SEC Approves FINRA's Proposal to Incorporate NASD Rule Regarding Background Investigations into Rulebook (with Lofchie Comment)

The SEC approved a FINRA-proposed rule change to incorporate NASD Rule 3010(e) ("Supervision – Qualifications Investigated") regarding background investigations into new FINRA Rule 3110(e) ("Responsibility of Member to Investigate Applicants for Registration").

The new rule change, as modified by Amendment No. 1, would streamline and clarify rule language, and add a provision to require members to adopt written procedures that are "reasonably designed" to verify the accuracy and completeness of the information contained in an applicant's Form U4 ("Uniform Application for Securities Industry Registration or Transfer").

Additionally, the rule change adds Supplementary Material .15 ("Temporary Program to Address Underreported Form U4 Information") to FINRA Rule 3110 to establish a temporary program that will issue refunds to members for Late Disclosure Fees.

Lofchie Comment: Going forward, firms should review their new-hire documentation procedures for the verification of employment information. Then they can compare their documentation procedures for AML with their new-hire documentation procedures, and see whether the new-hire documentation procedures properly measure up.

See: SEC Rule Approval Notice; FINRA Rule Filing.Related news: FINRA-Proposed Rule to Incorporate NASD Rule Regarding Background Investigations into Rulebook (Fed. Reg.)(October 3, 2014); FINRA Proposes Incorporating NASD Rule Regarding Background Investigations into Rulebook (September 17, 2014).