Saturday, May 07, 2011

NASAA Opposes Broad Exemptions for Operations Personnel

The North American Securities Administrators Association (NASAA) has urged FINRA to revise its proposal to require the registration of individuals who perform broker-dealer operations functions. In a comment letter to the U.S. Securities and Exchange Commission on May 2, NASAA President David Massey reaffirmed NASAA's support for an examination, licensing, and continuing education requirement for individuals engaged in the operations of broker-dealers. NASAA believes, however, that the broad exemptive provisions contained in FINRA's current proposal would undermine the proposal's regulatory goal.

As explained by FINRA in the proposal, the development of a new registration category for operations personnel arose out of FINRA's concerns about the increasing complexity of the financial services industry and the importance of services provided by personnel in operations departments of broker-dealers. Additionally, FINRA expressed concerns about the potential for regulatory gaps in the area of registration and education requirements for the individuals performing and overseeing these functions. NASAA noted, however, that the proposal waives the testing requirements for individuals who hold any one of 15 FINRA registrations. In NASAA's view, these exemptions are so extensive that they will dilute the qualification process.

NASAA challenged FINRA's assertion that the exemptions would be appropriate based on the overlap in the content of the proposed operations professional examination with the various other examinations that FINRA administers. FINRA did not provide any significant detail concerning the nature of the overlap, NASAA contended. And while it is inevitable that some overlap between examinations will exist, overlap alone is not sufficient justification to accept one examination in lieu of another, NASAA stated. Moreover, given the nature of the tasks carried out or supervised by an operations professional, NASAA objected to granting a waiver to an individual who has only demonstrated basic knowledge of certain investment products, such as by passing the Series 6 examination for investment company securities and variable products.

In NASAA's view, the purpose of a registration regime for operations professionals is to demonstrate that an individual understands the important operations of a broker-dealer and the regulations governing those operations. If FINRA's concern is with the extent of overlapping content between existing examinations and the operational professional test, NASAA suggested that FINRA develop a targeted operations examination to be taken in conjunction with other exams, rather than providing blanket waivers. For example, NASAA suggested that a person holding a Series 7 would not be required to take and pass the entire operations examination, but rather could opt to take a "top off" examination with targeted content that would limit the degree of overlap with the examination the person has successfully completed.

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