingerprints have been 
processed. FINRA evaluates the fingerprint results and takes any 
appropriate action in accordance with the terms of the Fingerprint 
Policy.
---------------------------------------------------------------------------

    \8\ Securities Exchange Act Release No. 50157 (August 5, 2004), 
69 FR 49924 (August 12, 2004) (Notice of Filing and Immediate 
Effectiveness of File No. SR-NASD-2004-095).

[FR Doc. 2023-21135 Filed 9-27-23; 8:45 am]
BILLING CODE 8011-01-P