By Carol Dey Hibbs
By November 14, 2009, registered investment advisers and broker-dealers must amend all of their representatives’ Forms U4 to comply with amendments to Form U4 recently approved by the SEC. The amendments significantly expand the disclosures required on the Form and include:
- New questions, at Sections 14C and 14E of Form U4, that enable FINRA and other regulators to identify more readily persons subject to disqualification under the federal securities laws. Among the items that could lead to such disqualification are findings of willful violations of the federal securities laws, the Commodity Exchange Act, or the rules of the Municipal Securities Rulemaking Board.
- An increase, at Sections 14I(1) and (2) of Form U4, in the monetary threshold for reporting settlements of customer complaints, arbitrations or litigation from $10,000 to $15,000.
- A new requirement, at Sections 14I(4) and (5) of Form U4, that allegations of sales practice violations made against a registered person in an arbitration or litigation be reported even where the person is not a named party. Under the amendment, reporting is now required if the registered person was either named in or could reasonably be identified from the body of the arbitration claim or civil litigation complaint as a registered person involved in any alleged sales practice violations. Such information must be reported only with respect to arbitration claims and civil litigation filed on or after May 18, 2008.
The revised Form U4 and its new instructions are available here .
Actions to Take Now
- Amend all your representatives’ Forms U4 before November 14, 2009 to include answers to the new questions. If the answer to each new questions is “no,” there is no fee to file the amendment.
- When you amend Form U4 to answer the new questions, the IARD/CRD websites will indicate that the answers are provisional until November. Don’t let that confuse you. Rest assured that, if the questions are answered prior to November 14, the answers will remain after the November deadline.
- This is also a good time to make sure that other employee information is current in your representatives’ Forms U4 (e.g., check for changes in home addresses, name changes, other current employment by the representative, etc.).
- Under current rules, you must have the amended Form U4 manually signed by the employee and kept with your firm’s books and records.
Check to make sure all your representatives are registered in the states where you intend to have them registered. It has recently come to our attention that Form U4 applications are sometimes dropped without the firm or representative receiving any notice from FINRA or from any state. When you submit a new employee’s Form U4 or amend a Form U4 to register the representative in an additional state, it is advisable to check about three months after the filing to make sure the person has been properly registered. We also recommend that, each year, you check your state registration renewal notices to make sure that registrations for the correct number of representatives are being renewed. This will help you figure out if someone has been dropped.
For more information about amendments to the Forms U4, please contact our Financial Services practice group.