The Financial Industry Regulatory Authority proposed a sweeping overhaul of its requirements regarding qualification examinations. Currently, only persons specifically sponsored by a FINRA-regulated firm, may take qualification examinations. FINRA proposes to modify this requirement and offer a “Securities Industry Essentials” examination to anyone seeking to enter the securities industry whether associated with a member firm or not. Persons who then become affiliated with a FINRA member firm would be required to take a second, more specialized knowledge examination to perform specific functions. For example, an individual seeking to become a general securities representative, which currently requires passing a 250-question Series 7 examination, would first take a 75-question SIE examination and then a specialized Series 7 test containing 125 questions; similarly, a person seeking to qualify as an operational professional, who today would be required to pass a 100-question Series 99 exam, would instead also first be required to pass the SIE test, then a specialized Series 99 examination containing only 50 questions. In addition, under an additional FINRA proposal, persons who transfer to a financial services affiliate of a FINRA member could return within seven years without retaking their qualification examinations provided they complete securities industry continuing education. Currently, a person must retake qualifications examinations after they cease being sponsored by a registrant after two years. FINRA submitted its rule amendments to the Securities and Exchange Commission for approval; the SEC is likely to provide 21 days for comments to FINRA’s proposal once it is published in the Federal Register.

My View: FINRA’s proposed examination rule amendments will somewhat address two practical issues: only persons associated with a FINRA member can currently take qualification examinations and persons must retake qualification examinations after leaving a FINRA registrant after two years. The development of a core examination that people can build upon once they join a broker-dealer will be a benefit to both member firms and prospective employees as potential hires will be able to demonstrate basic competence prior to joining a member firm. Moreover, employees of financial services firms will not have to worry that, when transferring to an affiliated entity, they might have to transfer back within two years or be required to retake their qualification examinations should they do so later. However, the circumstances under which individuals are waived from retaking their qualification examinations seems too narrow. FINRA should formalize other circumstances where individuals may leave a member firm for related work and return to either the same or a different member firm years later without having to retake qualification examinations (e.g., where a person leaves a registrant but continues to engage in securities industry-related work for a non-FINRA member). Currently, such a person may be able to obtain a waiver from examination requirements but solely upon specific application.