Investment Adviser Reps May Need to Update Form U4

June 12, 2009

The U.S. Securities and Exchange Commission (“SEC”) has approved FINRA’s proposed changes to Form U4 (Uniform Application for Securities Industry Registration or Transfer) and Form U5 (Uniform Termination Notice for Securities Industry Registration), and these changes may require an investment adviser representative to update his or her Form U4.

The changes to disclosure questions on the Forms U4 and U5 included the addition of questions about certain regulatory actions. The revised Forms have been implemented in the Central Registration Depository (CRD) system as of May 18, 2009. In summary, the changes included:

  • Revision of questions on the Forms U4 and U5 to enable FINRA and other regulators to more readily identify individuals and firms subject to statutory disqualification based upon willful violations (pursuant to Section 15(b)(4)(D) or (E) of the Securities Exchange Act).
  • Revision of question regarding the disclosure of arbitrations or civil litigations to require the reporting of allegations of sales practice violations made against a representative in an arbitration or civil lawsuit regardless of whether the representative is a named party in the arbitration or civil litigation.
  • Revision to the monetary threshold for reporting of settlements of customer complaints, arbitrations, and civil litigations from $10,000 to $15,000 and making a conforming change for FINRA’s description of “Historic Complaints”.
  • Revision to the definition of “Date of Termination” in Form U5, and enabling firms to amend the “Date of Termination” and “Reason for Termination” sections of the Form U5 subject to certain conditions and notifications.

The new questions regarding willful violations require a person to answer whether the SEC, the Commodity Futures Trading Commission or any self-regulatory organization has ever found them to have willfully violated any provision of the securities acts, to have willfully aided, abetted, counseled, commanded, induced, or procured the violation by any person of any provision of the securities acts, or to have failed reasonably to supervise another person subject to their supervision, with a view to preventing the violation of any provision of the securities acts. For these new questions related to willful violations, the reference to securities acts includes the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Advisers Act of 1940, the Investment Company Act of 1940, the Commodity Exchange Act, or any rule or regulation under any of such Acts, or any MSRB rules. See http://www.sec.gov/rules/sro/finra/2009/34-59916.pdf.

These changes to the Forms U4 and U5 became effective May 18, 2009, except with regard to the new disclosure questions regarding willful violations, which become effective 180 days from May 18, 2009, which is on November 14, 2009. A registered investment adviser firm should amend its investment adviser representative’s Form U4 to respond to these new questions the first time a Form U4 amendment is filed after the effective date of May 18, 2009, but in any event, not later than 180 days following that date, which is November 14, 2009.

Because FINRA acts as the operator of the IARD and CRD systems and does not have regulatory authority over investment advisers, there may be a question as to the applicability to registered investment advisers of these changes and FINRA’s deadline for responding to the new willful violation questions. It should be noted that North American Securities Administrators Association (“NASAA“) filed a comment letter dated April 15, 2009 in support of the proposed changes to the Forms U4 and U5. Generally, regarding the Forms U4 and U5, investment adviser representatives have an obligation to update previously filed Forms U4 and U5 if they become aware of new disclosure information. Since NASAA has supported the proposed changes to Forms U4 and U5, it is our opinion that the individual states are likely to expect investment adviser representatives to comply with FINRA’s requirements and effective dates regarding the changes to the Forms U4 and U5. If you have any questions regarding your state’s implementation and effective dates with respect to these changes to the Forms U4 and U5, we recommend you directly contact your state securities department.

If you wish to review FINRA’s Regulatory Notice 09-23, Revised Forms U4 and U5 in its entirety, you may access that Notice at the following link: http://www.finra.org/Industry/Regulation/Notices/2009/P118706

RIA Compliance Consultants, Inc. can help your registered investment adviser prepare and submit Forms U4 or U5. Please contact us at 877-345-4034 if you are interested in discussing such services.

Posted by Bryan Hill
Labels: Form U4