Legal & Compliance
The NASD Board of Governors requests member comment on rule proposals developed by the Industry/Regulatory Council on Continuing Education (the Council). These proposals codify and expand the conceptual recommendations made by a special task force comprised entirely of industry representatives and published by six serf-regulatory organizations (SROs)1 in September 1993. The proposed rules would establish a formal, two-part continuing education program for securities industry professionals that would require uniform training on regulatory matters and ongoing programs by firms to keep their registered persons up to date on job-specific subjects.
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The text of the proposed rules of the Council, which are amendments to Schedule C to the NASD By-Laws, follow this introduction. Background information and an explanation of these proposals are in the Status Report on the Continuing Education Program, which is reprinted in this Notice. A special section of the report, entitled "Questions and Answers Regarding The Securities Industry Continuing Education Proposal," helps further understanding of the proposed continuing education program in member firms.
The NASD Board of Governors urges members to comment on this important new regulatory initiative. Member comments will be considered by the Council, the NASD Membership Committee, and the NASD Board of Governors and will have an important impact on the final structure of the continuing education program.
Comments should be submitted no later than October 15, 1994, and be addressed to Joan C. Conley, Corporate Secretary, National Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006. If you have questions about this Notice or want additional copies of the report, contact Frank J. McAuliffe, Vice President, Membership & Qualifications, at (301) 590-6694, or Mark R Costley, Senior Qualifications Analyst, at (301) 590-6697.
1 The six SROs include the American Stock Exchange (AMEX), the Chicago Board Options Exchange (CBOE), the Municipal Securities Rulemaking Board (MSRB), the National Association of Securities Dealers, Inc. (NASD), the New York Stock Exchange (NYSE), and the Philadelphia Stock Exchange (PHLX).
Text Of Proposed Amendment To Schedule C Of The NASD By-Laws
(Note: New language is underlined.)
This Part prescribes requirements regarding the continuing education of certain registered persons subsequent to their initial qualification and registration with the NASD. The requirements shall consist of a Regulatory Element and a Firm Element as set forth below.
(1) Regulatory Element
(a) Requirements — No member shall permit any registered person to continue to. and no registered person shall continue to, perform duties as a registered person, unless such person has complied with the requirements of Section (1) hereof.
(i) Each registered person shall complete the Regulatory Element on three occasions, at intervals of two, five and 10 years after the effective date of their registration, or as otherwise prescribed by the NASD. On each of the three occasions, the Regulatory Element must be completed within one hundred twenty days after the person's registration anniversary date. The content of the Regulatory Element shall be prescribed by the NASD.
(ii) Registered persons who have been continuously registered for more than 10 years as of the effective date of this Part shall be exempt from participation in the Regulatory Element provided such persons have not been subject to any disciplinary action within the last 10 years as enumerated in subsection (1)(c)(i)(ii) of this Part. In the event of such disciplinary action, a person will be required to satisfy the requirements of the Regulatory Element by participation for the period from the effective date of this Part to 10 years after the occurrence of the disciplinary action.
(iii) Persons who have been currently registered for 10 years or less as of the effective date of this Part shall initially participate in the Regulatory Element within 120 days after the occurrence of the second, fifth or tenth registration anniversary date. whichever anniversary date first applies, and on the applicable registration anniversary date(s) thereafter. Such persons will have satisfied the requirements of the Regulatory Element after participation on the tenth registration anniversary.
(iv) All registered persons who have satisfied the requirements of the Regulatory Element shall be exempt from further participation in the Regulatory Element, subject to reentry into the program as set forth in subsection d)(c) of this Part.
(b) Failure to Complete — Unless otherwise determined by the NASD, any registered persons who have not completed the Regulatory Element within the prescribed time frames will have their registrations deemed inactive until such time as the requirements of the program have been satisfied. Any person whose registration has been deemed inactive under this Part shall cease all activities as a registered person and is prohibited from performing any duties and functioning in any capacity requiring registration. The NASD may, upon application and a showing of good cause, allow for additional time for a registered person to satisfy the program requirements.
(c) Re-entry into Program — Unless otherwise determined by the NASD, a registered person will be required to re-enter the Regulatory Element and satisfy the program's requirements in their entirety commencing with initial participation within 120 days of a disciplinary action becoming final, and on three additional occasions thereafter, at intervals of two, five and 10 years after re-entry, notwithstanding that such person has completed all or part of the program requirements based on length of time as a registered person or completion of ten years of participation in the program, whenever the registered person has been:
(i) subject to any statutory disqualification as defined in Section 3(a)(39) of the Securities Exchange Act of 1934 (See also Rule 346(f));
(ii) subject to suspension or to the imposition of a fine of $5.000 or more for violation of any provision of any securities law or regulation, or any agreement with or rule or standard of conduct of any securities governmental agency, securities serf-regulatory organization, or as imposed by any such regulatory or self-regulatory organization in connection with a disciplinary proceeding; or
(iii) ordered to re-enter the continuing education program by the Securities and Exchange Commission, any securities self-regulatory organization or any state securities agency.
(d) Any registered person who has terminated association with a member and who has, within two years of the date of termination, become reassociated in a registered capacity with a member shall participate in the Regulatory Element at such intervals (two, five and 10 years') that may apply based on the initial registration anniversary date rather than based on the date of reassociation in a registered capacity.
(e) Definition of registered person — For purposes of this Part, the term "registered person" means any person registered with the NASD as a representative, principal or assistant representative pursuant to Parts II, III or IV respectively of Schedule C to the By-Laws.
(2) Firm Element
(a) Persons Subject to the Firm Element — The requirements of this section shall apply to any person registered with a member who has direct contact with customers in the conduct of the member's securities sales, trading and investment banking activities, and to the immediate supervisors of such persons (collectively, "covered registered persons"). "Customer" shall mean any natural person and any organization, other than another broker or dealer, executing securities transactions with or through or receiving investment banking services from a member.
(b) Standards for the Firm Element
(i) Each member must maintain a continuing and current education program for its covered registered persons to enhance their securities knowledge, skill, and professionalism. At a minimum, each member shall at least annually evaluate and prioritize its training needs and develop a written training plan. The plan must take into consideration the member's size, organizational structure, and scope of business activities, as well as regulatory developments and the performance of covered registered persons in the Regulatory Element.
(ii) Minimum Standards for Training Programs — Programs used to implement a member's training plan must be appropriate for the business of the member and, at a minimum must cover the following matters concerning securities products, services and strategies offered by the member:
a. General investment features and associated risk factors;
b. Suitability and sales practice considerations:
c. Applicable regulatory requirements.
(iii) Administration of Continuing Education Program — A member must administer its continuing education programs in accordance with its annual evaluation and written plan and must maintain records documenting the content of the programs and completion of the programs by covered registered persons.
(c) Participation in the Firm Element
— Covered registered persons included in a member's plan must take all appropriate and reasonable steps to participate in continuing education programs as required by the member.
(d) Specific Training Requirements
— The NASD may require a member, individually or as part of a larger group, to provide specific training to its covered registered persons in such areas the NASD deems appropriate. Such a requirement may stipulate the class of covered registered persons for which it is applicable, the time period in which the requirement must be satisfied and, where appropriate, the actual training content.
On The Continuing EDUCATION Program
THE INDUSTRY/REGULATORY COUNCIL ON CONTINUING EDUCATION
In March 1993, six self-regulatory organizations (SROs)1 announced the formation of an industry task force to consider whether the industry should develop a uniform continuing education program for registered persons. The task force was composed of experienced individuals with diverse backgrounds from a broad range of firms, thus ensuring consideration of the interests and needs of a wide cross section of the industry. The SROs noted that the increasing complexity of the securities industry demands that professionals who deal with the public or are in supervisory positions maintain minimum standards of competence and professionalism. The SROs also said that a formal industry-wide continuing education program to keep professionals up to date on products, markets, and rules might be needed. By initiating a broad-based industry effort, the SROs hoped to provide a unified industry-wide approach acceptable to all segments of the industry.
In September 1993, the industry task force issued a report calling for a formal two-part continuing education program for securities industry professionals that would require uniform periodic training in regulatory matters (Regulatory Element) and ongoing programs by firms to keep employees up-to-date on job and product-related subjects (Firm Element). The report also recommended the creation of a permanent Industry/Regulatory Council on Continuing Education (the Council)2 to recommend to the SROs the specific content of the uniform Regulatory Element and the minimum core curricula for ongoing firm training programs undertaken to satisfy the requirements of the Firm Element. The task force recommended further that computer-based training be used as a primary delivery vehicle for the uniform Regulatory Element of the program. In November 1993, the SROs endorsed in concept the recommendations of the industry task force.
Since November 1993, the Council has met monthly and has formed separate committees to work on the Regulatory and Firm Elements. The Regulatory and Firm Element Committees have prepared proposed draft rules that would implement the program when approved by the SROs. The Regulatory Element Committee has also developed an initial listing of standardized subject matter for the computer-based training program. The Firm Element Committee has developed standards that firms must adhere to in developing and implementing their training programs.
The Council has now submitted these proposed rules to the various SROs for review with an aggressive schedule to develop and implement the continuing education program. The current target is to have the final rules adopted by the SROs by November 1994 and for the SROs to immediately thereafter file the rules for approval with the SEC. It is anticipated that the rules will be formally approved by the SEC in January 1995. The continuing education program would then be implemented on July 1, 1995.
PROPOSED PROGRAM HIGHLIGHTS
The Regulatory Element proposal requires all registered persons to participate in a prescribed computer-based training session on their second, fifth, and tenth registration anniversary dates. Persons who have been registered for more then 10 years and have not been the subject of a serious disciplinary action (as more fully described below) during the most recent 10 years are exempt from the Regulatory Element.
Failure to complete the required Regulatory Element computer-based training session during the prescribed period would result in a person's registration becoming inactive. A person whose registration becomes inactive cannot conduct a securities business or perform any of the functions of a registered person until such person meets the requirement.
Any person who would otherwise be exempt from the Regulatory Element would be required to re-enter the program for another 10 years upon becoming subject to certain disciplinary actions or as otherwise required by a securities regulatory or self-regulatory organization. Such re-entry would be occasioned by a person becoming subject to a statutory disqualification pursuant to the Securities Exchange Act of 1934; if an individual's registration is suspended by a securities regulatory or self-regulatory organization; or if a securities regulatory or self-regulatory authority imposes a fine of $5,000 or more for a violation of any securities law, rule, or regulation, which is the threshold level for determining a serious disciplinary action.
The Regulatory Element computer-based training program will be designed to transmit information broadly applicable to all registered persons. The content will be recommended by a group of industry representatives, subject to Council review and SRO approval. The content will focus on compliance, regulatory, ethical, and sales-practice standards. Because of the general and broadly applicable nature of this material, the Council determined to recommend that the Regulatory Element should be initiated with a "one size fits all" approach to the material to be transmitted in the computer-based training program, regardless of the job functions or registration status, such as Series 6 or Series 7.
While there will be no grading of individual performance on the Regulatory Element, information feedback will be provided to individuals and their firms regarding areas of apparent strength or weakness as indicated by the individual's interaction with the computer-based training program. In addition, aggregated information will be provided to firms on all their covered registered persons who take the computer-based training program in a given period. Firms will be expected to consider this information when formulating their training plans for the Firm Element, as more fully described below.
Unlike the Regulatory Element, where only those persons registered for 10 years or less are covered, the Firm Element has no time limitations. It is applicable to all persons who conduct business with retail, institutional, or investment banking customers of the firm. The immediate supervisors of such persons are also covered by the Firm Element.
The Firm Element requires each member to establish a training process and identifies certain minimum requirements associated with that process. The firm must prepare a training plan after an analysis of its training needs. Firms must consider certain factors when conducting their analyses and in developing their training plans, such as the firm's size, organizational structure, and scope of business activities, as well as regulatory developments and the performance of covered registered persons in the Regulatory Element. The program requires a training plan to be implemented by a member and requires the member to maintain records that clearly demonstrate the content of its training programs and the completion of the programs by the persons identified in the firm's training plan. Persons who are subject to the training plan would have an affirmative obligation to participate in the programs identified by the member.
The Firm Element also establishes certain minimum standards for the training programs that are used in a member's plan. For example, such programs, when dealing with investment products and services, must identify their investment features and associated risk factors, their suitability in various investment situations and applicable regulatory requirements that affect the products or services. The SROs would have the ability to require members, individually or as part of a group, to provide specific training to covered registered persons in any area the SROs deem necessary. Depending on the issue of concern, these requirements could be directed at specific individuals or portions of a firm, a specific firm or group of firms, or across the entire industry.
The SROs propose to fully implement the Regulatory Element on July 1, 1995. The Central Registration Depository (CRD) system will track persons subject to the requirement and notify members in advance of those individuals approaching their second, fifth, and tenth year anniversary dates who are required to participate in a computer-based training session. Follow-up notices will also be sent as persons subject to the Regulatory Element requirement approach the end of the 120 days during which the requirement must be satisfied. In addition, the CRD system will generate monthly reports to members identifying those persons approaching or subject to the Regulatory Element requirement as well as those persons whose registrations have become inactive due to failure to complete the requirement within the specified time.
The Regulatory Element requirements will apply to all registered persons whose second, fifth, and tenth registration anniversary dates occur on or after July 1, 1995. Persons who have completed 10 years of registration before July 1, 1995, will be exempt. A person's registration anniversary dates will be measured from his or her first registration in the CRD, regardless of any subsequent firm changes or changes in registration category. Persons who have incurred a disciplinary event during the 10-year period before July 1, 1995, that would require them to re-enter the program will have an initial registration date that coincides with the effective date of the final decision in a disciplinary action.
The NASD PROCTOR® system will be modified to handle the delivery of the computer-based training program in the 55-center PROCTOR network. Future expansion of the network is also being investigated, including the use of temporary centers that would operate periodically in areas located at a considerable distance from a full-time network center. In addition, the Council and the SROs will in the future consider the feasibility of permitting members to deliver the computer-based training on their internal computer systems if certain technical, administrative and regulatory concerns can be adequately resolved.
The Firm Element of the continuing education program will be implemented in two stages. By July 1, 1995, members would be required to complete their training needs analyses and to develop written training plans that would be available for review upon request by the SROs, the SEC, and state regulators. Members would be expected to begin implementing their plans as soon as practicable but, in any event, no later than January 1, 1996. The SROs are committed to developing a consistent approach to examination and enforcment of the Firm Element requirements. Additionally, the SROs will coordinate their field inspection efforts to avoid any unnecessary regulatory overlap in the inspection process for firms that are joint members of two or more SROs.
The Firm Element provides great flexibility to firms in designing training programs appropriate to their needs and consistent with their resources, subject to broad standards defined in the Firm Element. The Firm Element framework is intended to be flexible enough to accommodate differences in the size, scope, and complexity of firm operations. Therefore, the Council and the SROs believe that the training needs analysis and training plan requirements of the proposal are within the capabilities of all organizations, regardless of size.
The Firm Element also proposes that a member would be responsible for assuring that training programs for investment products and services used in its training plan appropriately cover the investment characteristics and associated risk factors of the product or service, their suitability for different investment situations and any regulatory requirements that affect the product or service. The Council and the SROs realize that a great deal of the training material and programs will be provided by a variety of training and education providers. Nevertheless, the proposed rules place the responsibility on each member to assure that such training meets the broad content standards included in the rule as they relate to that particular firm. The SROs do not intend to pre-approve training materials and programs developed by members or providers. They will, however, communicate regularly with members regarding the expectations for the content of training programs. As the program evolves, it is expected some curricula content standards will be defined by the SROs for products and services where heightened regulatory concerns exist.
The Council intends to develop more extensive guidelines to assist firms in carrying out their responsibilities under the Firm Element and will recommend to the SROs that these guidelines be provided to firms when the final continuing education rules are adopted by the SROs and approved by the SEC.
1 The SROs include the American Stock Exchange (AMEX), the Chicago Board Options Exchange (CBOE), the Municipal Securities Rulemaking Board (MSRB), the National Association of Securities Dealers, Inc. (NASD), the New York Stock Exchange (NYSE), and the Philadelphia Stock Exchange (PHLX).
2 The Council includes representatives from 13 broker/dealers and the six SROs. In addition, the Securities and Exchange Commission (SEC) and the North American Securities Administrators Association (NASAA) have each assigned a liaison to the Council. Members of the Council are listed at the end of this report.
INDUSTRY/ REGULATORY COUNCIL ON CONTINUING EDUCATION
William R. Simmons
Executive Vice President & Director
Dean Witter Reynolds, Inc.
New York, NY
Vice President & Associate General Counsel
New York, NY
Mary Alice Brophy
First Vice President & Director of Compliance
Dam Bosworth Inc.
Ronald E. Buesinger
Corporate Secretary & Senior Vice President
A.G. Edwards & Sons, Inc.
St. Louis, MO
H.C. Wainright & Co., Inc.
David A. DeMuro
Senior Vice President
Associate General Counsel
Lehman Brothers Inc.
New York, NY
John P. Gualtieri
Vice President & Insurance Counsel
Prudential Insurance Co. of America
Therese M. Haberle
Associate General Counsel
Charles Schwab & Co., Inc.
San Francisco, CA
General Principal, Investment Representative
Edward D. Jones & Co.
Maryland Heights, MO
Todd A. Robinson
Chairman & CEO
Linsco/Private Ledger Corp.
Richard C. Romano
Romano Brothers & Co.
Director Institutional Compliance
O. Ray Vass
First Vice President
Merrill Lynch, Pierce, Fenner & Smith, Inc.
New York, NY
Vice President of Examinations
Philadelphia Stock Exchange
Howard Baker Senior
Vice President American Stock Exchange
New York, NY
Vice President of Compliance
Chicago Board Options Exchange
Frank J. McAuliffe
NASD Rockville, MD
Donald van Weezel
New York, NY
Questions & Answers Regarding
THE SECURITIES INDUSTRY
Continuing Education Proposals
Q. What is the Industry/Regulatory Council on Continuing Education (the Council) and what role does it play?
A. The Council is comprised of 13 representatives of the securities industry (primarily the former members of the Securities Industry Task Force on Continuing Education) and representatives of six self-regulatory organizations (SROs). In addition, liaison personnel from the SEC and NASAA participate in Council meetings. The Council's role is to develop, update, and coordinate the Continuing Education program and to recommend specific content to the SROs for the Regulatory Element and minimum core curricula for the Firm Element.
In the future, industry representatives will be selected to serve three-year terms through a nominating-committee process designed to maintain representation of a broad cross section of industry firms. The Council will continue to evaluate the program and recommend changes to the SROs as necessary to ensure that the Regulatory and Firm Elements are responsive to industry needs and changes over time.
Q. Why does the program consist of two elements?
A. The Regulatory Element is applicable to all persons registered with an SRO within their first 10 years in the business. Because the Regulatory Element is intended to enhance education and training in broad-based regulatory, compliance, and ethical issues, a "one size fits all" approach is initially contemplated for persons engaged in limited or full-service aspects of the securities business and in a variety of jobs.
The Firm Element is designed to ensure that firms provide ongoing education and training to persons who deal directly with individual, institutional, and investment banking customers. This element will focus on topics tailored specifically to the job functions and products handled by those people. Accordingly, the Firm Element has sufficient flexibility to meet the needs of all firms irrespective of their size or product mix.
Q. Who will be covered by the program?
A. Every person registered for 10 years or less will be covered by the Regulatory Element and will be required to take the regulatory portions within 120 calendar days after then-second, fifth, and tenth anniversaries. The Firm Element requirements shall apply to all "covered registered persons" (salespeople, traders, investment bankers, and others who conduct a securities business with customers, and their first-line immediate supervisors) for as long as they are considered "covered registered persons." The term "customer" applies to retail, institutional, and investment banking customers, but does not include other broker/dealers.
Q. Will registered personnel located outside the United States be covered?
A. Yes and the Council is considering what special accommodations may be necessary to deliver the program to such individuals.
Q. Will anyone be grandfathered or exempted?
A. Grandfathering applies to the Regulatory Element only. Those who have been registered more than 10 years and who have not been the subject of a serious disciplinary action (suspension, bar, fine of $5,000 or more, or a statutory disqualification) during the most recent 10 years will be grandfathered from the Regulatory Element.
Q. Are branch managers "covered registered persons" within the Firm Element?
A. Yes. Branch managers are covered registered persons because they directly supervise salespeople in the branch. If a branch manager also has customer accounts, then his/her supervisor is a "covered registered person" as well.
Q. Are research analysts "covered registered persons" within the Firm Element?
A. Yes, if they communicate directly with or engage in sales presentations to customers.
Q. Will either element contain pass/fail tests?
A. No. The Council recommended that the program should focus on increased education and training rather than on periodic examinations.
Q. How will the program be administered?
A. The Regulatory Element will be delivered through computer-based training, in which participants will work through problems and/or scenarios at computer terminals located in an NASD PROCTOR center or other specified location.
The Firm Element will be delivered by firms and may include written materials, videos, audio tapes, classroom training, direct broadcasts, or other media
Q. What is the rationale behind discontinuing the Regulatory Element after 10 years?
A. Because information to be transmitted through the Regulatory Element is primarily of a compliance, regulatory, and ethical nature, it was perceived that individuals registered for more than 10 years without a significant disciplinary action would have adequately absorbed this material and that this would be reflected in their manner of doing business. In addition, all registered individuals who are "covered registered persons" will continue to be subject to the requirements of the Firm Element throughout their careers.
Q. In the Regulatory Element, will there be a way to verify that individuals have completed the computer-based training?
A. Yes. The CRD system will track and communicate anniversary dates and evidence of completion for the Regulatory Element. The computer-based systems used to transmit the training information can also capture, store, and analyze data as to who took the training, when, where, and other information — in a manner similar to that of the industry qualification testing now conducted through the NASD PROCTOR system.
Q. What is the expected fee for each Regulatory Element session at an NASD PROCTOR center?
A. The current estimate is about $75; however, the ultimate fee will depend on the overall costs for the program, which will operate on a revenue-neutral basis and be subject to periodic independent audits.
Q. For those firms with internal computer systems and the capability to interface with the NASD PROCTOR system, will there be an opportunity to deliver the Regulatory Element material through these systems?
A. Initial delivery of the Regulatory Element will be on the PROCTOR system; however, the potential for internal delivery on firm computer systems is under discussion. Obviously, arrangements to permit internal delivery depend on the development of appropriate safeguards to ensure the integrity of the program and the ability to capture the necessary information for feedback.
Q. Is the content of the Firm Element left entirely up to the individual firms?
A. No. The firms will be required to update training plans annually to demonstrate that they meet certain prescribed minimum standards with respect to subject material to be disseminated to their "covered registered persons" based on their needs, products, and lines of business.
Q. Will "covered registered persons" need to participate in formal Firm Element training programs every year?
A. Not necessarily. There are no set schedules or required number of hours for the Firm Element, but coverage must be sufficient to meet the criteria established by SRO rules. For example, it may not be necessary to include every "covered registered person" within each calendar year if the firm is engaged exclusively in limited lines of business.
Q. Is the annual compliance meeting required under Section 27 of the NASD Rules of Fair Practice adequate to demonstrate compliance with the requirements of the Firm Element?
A. Not in and of itself. It can certainly be used as an occasion on which to transmit information or conduct training. However, firms must address their own needs with regard to sales practices and product training and carry out effective programs. In most instances, a significant expansion of material covered at the annual compliance meeting will probably be necessary. Also, it may be appropriate to transmit some material in a more timely manner than waiting for scheduled annual compliance meetings.
Q. Can the requirements of the Firm Element be met through continuation of the significant internal training and education programs already in place at some firms?
A. Possibly. For firms with comprehensive ongoing training programs in place, the requirements may result primarily in expanded record keeping, more formalized planning, and the incorporation of any minimum criteria specified by the SROs. It is likely, however, that most firms will need to substantially increase their education and training efforts to meet or exceed these requirements.
Q. Will it be necessary for each "covered registered person" to meet personally with his/her supervisor annually to determine the training requirement for that person?
A. No. However, some firms may elect to conduct such meetings to ascertain individual needs or to do so during regular performance reviews.
Q. Can firms use training materials or presentations prepared or delivered by outside entities to satisfy the requirements of the Firm Element?
A. Yes, provided that they meet the same standards established for firms.
Q. If firms use materials or presentations prepared or delivered by outside entities to satisfy the requirements of the Firm Element, who is responsible for the content?
A. Individual firms have the ultimate responsibility for the content and adequacy of material or presentations, regardless of who prepares or presents the material.
Q. How can firms obtain guidance on designing and implementing internal training programs adequate to meet the requirements of the Firm Element?
A. The Council anticipates producing a compilation of guidelines taking into account comments and questions received while rule enactment is pending. These guidelines would not be rules but would offer suggestions intended to help firms devise appropriate and reasonable programs consistent with their own unique characteristics and businesses.
Q. Will sessions devoted exclusively to selling skills or prospecting fulfill the requirements of the Firm Element?
Q. How will materials or presentations used by firms to satisfy the Firm Element be checked or evaluated?
A. Training plans, materials, outlines, and other required documentation must be retained for regulatory examination (upon request or during routine sales practices examinations) for conformance with standards prescribed by SRO rules. In addition, firms will be required to maintain evidence of participation and completion by their "covered registered persons".
Q. What authority does the Council have to require firms to transmit specific information or carry out training in specific areas?
A. None directly. Explicit authority for the requirements and enforcement of the continuing education program will be established in rules promulgated by the SROs.
Q. If a "covered registered person" has an insurance license and fulfills insurance continuing education obligations, can that serve as a substitute for the Firm Element?
A. Perhaps it may comprise a portion of the Firm Element requirements relating to insurance-related securities products, but it is unlikely that most insurance programs will meet all minimum standards prescribed under this program.
Q. Will study materials be available?
A. A content outline will be prepared for the Regulatory Element. Guidelines will be published for the Firm Element and it is anticipated that additional study materials will be developed and made available by individual firms, product originators, and other outside entities.
Q. When will the Continuing Education rules be enacted?
A. It is expected that the rules will receive SEC approval in January 1995.
Q. When will the Regulatory Element actually go into effect?
A. The Regulatory Element is slated to begin on July 1, 1995. Thus, persons with two-, five-, and 10-year registration anniversaries on or after July 1, 1995 will be required to participate in accordance with those dates.
Q. When and how will the Firm Element become effective?
A. The Firm Element will also begin on July 1, 1995, and, for most firms, will necessitate a two-tier implementation process. Firms will be required to have completed their written training plans by July 1, 1995. The Council and the SROs recognize that firms will likely require additional time to develop and prepare materials, plan budgeting needs, and arrange scheduling; however, the actual implementation of the plan must begin no later than January 1, 1996.
It is anticipated that regulatory examination for Firm Element compliance will also proceed in accordance with the preceding schedule. For example, written training plans are subject to inspection by July 1, 1995, and firm records should demonstrate programs in progress as of January 1,19%.
Q. How will people be phased into the program initially?
A. Individuals will be phased into the Regulatory Element based on their registration date or, if applicable, based on the date of the most recent disciplinary action against them. For example, persons who became registered in October 1990 would enter the program having been registered for more than four years and would first be required to participate in the Regulatory Element around October 1995 (within 120 calendar days after their fifth anniversary of continuous registration). In October 2000 they would again participate to complete their 10-year cycle. Thereafter, they will be exempted from the Regulatory Element, provided they have no serious disciplinary action within the most recent 10-year period.
The Firm Element will begin for all "covered registered persons" no later than January 1,19%, in accordance with their firms' written plans.
Q. How does a serious disciplinary action affect one's status in the Regulatory Element?
A. A serious disciplinary action would effectively pre-empt one's original registration date as a trigger for entry into the full 10-year cycle of the Regulatory Element. Within 120 days of imposition of the disciplinary action, that individual will be required to participate in a Regulatory Element session, followed by additional sessions at the second, fifth, and tenth anniversaries of the date of the disciplinary action.
Q. Is a serious disciplinary action the only factor that might mandate reentry into the Regulatory Element?
A. No. A federal or state regulatory authority or self-regulatory organization may require re-entry into the Regulatory Element as part of a sanction in a disciplinary matter.
Q. How will the registration date be calculated for individuals who have acquired multiple registrations (For example: The Series 6 in 1988 plus the Series 7 in 1991)?
A. The original registration date (1988 in the above example) will be used, provided that the person has remained continuously registered since that time.
Q. How will temporary lapses in registration be handled?
A. These will be treated similar to the way in which qualification testing is handled. If individuals become unregistered for less than two years, they will maintain their original registration date, but will first be required to participate in any Regulatory Element program that may have been missed during the period in which they were unregistered. For example, an individual whose registration lapses at four and a half years who wishes to reactivate at what would be his/her six-year anniversary must complete the fifth year Regulatory Element before reactivation of registration.
Q. What will be the status of a person who becomes unregistered for a two-year period or more?
A. This person would begin the entire registration process anew. He or she would be required to take the appropriate qualification examinations) and would enter the Regulatory Element at the beginning of its 10-year cycle.
Q. What regulatory consequences will result when an individual does not complete the required continuing education?
A. Non-compliance with Regulatory Element requirements will result in an individual's registration being deemed inactive until he/she fulfills all applicable elements. Firms must ensure that those deemed inactive are not permitted to engage in activities requiring registration. Failure to comply with Firm or Regulatory Element requirements may subject the firm and individuals to disciplinary action.
Q. Will firms that are members of two or more SROs be subject to redundant inspections for compliance with the continuing education requirements?
A. The SROs will coordinate their field inspection efforts to avoid any unnecessary regulatory overlap for joint members. The SROs are especially committed to developing a consistent approach to examining for and enforcing the Firm Element requirements.