FINRA , called the “Uniform Termination Notice for Securities Industry Regulation” is submitted to FINRA when a registered representative is terminated from a firm. A brief overview of Form U5 is contained below:
Currently, there are three different types of Form U5 filings: 1) a full Form U5; 2) a partial Form U5; and 3) amended Form U5. The full Form U5 is utilized when the individual terminates with the firm, while a partial Form U5 is utilized when the individual is terminated from certain jurisdictions or self-regulatory organizations. An amendment to Form U5 is used, for example, when the basis of the individual’s termination has been changed.
Information disclosed on Form U5 can have far reaching effects on financial advisors and stockbrokers because it may be made public through FINRA BrokerCheck. Here’s a closer look at the information FINRA is looking for in the submission of the Form 5:
In Question 7A, FINRA requires that the firm identify if the individual is subject of an investigation by a government body or self-regulatory organization having jurisdiction over investment-related business. Question 7B requires the firm to indicate whether the terminated individual has been subject of an internal review for wrongful taking of property, fraud or violating investment-related statutes, regulations, rules or industry standards of conduct. Firms must answer Question 7C in situations where the individual was charged or convicted of a felony while the individual was associated with the firm.
Question 7D of Form U5 concerns the disclosure of regulatory actions. Particularly, the firm is obligated to confirm whether the individual, when associated with the firm, had been subject of a self-regulatory organization or foreign government disciplinary action having jurisdiction over investment-related business. Disclosure is not mandated; however, when the incident was deemed a minor rule violation pursuant to a plan which the United States Securities and Exchange Commission (“SEC”) has authorized.
FINRA’s interpretative guidance further reveals that firms are not required to monitor the associated person to make sure that Questions 7C and 7D are answered correctly. FINRA calls for disclosure to be made by the firm when the firm has been expressly notified about the incident. In other words, disclosure is warranted if an agency contacts the firm’s staff concerning the incident, and the staff member knows, or should know, of the requirement to report the incident on Form U5.
FINRA is also concerned about whether the terminated individual has been the subject of formal disputes. Specifically, the firm is required to indicate whether, during the time that the individual was associated with the firm, the individual had been named in, or the subject of, certain investment-related, consumer-initiated arbitration or civil actions. Reportable actions include those that are pending, resulted in an award or judgment against the individual, or settled for $15,000.00 or more after May 18, 2009. Firms are even obligated to report certain instances when a customer files a complaint concerning the individual’s activities but did not pursue a more formal action.
In addition, FINRA requires the firm to disclose instances where the individual has been terminated after allegations of misconduct arose. Specifically, FINRA requires that the firms disclose when the individual has been discharged, permitted to resign, or even voluntarily resigned from the firm after allegations surfaced accusing the individual of (1) violating investment-related statutes, regulations, rules or industry standards of conduct; or (2) fraud or wrongful taking of property; or (3) failure to supervise in connection with investment-related statutes, regulations, rules or industry standards of conduct.
Form U5 is required to be submitted within 30 days of the registered representative’s termination. Firms also have an obligation to keep the Form U5 current; there is no expiration date on the firm’s duty to amend the Form U5 to address incompletions or inaccuracies.
The attorneys of Cosgrove Law Group, LLC represent investment advisors, brokers, and other associated persons nationwide in securities employment and regulatory matters, including U-5 defamation matters. Our attorneys also practice in a variety of other areas of law. If you have a legal matter or concern, please give us a call and speak directly with one of our experienced professionals.