Document ID: SEC-2015-1000-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2015-06-17T04:00Z

[Federal Register Volume 80, Number 116 (Wednesday, June 17, 2015)]
[Notices]
[Pages 34777-34781]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-14828]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75154; File No. SR-FINRA-2015-015]

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

June 11, 2015.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice

[[Page 34778]]

 is hereby given that on June 4, 2015, Financial Industry Regulatory 
Authority, Inc. (``FINRA'') filed with the Securities and Exchange 
Commission (``SEC'' or ``Commission'') the proposed rule change as 
described in Items I and II below, which Items have been prepared by 
FINRA. The Commission is publishing this notice to solicit comments on 
the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to amend FINRA Rule 1250 (Continuing Education 
Requirements) to provide a Web-based delivery method for completing the 
Regulatory Element of the Continuing Education (``CE'') requirements 
and to amend Section 4(f) of Schedule A to the FINRA By-Laws to 
establish the fee for the Web-based delivery of the Regulatory Element. 
The proposed rule change would phase out the current option of 
completing the Regulatory Element in a test center as well as the 
current option for in-firm delivery of the Regulatory Element.
    In addition, FINRA is proposing to delete NASD Rule 1043 (Proctors 
of In-Firm Delivery of Regulatory Element), Incorporated NYSE Rule 345A 
(Continuing Education for Registered Persons) \3\ and NYSE Rule 
Interpretation 345A (Continuing Education for Registered Persons).
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    \3\ For convenience, the proposed rule change refers to 
Incorporated NYSE Rules as NYSE Rules.
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    The text of the proposed rule change is available on FINRA's Web 
site at http://www.finra.org, at the principal office of FINRA and at 
the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, FINRA included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. FINRA has prepared summaries, set forth in sections A, 
B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
Background
    The CE requirements under FINRA Rule 1250 consist of a Regulatory 
Element \4\ and a Firm Element.\5\
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    \4\ See FINRA Rule 1250(a) (Regulatory Element).
    \5\ See FINRA Rule 1250(b) (Firm Element).
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    The Regulatory Element applies to registered persons \6\ and 
consists of periodic computer-based training on regulatory, compliance, 
ethical, and supervisory subjects and sales practice standards, which 
must be completed within prescribed time frames.\7\ In addition, a 
registered person is required to retake the Regulatory Element in the 
event such person is: (1) Subject to a statutory disqualification as 
defined by Section 3(a)(39) of the Act; (2) subject to a suspension or 
imposition of a fine of $5,000 or more by a self-regulatory 
organization (SRO) or securities governmental agency; or (3) ordered to 
do so as a sanction in a disciplinary action by an SRO or a securities 
governmental agency. 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 in-firm subject to specified 
procedures.\8\
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    \6\ For purposes of the Regulatory Element, a ``registered 
person'' is defined as any person registered with FINRA as a 
representative, principal, assistant representative or Research 
Analyst. See FINRA Rule 1250(a)(5) (Definition of Registered 
Person).
    \7\ Pursuant to FINRA Rule 1250(a), each registered person is 
required to complete the Regulatory Element initially within 120 
days after the person's second registration anniversary date and, 
thereafter, within 120 days after every third registration 
anniversary date. Any registered person who has not completed the 
Regulatory Element program within the prescribed time frames will 
have his or her FINRA registrations deemed inactive and designated 
as ``CE inactive'' on the Central Registration Depository 
(CRD[supreg]) system until such time as the requirements of the 
program have been satisfied. A CE inactive person is prohibited from 
performing, or being compensated for, any activities requiring 
registration, including supervision. See also Notice to Members 95-
35 (Continuing Education Program Update: Regulatory Element 
Questions and Answers) (May 1995). Moreover, if a registered person 
is CE inactive for a two-year period, FINRA will administratively 
terminate the person's registration status with FINRA. The two-year 
period would be calculated from the date the person becomes CE 
inactive. If a registered person becomes CE inactive but is not 
registered with a member when the two-year period ends, FINRA will 
nevertheless update the CRD system to reflect that the person did 
not satisfy the Regulatory Element program. In either case, such 
person must reapply for registration and requalify (or obtain a 
waiver of the applicable qualification examination(s)) to be 
eligible to register again.
    \8\ The in-firm delivery procedures require, among other things, 
that (1) the firm designate a principal to be responsible for the 
in-firm delivery; (2) the delivery site be under the control of the 
firm and in an appropriate location and layout; (3) the firm satisfy 
the technology standards defined by FINRA or its designated vendor; 
(4) the firm's written supervisory procedures specify the in-firm 
delivery procedures; (5) the in-firm sessions be administered by a 
proctor who will be responsible for ensuring compliance with the 
required procedures and for monitoring the candidates; (6) 
appointments be scheduled in advance using the procedures and 
software specified by FINRA to communicate with FINRA's system and 
designated vendor; (7) the firm maintain and preserve a sign-in log; 
and (8) firms file a signed letter or attestation with FINRA prior 
to commencing in-firm delivery. See FINRA Rule 1250(a)(6) (In-Firm 
Delivery of the Regulatory Element).
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    In addition, NASD Rule 1043 requires that an associated person 
designated as a proctor by a firm for the purposes of the in-firm 
delivery of the Regulatory Element be registered as a Proctor with 
FINRA through the filing of a Form U4 (Uniform Application for 
Securities Industry Registration or Transfer); \9\ provided that an 
associated person who is already registered with FINRA in another 
registration category, such as a General Securities Representative, may 
be designated as a proctor by a firm without having to register as a 
Proctor with FINRA.
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    \9\ Proctors are not subject to a qualification examination. 
Further, an associated person who is registered solely as a Proctor 
is not qualified to function in any registered capacity other than a 
proctor for in-firm delivery.
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    The Firm Element consists of annual, member-developed and 
administered training programs designed to keep covered registered 
persons \10\ current regarding securities products, services and 
strategies offered by the member.
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    \10\ For purposes of the Firm Element, the term ``covered 
registered persons'' is defined as any registered persons who have 
direct contact with customers in the conduct of the member's 
securities sales, trading and investment banking activities, any 
person registered as an Operations Professional pursuant to FINRA 
Rule 1230(b)(6) (Operations Professional) or a Research Analyst 
pursuant to NASD Rule 1050 (Registration of Research Analysts), and 
the immediate supervisors of such persons. See FINRA Rule 1250(b)(1) 
(Persons Subject to the Firm Element).
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    NYSE Rule 345A and NYSE Rule Interpretation 345A include 
corresponding requirements.\11\
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    \11\ See also NYSE Information Memorandum 02-49 (November 2002).
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    Today, most registered persons complete the Regulatory Element in a 
test center rather than in-firm. Given advances in Web-based 
technology, FINRA believes that there is diminishing utility in the 
test center and in-firm delivery methods. Moreover, members and 
registered persons have raised concerns with the test center

[[Page 34779]]

delivery method because of the travel involved, the limited time 
currently available to complete a Regulatory Element session \12\ and 
the use of rigorous security measures at test centers, which are 
appropriate for taking qualification examinations but onerous for a CE 
program. Also, the test center delivery method is expensive to operate.
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    \12\ The current session time is 3\1/2\ hours.
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    In response to the issues noted above, FINRA engaged in extensive 
outreach with the industry and completed a pilot of a Web delivery 
system for administering the Regulatory Element. The proposed Web-based 
system performed well during the pilot in terms of both performance and 
accessibility. FINRA also received positive feedback from firms and the 
individual pilot participants. Among other things, pilot participants 
appreciated the expanded time to focus on the provided learning 
materials without the pressure of a timed session and the ability to 
resume or complete their session from where they left off.
Proposal
    Based on FINRA's evaluation of different delivery methods and 
consultation with the Securities Industry Regulatory Council on 
Continuing Education (``CE Council''),\13\ FINRA is proposing to 
provide a Web-based delivery method for completing the Regulatory 
Element. Specifically, FINRA is proposing to amend FINRA Rule 
1250(a)(6) 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. In addition to allowing the 
use of Web-based delivery, 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. However, FINRA will 
notify members through a Regulatory Notice of any future changes to the 
delivery method.
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    \13\ The CE Council is composed of up to 20 industry members 
from broker-dealers, representing a broad cross section of industry 
firms, and representatives from FINRA and other SROs as well as 
liaisons from the SEC and the North American Securities 
Administrators Association.
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    FINRA would like to launch the first phase of Web-based delivery, 
which will include the S106, S201 and S901 Regulatory Element programs, 
on October 1, 2015. FINRA would like to launch the second phase of Web-
based delivery, which will include the S101 Regulatory Element program, 
on January 4, 2016.
    FINRA is proposing to phase out test-center delivery by no later 
than six months after January 4, 2016. Registered persons will continue 
to have the option of completing the Regulatory Element in a test 
center until the phase out of the test center delivery method, but they 
will be required to use the Web-based system after that date.
    Further, FINRA is proposing to phase out the current option for in-
firm delivery on a rolling basis as each Regulatory Element program 
becomes available for Web-based delivery. Firms will not be able to 
establish new in-firm delivery programs after October 1, 2015. 
Moreover, firms that have pre-existing in-firm delivery programs 
established prior to October 1, 2015 would not be able to use that 
delivery method for the S106, S201 and S901 Regulatory Element programs 
after October 1, 2015, which is the anticipated launch date of Web-
based delivery for these programs. However, such firms may continue to 
use their pre-existing in-firm delivery programs for the S101 
Regulatory Element program until January 4, 2016, which is the 
anticipated launch date of Web-based delivery for the S101 program.
    FINRA is also proposing to eliminate NASD Rule 1043 relating to the 
registration of Proctors for in-firm delivery. FINRA is proposing to 
automatically terminate the Proctor registration category in the CRD 
system on January 4, 2016, which, as noted above, is the launch date of 
the second phase of Web-based delivery. Therefore, associated persons 
who are registered as Proctors in the CRD system will not be required 
to take any actions.
    The proposed Web-based delivery method will provide registered 
persons the flexibility to complete the Regulatory Element at a 
location of their choosing, including their private residence, at any 
time during their 120-day window for completion of the Regulatory 
Element.\14\
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    \14\ While the proposed rule change provides such flexibility, 
firms may choose to impose their own conditions based on their 
supervisory and compliance needs. For instance, a firm that wishes 
to have registered persons complete CE on the firm's premises can do 
so by having the registered person access Web-based CE from a firm 
device and location. Moreover, firms would have to update their 
written policies and procedures regarding the Regulatory Element to 
reflect the transition to Web-based CE and communicate the update to 
registered persons.
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    In addition, Web-based delivery will significantly reduce the cost 
to the industry. The current fee for test-center and in-firm deliveries 
is $100 per session.\15\ In-firm deliveries receive a three dollar 
rebate per session. FINRA is proposing to amend Section 4(f) of 
Schedule A to the FINRA By-Laws to assess a fee of $55 for each 
candidate who completes the Regulatory Element via the Web-based 
delivery method.\16\ FINRA is also proposing to amend Section 4(f) of 
Schedule A to the FINRA By-Laws to clarify that registered persons will 
not be required to complete the Regulatory Element in a test center or 
via the in-firm method during the phase-out period.
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    \15\ There are also additional fees for taking the session 
outside 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.
    \16\ 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 described above.
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    The Web-based format will include safeguards to authenticate the 
identity of the CE candidate. For instance, prior to commencing a Web-
based session, the candidate will be asked to provide a portion of 
their SSN (either first five or last four digits) and their date of 
birth. This information will only be used for matching data in the CRD 
system. The Web CE system will discard this information after the 
matching process.
    Further, before commencing a Web-based session, FINRA will require 
that each candidate agree to the Rules of Conduct for Web-based 
delivery. Among other things, the Rules of Conduct will require each 
candidate to attest that he or she is in fact the person who is taking 
the Web-based session. The Rules of Conduct will also require that each 
candidate agree that the Regulatory Element content is the intellectual 
property of FINRA and that the content cannot be copied or 
redistributed by any means. If FINRA discovers that a candidate has 
violated the Rules of Conduct, the candidate will forfeit the results 
of the Web-based session and may be subject to disciplinary action by 
FINRA.\17\ Violation of the Rules of Conduct will be considered conduct 
inconsistent with high standards of commercial honor and just and 
equitable principles of trade, in violation of FINRA Rule 2010 
(Standards of Commercial Honor and Principles of Trade).\18\
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    \17\ For instance, for cheating on the Regulatory Element, 
FINRA's Sanction Guidelines recommend a bar. See FINRA Sanction 
Guidelines at 40 (2013 [sic]), http://www.finra.org/sites/default/files/Sanctions_Guidelines.pdf.
    \18\ Further, an associated person that assists another 
associated person in violating the Rules of Conduct will also be 
considered to have violated FINRA Rule 2010. Firms must also 
consider whether they have an obligation to report violations of the 
Rules of Conduct to FINRA. For instance, FINRA Rule 4530.01 
(Reporting of Firms' Conclusions of Violations) requires a firm to 
report, among other things, if it concludes that an associated 
person has engaged in multiple instances of any violative conduct.

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[[Page 34780]]

    FINRA is not proposing any changes to the Firm Element requirements 
under FINRA Rule 1250(b).
    FINRA is proposing to delete NYSE Rule 345A and NYSE Rule 
Interpretation 345A in their entirety as they are substantially similar 
to FINRA Rule 1250.
    FINRA will announce the effective date of the proposed rule change, 
which FINRA intends for October 2015, in a Regulatory Notice to be 
published no later than 90 days following Commission approval.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\19\ which requires, among 
other things, that FINRA rules must 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, and Section 15A(g)(3) of the Act,\20\ which authorizes 
FINRA to prescribe standards of training, experience, and competence 
for persons associated with FINRA members.
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    \19\ 15 U.S.C. 78o-3(b)(6).
    \20\ 15 U.S.C. 78o-3(g)(3).
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    FINRA believes that the proposed rule change will improve members' 
compliance efforts and will allow registered persons to spend a greater 
amount of time on the review of CE materials and potentially achieve 
better learning outcomes, which will in turn enhance investor 
protection. Further, while the proposed rule change will provide more 
flexibility to members and registered persons, it will maintain the 
integrity of the CE program.

B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.
    FINRA notes that the proposed rule change is specifically intended 
to reduce the burden on firms while preserving the integrity of the CE 
program. As described above, the Web-based delivery method will provide 
registered persons the flexibility to complete the Regulatory Element 
at any location that they choose. Further, Web-based delivery is 
efficient and offers significant cost savings over test-center and in-
firm deliveries. With respect to the authentication process for Web-
based delivery, the CE candidate's personal identifying information 
will be masked and will be submitted to FINRA through a secure, 
encrypted, network. The personal identifying information submitted via 
the Web-based system will be used for authentication purposes only--the 
information will not be stored in the Web-based system.
Economic Impact Assessment
(a) Need for the Rule
    As discussed above, FINRA believes that there is diminishing 
utility in the test-center and in-firm delivery of the Regulatory 
Element given advances in Web-based technology. Moreover, members and 
registered persons have raised concerns with the test center delivery 
method because of the travel involved, the limited time currently 
available to complete a Regulatory Element session and the use of 
rigorous security measures at test centers. In addition, the test 
center delivery method is expensive to operate and support.
(b) Regulatory Objective
    The proposed rule change is intended to reduce the burden on firms 
while preserving the integrity of the CE program.
(c) Economic Baseline
    The proposed Web-based delivery method will affect members and 
registered persons through changes in the fee, location and allotted 
time for Regulatory Element sessions. The average annual in-firm and 
test-center deliveries over the past three years are 1,174 and 207,474, 
respectively. The current fee for in-firm and test-center deliveries is 
typically $100 per session. In addition, the Regulatory Element must be 
completed at a test center or in-firm subject to specific conditions, 
and the current Regulatory Element session time is 3\1/2\ hours. The 
proposed rule change will permit FINRA to provide CE training at a 
reduced cost, reduce the fee for the Regulatory Element session and 
provide registered persons with more flexibility regarding the location 
and allotted time to complete the session.
    The proposed Web-based delivery of the Regulatory Element will also 
improve FINRA's ability to update content in response to rule changes 
and other industry demands. The current test center delivery method 
involves a multi-layered release and quality control process for 
implementing new content through the delivery vendors because FINRA and 
the delivery vendors each employ a release and quality control process. 
The overlapping processes, while necessary, require additional effort 
for FINRA staff to support. The proposed rule change will enable FINRA 
to update the content of the Regulatory Element directly and more 
efficiently through a single release and quality control process.
(d) Economic Impacts
    The proposed Web-based delivery of the Regulatory Element will 
reduce direct and indirect costs of the program in a number of ways. 
First, the industry will benefit from the proposed decrease in the 
session fee from $100 to $55. Under the proposal, the total reduction 
in fees is estimated to be approximately $1 million in 2015, $9 million 
in 2016, and $11 million in 2017 compared to the fee structure of the 
test-center delivery. Second, in contrast with the test center delivery 
method, the proposed Web-based delivery will not involve travel, 
meaning that registered persons will not lose travel time in order to 
participate, or overly rigorous security measures. Registered persons 
will be able to complete the Regulatory Element at a location of their 
choosing, including their private residence. Third, the proposed Web-
based delivery will not impose any limit on the session time other than 
the 120-day window for completion of the Regulatory Element. Under the 
proposed Web-based delivery method, registered persons will be able to 
spend a greater amount of time on the review of CE materials and 
potentially achieve better learning outcomes.
    The Web-based format will provide FINRA the ability to update 
content in response to rule changes and other industry changes on a 
more timely basis. Also, it will significantly reduce the effort and 
cost associated with a multi-layered release and quality control 
process for implementing new content through the delivery vendors. 
Therefore, the proposed rule change will likely improve regulatory 
efficiency, promote better education of associated persons and enhance 
investor protection.
    The proposed rule change is not expected to negatively impact the 
integrity of the CE program. The proposed Web-based delivery method 
will include safeguards to authenticate the identity of the CE 
candidate. Further, before commencing a Web-based session, FINRA will 
require that each candidate agree to the Rules of Conduct for Web-based 
delivery.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    Written comments were neither solicited nor received.

[[Page 34781]]

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    A. By order approve or disapprove such proposed rule change, or
    B. institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-FINRA-2015-015 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
    All submissions should refer to File Number SR-FINRA-2015-015. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of FINRA. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-FINRA-2015-015 and should be 
submitted on or before July 8, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-14828 Filed 6-16-15; 8:45 am]
 BILLING CODE 8011-01-P