FINRA extends deadlines for Principal and Operations Professional exams until December 31, 2020
The Financial Industry Regulatory Authority (FINRA) has temporarily extended through December 31, 2020 the period for registered persons to function as Principals or as Operations Professionals without having successfully passed the relevant qualification exam. The rule change was effective immediately upon its filing with the SEC.
Under FINRA Rule 1210.04, a person registered with a FINRA member as a representative may be designated to function as a Principal for up to 120 calendar days before passing the appropriate qualification exam, provided such person has at least 18 months of experience functioning as a registered representative within the five-year period immediately preceding the designation. Under FINRA Rule 1220(b)(3)(B), a person registering as an Operations Professional is allowed the same period to pass the applicable qualification exam, during which time such person may function as an Operations Professional.
Due to the disruptions caused by the COVID-19 pandemic, FINRA has been providing temporary relief to firms from certain of its rules and requirements through a series of “frequently asked questions” (FAQs) on its website (see our most recent client alert on the FAQs). Two of these FAQs provided temporary extensions for the taking of certain FINRA qualification exams because test centers were closed. Some test centers have now reopened but not all are operating at full capacity. Some remain unopened, some are delivering only certain exams that have been deemed essential by relevant local authorities, and some reopened test centers have had to close again due to incidents of COVID-19 cases. As a result, there is a significant backlog of individuals waiting to sit for various FINRA exams. And while online delivery of certain exams has been launched to help address this backlog, the General Securities Principal Exam (Series 24) and the Operations Professional Exam (Series 99) are not available online.
FINRA published the first FAQ on this subject on March 20, 2020, providing that individuals who were designated to function as Principals prior to February 2, 2020 would be given until May 31, 2020, to pass the appropriate qualification exam. On May 19, FINRA extended the relief to June 30, 2020, and on June 29 extended it further to August 31, 2020. The second FAQ was published on May 15, 2020, providing that individuals designated to function as Operations Professionals prior to February 2, 2020 would be given until June 30 to pass the applicable exam, and on June 29, FINRA extended this relief to August 31.
In addition to the closing of test centers, broker-dealers have experienced numerous operational challenges caused by personnel working from home due to shelter-in-place orders, local restrictions on business and social activity imposed in various states, and other social distancing guidelines. Normal business operations have been and continue to be impacted, including by limitations with respect to in-person activities and absenteeism. These extraordinary circumstances can make it difficult for broker-dealers to ensure that persons needed to function as Principals or Operations Professionals will able to successfully sit for and pass the appropriate exam within the required 120-day period or to find other qualified staff to fill such positions. Enforcing the deadlines could lead to designated individuals being exposed to the health risks associated with in-person exams because the General Securities Principal and Operations Professional exams are not currently available online and disruptions in broker-dealer operations could be exacerbated and, most importantly, could significantly impact customer services if broker-dealers are unable to keep necessary Principal and/or Operations Professional positions filled.
Therefore, FINRA will continue its temporary relief by further extending the 120-day period during which an individual can function as a Principal or Operations Professional before passing the applicable exam until December 31, 2020. The relief will apply only to those who were designated to function as Principals or Operations Professionals prior to September 3, 2020. Persons designated to such positions on or after September 3 will have to successfully pass the appropriate exam within the requisite 120 days. FINRA will continue to monitor the pandemic’s impact and, if it becomes necessary to provide relief beyond December 31, 2020, FINRA will submit a separate rule filing to further extend the temporary extension.
Persons wishing to submit comments, data, views and arguments should do so on or before September 29, 2020.
If you have any questions regarding the rule change, please contact one of the authors or a member of the DLA Piper financial services team.
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This information does not, and is not intended to, constitute legal advice. All information, content, and materials are for general informational purposes only. No reader should act, or refrain from acting, with respect to any particular legal matter on the basis of this information without first seeking legal advice from counsel in the relevant jurisdiction.
