[Federal Register Volume 85, Number 174 (Tuesday, September 8, 2020)]
[Notices]
[Pages 55535-55539]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-19719]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89732; File No. SR-FINRA-2020-026]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Temporarily Adopt (1) Supplementary Material 
.12 (Temporary Extension of the Limited Period for Registered Persons 
To Function as Principals) Under FINRA Rule 1210 and (2) Supplementary 
Material .07 (Temporary Extension of the Limited Period for Persons To 
Function as Operations Professionals) Under FINRA Rule 1220

September 1, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on August 28, 2020, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to adopt: (1) Temporary Supplementary Material 
.12 (Temporary Extension of the Limited Period for Registered Persons 
to Function as Principals) under FINRA Rule 1210 (Registration 
Requirements); and (2) temporary Supplementary Material .07 (Temporary 
Extension of the Limited Period for Persons to Function as Operations 
Professionals) under FINRA Rule 1220 (Registration Categories). The 
proposed rule change would extend the 120-day period that certain 
individuals can function as a principal or Operations Professional 
without having successfully passed an appropriate qualification 
examination through December 31, 2020.\3\
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    \3\ If FINRA seeks to provide additional temporary relief from 
the rule requirements identified in this proposed rule change beyond 
December 31, 2020, FINRA will submit a separate rule filing to 
further extend the temporary extension of time.
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    The text of the proposed rule change is available on FINRA's 
website at http://www.finra.org, at the principal office of FINRA and 
at the Commission's Public Reference Room.

[[Page 55536]]

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of and basis for the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of these statements may be examined at 
the places specified in Item IV below. The self-regulatory organization 
has prepared summaries, set forth in sections A, B, and C below, of the 
most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The COVID-19 pandemic is an unpredictable, exogenous event that has 
resulted in unavoidable disruptions to the securities industry and 
impacted member firms, regulators, investors and other stakeholders. In 
response to COVID-19, earlier this year FINRA began providing temporary 
relief to member firms from FINRA rules and requirements via frequently 
asked questions (``FAQs'') on its website.\4\ Two of these FAQs \5\ 
provide temporary relief to address disruptions to the administration 
of FINRA qualification examinations caused by the pandemic that have 
significantly limited the ability of individuals to sit for these 
examinations due to Prometric test center capacity issues.\6\
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    \4\ See Frequently Asked Questions Related to Regulatory Relief 
Due to the Coronavirus Pandemic, available at https://www.finra.org/rules-guidance/key-topics/covid-19/faq.
    \5\ See https://www.finra.org/rules-guidance/key-topics/covid-19/faq#qe.
    \6\ At the outset of the COVID-19 pandemic, all FINRA 
qualification examinations were administered at test centers 
operated by Prometric. Based on the health and welfare concerns 
resulting from COVID-19, in March Prometric closed all of its test 
centers in the United States and Canada and began to slowly reopen 
some of them at limited capacity in May. At this time, not all of 
these Prometric test centers have reopened at full capacity.
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    FINRA published the first FAQ on March 20, 2020, providing that 
individuals whom were designated to function as principals under FINRA 
Rule 1210.04 prior to February 2, 2020, would be given until May 31, 
2020, to pass the appropriate principal qualification examination.\7\ 
On May 19, 2020, FINRA extended the relief to pass the appropriate 
examination until June 30, 2020. Most recently, on June 29, 2020, FINRA 
again extended the temporary relief providing that individuals who were 
designated to function as principals under FINRA Rule 1210.04 prior to 
May 4, 2020, would be given until August 31, 2020, to pass the 
appropriate principal qualification examination.\8\
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    \7\ FINRA Rule 1210.04 (Requirements for Registered Persons 
Functioning as Principals for a Limited Period) allows a member firm 
to designate certain individuals to function in a principal capacity 
for 120 calendar days before having to pass an appropriate principal 
qualification examination.
    \8\ See supra note 5.
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    FINRA published the second FAQ on May 15, 2020, providing that 
individuals whom were designated to function as Operations 
Professionals under FINRA Rule 1220(b)(3)(B) prior to February 2, 2020, 
would be given until June 30, 2020, to pass the applicable 
qualification examination.\9\ On June 29, 2020, FINRA extended the 
temporary relief providing that individuals who were designated to 
function as Operations Professionals under FINRA Rule 1220(b)(3)(B) 
prior to May 4, 2020, would be given until August 31, 2020, to pass the 
appropriate qualification examination.\10\
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    \9\ Pursuant to FINRA Rule 1220(b)(3)(B) (Qualifications), a 
person registering as an Operations Professional may function in 
that capacity for 120 days before having to pass an applicable 
qualification examination.
    \10\ See supra note 5.
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    FINRA continues to closely monitor the impact of the COVID-19 
pandemic on member firms, investors, and other stakeholders. One of the 
impacts of COVID-19 continues to be serious interruptions in the 
administration of FINRA qualification examinations at Prometric test 
centers and the limited ability of individuals to sit for the 
examinations.\11\ Although Prometric has begun reopening test centers, 
Prometric's safety practices mean that currently not all test centers 
are open, some of the open test centers are at limited capacity, and 
some open test centers are delivering only certain examinations that 
have been deemed essential by the local government.\12\ Furthermore, 
Prometric has had to close some reopened test centers due to incidents 
of COVID-19 cases. The initial nationwide closure in March along with 
the inability to fully reopen all Prometric test centers due to COVID-
19 have led to a significant backlog of individuals who are waiting to 
sit for FINRA examinations.\13\
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    \11\ Information about the continued impact of COVID-19 on 
FINRA-administered examinations is available at https://www.finra.org/rules-guidance/key-topics/covid-19/exams.
    \12\ Information from Prometric about its safety practices and 
the impact of COVID-19 on it operations is available at https://www.prometric.com/corona-virus-update. See also supra note 11.
    \13\ Although an online test delivery service has been launched 
to help address the backlog, the General Securities Principal Exam 
(Series 24) and the Operations Professional Exam (Series 99) are not 
available online. See supra note 11.
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    In addition, firms are continuing to experience operational 
challenges with much of their personnel working from home due to 
shelter-in-place orders, restrictions on businesses and social activity 
imposed in various states, and adherence to other social distancing 
guidelines consistent with the recommendations of public health 
officials.\14\ As a result, firms continue to face potentially 
significant disruptions to their normal business operations that may 
include a limitation of in-person activities and staff absenteeism as a 
result of the health and welfare concerns stemming from COVID-19. Such 
potential disruptions may be further exacerbated and may even affect 
client services if firms cannot continue to keep principal or 
Operations Professional positions filled as they may have difficulty 
finding other qualified individuals to transition into these roles or 
may need to reallocate employee time and resources away from other 
critical responsibilities at the firm.
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    \14\ See, e.g., Centers for Disease Control and Prevention, How 
to Protect Yourself & Others, https://www.cdc.gov/coronavirus/2019-ncov/prevent-getting-sick/prevention.html.
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    These ongoing, extenuating circumstances make it impracticable for 
member firms to ensure that the individuals whom they have designated 
to function in a principal or Operations Professional capacity, as set 
forth in FINRA Rules 1210.04 and 1220(b)(3)(B), are able to 
successfully sit for and pass an appropriate qualification examination 
within the 120-calendar day period required under the rules, or to find 
other qualified staff to fill these positions. The ongoing 
circumstances also require individuals to be exposed to the health 
risks associated with taking an in-person examination, because the 
General Securities Principal and Operations Professional examinations 
are not available online. Therefore, FINRA is proposing to continue the 
temporary relief provided through the FAQs by adopting Rules 1210.12 
and 1220.07 to extend the 120-day period during which an individual can 
function as a principal or Operations Professional before having to 
pass an applicable qualification examination until December 31, 
2020.\15\ The proposed rule change would apply only to those 
individuals who were designated to function as a principal or

[[Page 55537]]

Operations Professional prior to September 3, 2020. Any individuals 
designated to function as a principal or Operations Professional on or 
after September 3, 2020, would need to successfully pass an appropriate 
qualification examination within 120 days.\16\
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    \15\ See supra note 3.
    \16\ FINRA notes that the proposed rule change would impact 
members that have elected to be treated as capital acquisition 
brokers (``CABs''), given that the CAB rule set incorporates the 
impacted FINRA rules by reference.
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    FINRA believes that this proposed continued extension of time is 
tailored to address the needs and constraints on a firm's operations 
during the COVID-19 pandemic, without significantly compromising 
critical investor protection. The proposed extension of time will help 
to minimize the impact of COVID-19 on firms by providing continued 
flexibility so that firms can ensure that principal and Operations 
Professional positions remain filled. The potential risks from the 
proposed extension of the 120-day period are mitigated by the firm's 
continued requirement to supervise the activities of these designated 
individuals and ensure compliance with federal securities laws and 
regulations, as well as FINRA rules.
    FINRA has filed the proposed rule change for immediate 
effectiveness and has requested that the SEC waive the requirement that 
the proposed rule change not become operative for 30 days after the 
date of the filing, so FINRA can implement the proposed rule change 
immediately.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\17\ which requires, among 
other things, that FINRA rules must be designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest.
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    \17\ 15 U.S.C. 78o-3(b)(6).
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    The proposed rule change is intended to minimize the impact of 
COVID-19 on firm operations by further extending the 120-day period 
certain individuals may function as a principal or Operations 
Professional without having successfully passed an appropriate 
qualification examination under FINRA Rules 1210.04 and 1220(b)(3)(B) 
until December 31, 2020. The proposed rule change does not relieve 
firms from maintaining, under the circumstances, a reasonably designed 
system to supervise the activities of their associated persons to 
achieve compliance with applicable securities laws and regulations, and 
with applicable FINRA rules that directly serve investor protection. In 
a time when faced with unique challenges resulting from the COVID-19 
pandemic, FINRA believes that the proposed rule change is a sensible 
accommodation that will continue to afford firms the ability to ensure 
that critical positions are filled and client services maintained, 
while continuing to serve and promote the protection of investors and 
the public interest in this unique environment.

B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. The proposed rule change is 
intended solely to provide temporary relief given the impacts of the 
COVID-19 pandemic crisis.\18\ As a result of the temporary nature of 
the proposed relief, an abbreviated economic impact assessment is 
appropriate.
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    \18\ See also Regulatory Notice 20-08 (March 2020).
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1. Economic Impact Assessment
(a) Regulatory Objective
    FINRA is proposing this temporary relief to address the public 
health risks and corresponding challenges during the COVID-19 pandemic. 
Social distancing, quarantining and other similar requirements to 
promote the health and safety of citizens have resulted in serious 
interruptions in the administration of FINRA qualification examinations 
at Prometric test centers and the limited ability of individuals to sit 
for the examinations. In recognition of these extraordinary times, the 
proposed rule change would temporarily extend the time that individuals 
can function as a principal or Operations Professional without having 
successfully passed an appropriate qualification examination.
(b) Economic Baseline
    As described above, FINRA Rules 1210.04 and 1220(b)(3)(B) allow 
firms to designate certain individuals to function in a principal or 
Operations Professional capacity for 120 calendar days before having to 
pass an appropriate principal qualification examination. As also 
described above, FINRA has provided temporary extensions to the 120-day 
period through FAQs, most recently in June 2020.
    Currently, approximately 157,000 individuals are registered as 
principals and approximately 36,000 are registered as Operations 
Professionals. Additionally, FINRA estimates that approximately 6,000 
individuals pass the General Securities Principal (Series 24) exam each 
year.\19\
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    \19\ Statistic is based on average examination volume from 2017-
2019.
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(c) Economic Impact
    The proposed rule change is intended solely to provide a temporary 
mechanism for firms to address the difficulty of ensuring that the 
individuals whom they have designated to function in a principal or 
Operations Professional capacity are able to successfully sit for and 
pass an appropriate qualification examination within the 120-calendar 
day period required under the rules while the COVID-19 pandemic 
continues to pose health and safety risks. The proposed rule change is 
necessary to temporarily rebalance the attendant benefits and costs of 
the obligations under FINRA Rules 1210 and 1220 in response to the 
impacts of the COVID-19 pandemic.
(1) Anticipated Benefits
    The benefits of the proposed temporary rule change will mainly 
accrue to those individuals who are operating as principals or 
Operations Professionals without having yet passed the appropriate 
qualification examinations, as permitted under FINRA rules, as these 
individuals will have additional time to pass their qualification 
examinations. The additional time provided to those individuals to pass 
the appropriate examinations will likely prevent any disruption to 
their employment associated with not meeting the examination 
requirement. Further, neither the principal examination nor the 
Operations Professional (Series 99) examination are available via 
remote testing. Therefore, the proposed temporary rule change will also 
allow those individuals to avoid any health risks (and resulting costs) 
associated with taking an in-person examination.
    Firms employing principals and Operations Professionals who have 
not yet passed their qualifying examinations will also benefit from 
continuity in their business operations. If those firms were required 
to prevent those individuals from functioning as principals or 
Operations Professionals, this would likely have spillover effects on 
firm procedures and services. Relatedly, investors at those firms will 
benefit from the resulting business continuity.

[[Page 55538]]

(2) Anticipated Costs
    As previously stated, the public health risks stemming from the 
COVID-19 pandemic have increased the costs associated with sitting for 
in-person qualification examinations. FINRA carefully considered the 
implications of extending the 120-calendar day period provided in FINRA 
Rules 1210.04 and 1220(b)(3)(B) and the potential for any downstream 
effects on retail investors and believes that there are potential 
negative spillover effects on investors if firms' processes are 
interrupted, as noted above. Further, FINRA believes that any risk 
associated with the extension of time is mitigated by the fact that the 
extension is temporary and by members' ongoing obligations to supervise 
the activities of associated persons.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \20\ and Rule 19b-
4(f)(6) \21\ thereunder.
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    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
FINRA has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of filing. However, 
pursuant to Rule 19b-4(f)(6)(iii), the Commission may designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest. FINRA has asked the Commission to 
waive the 30-day operative delay so that the proposed rule change may 
become operative immediately upon filing. As noted above, FINRA stated 
that the temporary proposed rule change will help minimize the impact 
of the COVID-19 outbreak on FINRA member firms' operations by allowing 
them to keep principal and Operations Professional positions filled and 
minimizing disruptions to client services and other critical 
responsibilities. The ongoing extenuating circumstances of the COVID-19 
pandemic make it impractical to ensure that individuals designated to 
act in these capacities are able to take and pass the appropriate 
qualification examination during the 120-calendar day period required 
under the rules. Shelter-in-place orders, quarantining, restrictions on 
business and social activity and adherence to other social distancing 
guidelines consistent with the recommendation of public officials 
remain in place in various states.\22\ Further, FINRA states that 
Prometric test centers have experienced serious interruptions in the 
administration of FINRA qualification examinations, resulting in a 
backlog of individuals waiting to take these examinations. Following a 
nationwide closure of all test centers earlier in the year, some test 
centers have re-opened, but are operating at limited capacity or are 
only delivering certain examinations that have been deemed essential by 
the local government.\23\ FINRA has launched an online test delivery 
service to help address this backlog. However, the General Securities 
Principal (Series 24) and the Operations Professional (Series 99) 
Examinations are not available online. FINRA states that the temporary 
proposed rule change will provide needed flexibility to ensure that 
these positions remain filled and is tailored to address the 
constraints on member firms' operations during the COVID-19 pandemic 
without significantly compromising critical investor protection.\24\
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    \22\ See supra note 14.
    \23\ See supra notes 11 and 12. FINRA states that Prometric has 
also had to close some reopened test centers due to incidents of 
COVID-19 cases.
    \24\ FINRA states that member firms remain subject to the 
continued requirement to supervise the activities of these 
designated individuals and ensure compliance with federal securities 
laws and regulations, as well as FINRA rules.
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    The Commission also notes that the proposal provides only temporary 
relief from the requirement to pass certain qualification examinations 
in within the 120-day period in the rules. As proposed, this relief 
would extend the 120-day period that certain individuals can function 
as principals or Operations Professionals through December 31, 2020. 
FINRA also noted that if it requires temporary relief from the rule 
requirements identified in this proposal beyond December 31, 2020, it 
may submit a separate rule filing to extend the effectiveness of the 
temporary relief under these rules.\25\ For these reasons, the 
Commission believes that waiver of the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
Accordingly, the Commission hereby waives the 30-day operative delay 
and designates the proposal operative upon filing.\26\
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    \25\ See supra note 3.
    \26\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule change's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-FINRA-2020-026 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-FINRA-2020-026. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than

[[Page 55539]]

those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for website viewing and 
printing in the Commission's Public Reference Room, on business days 
between the hours of 10:00 a.m. and 3:00 p.m., located at 100 F Street 
NE, Washington, DC 20549. Copies of such filing also will be available 
for inspection and copying at the principal office of FINRA. All 
comments received will be posted without change.
    Persons submitting comments are cautioned that we do not redact or 
edit personal identifying information from comment submissions. You 
should submit only information that you wish to make available 
publicly. All submissions should refer to File Number SR-FINRA-2020-026 
and should be submitted on or before September 29, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
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    \27\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-19719 Filed 9-4-20; 8:45 am]
BILLING CODE 8011-01-P


