[Federal Register Volume 86, Number 119 (Thursday, June 24, 2021)]
[Notices]
[Pages 33427-33439]
[FR Doc No: 2021-13286]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92183; File No. SR-FINRA-2021-015]

Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend
FINRA Rules 1210 (Registration Requirements) and 1240 (Continuing
Education Requirements)

June 15, 2021.
    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 June 3, 2021, the Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by FINRA. 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 amend FINRA Rule 1240 (Continuing Education
Requirements). The proposed rule change also makes conforming
amendments to FINRA Rule 1210 (Registration Requirements). Among other
changes, the proposed rule change requires that the Regulatory Element
of continuing education be completed annually rather than every three
years and provides a path through continuing education for individuals
to maintain their qualification following the termination of a
registration.
    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.

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

    In its filing with the Commission, FINRA 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. FINRA 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
(i) Background
    The continuing education program for registered persons of broker-
dealers (``CE Program'') currently requires registered persons to
complete continuing education consisting of a Regulatory Element and a
Firm Element. The Regulatory Element, which is administered by FINRA,
focuses on regulatory requirements and industry standards, while the
Firm Element is provided by each firm and focuses on securities
products, services and strategies the firm offers, firm policies and
industry trends. The CE Program is codified under the rules of the
self-regulatory organizations (``SROs''). The CE Program for registered
persons of FINRA members is codified under Rule 1240.\3\
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    \3\ See also Rule 1210.07 (All Registered Persons Must Satisfy
the Regulatory Element of Continuing Education).
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a. Regulatory Element
    Rule 1240(a) (Regulatory Element) currently requires a registered
person to complete the applicable Regulatory Element initially within
120 days after the person's second registration anniversary date and,
thereafter, within 120 days after every third registration anniversary
date.\4\ FINRA may extend these time frames for good cause shown.\5\
Registered persons who have not completed the Regulatory Element within
the prescribed time frames will have their FINRA registrations deemed
inactive and will be designated as ``CE inactive'' in the CRD system
until the requirements of the Regulatory Element have been
satisfied.\6\ A CE inactive person is prohibited from performing, or
being compensated for, any activities requiring FINRA registration,
including supervision. Moreover, if registered persons remain CE
inactive for two consecutive years, they must requalify by retaking
required examinations (or obtain a waiver of the applicable
qualification examinations).\7\
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    \4\ See Rules 1240(a)(1) (Requirements) and (a)(4)
(Reassociation in a Registered Capacity). An individual's
registration anniversary date is generally the date they initially
registered with FINRA in the Central Registration Depository
(``CRD[supreg]'') system. However, an individual's registration
anniversary date would be reset if the individual has been out of
the industry for two or more years and is required to requalify by
examination, or obtain an examination waiver, in order to
reregister. An individual's registration anniversary date would also
be reset if the individual obtains a conditional examination waiver
that requires them to complete the Regulatory Element by a specified
date. Non-registered individuals who are participating in the waiver
program under Rule 1210.09 (Waiver of Examinations for Individuals
Working for a Financial Services Industry Affiliate of a Member)
(``FSAWP participants'') are also subject to the Regulatory Element.
See also Rule 1240(a)(5) (Definition of Covered Person). The
Regulatory Element for FSAWP participants correlates to their most
recent registration(s), and it must be completed based on the same
cycle had they remained registered. FSAWP participants are eligible
for a single, fixed seven-year waiver period from the date of their
initial designation, subject to specified conditions. Registered
persons who become subject to a significant disciplinary action, as
specified in Rule 1240(a)(3) (Disciplinary Actions), may be required
to retake the Regulatory Element within 120 days of the effective
date of the disciplinary action, if they remain registered. Further,
their cycle for participation in the Regulatory Element may be
adjusted to reflect the effective date of the disciplinary action
rather than their registration anniversary date.
    \5\ See Rule 1240(a)(2) (Failure to Complete).
    \6\ See supra note 5. Individuals must complete the entire
Regulatory Element session to be considered to have ``completed''
the Regulatory Element; partial completion is the same as non-
completion.
    \7\ This CE inactive two-year period is calculated from the date
such persons become CE inactive, and it continues to run regardless
of whether they terminate their registrations before the end of the
two-year period. Therefore, if registered persons terminate their
registrations while in a CE inactive status, they must satisfy all
outstanding Regulatory Element prior to the end of the CE inactive
two-year period in order to reregister with a member without having
to requalify by examination or having to obtain an examination
waiver.
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    The Regulatory Element consists of a subprogram for registered
persons generally, and a subprogram for principals and supervisors.\8\
While some of the current Regulatory Element content is unique to
particular registration categories, most of the content has broad
application to both representatives and principals.\9\
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    \8\ The S101 (General Program for Registered Persons) and the
S201 (Registered Principals and Supervisors).
    \9\ The current content is presented in a single format leading
individuals through a case that provides a story depicting
situations that they may encounter in the course of their work.
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    The Regulatory Element was originally designed at a time when most
individuals had to complete the Regulatory Element at a test center,
and its design was shaped by the limitations of the test center-based
delivery model. In 2015, FINRA transitioned the delivery of the
Regulatory Element to an online platform (``CE Online''), which allows
individuals to complete the content online at a location of their
choosing, including their private residence. This online delivery
provides FINRA with much greater flexibility in updating content in a
timelier fashion, developing content tailored to each registration
category and presenting the material in an optimal learning format.
b. Firm Element
    Rule 1240(b) (Firm Element) currently requires each firm to develop
and administer an annual Firm Element training program for covered
registered persons.\10\ The rule requires firms to conduct an annual
needs analysis to determine the appropriate training.\11\ Currently, at
a minimum, the Firm Element must cover training in ethics and
professional responsibility as well as the following items concerning
securities products, services and strategies offered by the member: (1)
General investment features and associated risk factors; (2)
suitability and sales practice considerations; and (3) applicable
regulatory requirements.\12\
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    \10\ The rule defines ``covered registered persons'' as any
registered person who has direct contact with customers in the
conduct of a member's securities sales, trading and investment
banking activities, any individual who is registered as an
Operations Professional or a Research Analyst, and the immediate
supervisors of any such persons. See Rule 1240(b)(1) (Persons
Subject to the Firm Element).
    \11\ See Rule 1240(b)(2) (Standards for the Firm Element).
    \12\ See supra note 11.
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    A firm, consistent with its needs analysis, may determine to apply

toward the Firm Element other required training. The current rule does
not expressly recognize other required training, such as training
relating to the anti-money laundering (``AML'') compliance program and
training relating to the annual compliance meeting,\13\ for purposes of
satisfying Firm Element training.
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    \13\ See FINRA Rules 3310(e) and 3110(a)(7).
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c. Termination of a Registration
    Currently, individuals whose registrations as representatives or
principals have been terminated for two or more years may reregister as
representatives or principals only if they requalify by retaking and
passing the applicable representative- or principal-level examination
or if they obtain a waiver of such examination(s) (the ``two-year
qualification period'').\14\ The two-year qualification period was
adopted prior to the creation of the CE Program and was intended to
ensure that individuals who reregister are relatively current on their
regulatory and securities knowledge.
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    \14\ See Rule 1210.08 (Lapse of Registration and Expiration of
SIE). The two-year qualification period is calculated from the date
individuals terminate their registration and the date FINRA receives
a new application for registration. The two-year qualification
period does not apply to individuals who terminate a limited
registration category that is a subset of a broader registration
category for which they remain qualified. For instance, it would not
apply to an individual who maintains his registration as a General
Securities Representative but who terminates his registration as an
Investment Company and Variable Contracts Products Representative.
Such individuals have the option of reregistering in the more
limited registration category without having to requalify by
examination or obtain an examination waiver so long as they continue
to remain qualified for the broader registration category. Further,
the two-year qualification period only applies to the
representative- and principal-level examinations; it does not extend
to the Securities Industry Essentials (``SIE'') examination. The SIE
examination is valid for four years, but having a valid SIE
examination alone does not qualify an individual for registration as
a representative or principal. Individuals whose registrations as
representatives or principals have been revoked pursuant to FINRA
Rule 8310 (Sanctions for Violation of the Rules) may only requalify
by retaking the applicable representative- or principal-level
examination in order to reregister as representatives or principals,
in addition to satisfying the eligibility conditions for association
with a firm. Waivers are granted either on a case-by-case basis
under Rule 1210.03 (Qualification Examinations and Waivers of
Examinations) or as part of the waiver program under Rule 1210.09.
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(ii) Proposed Rule Change
    After extensive work with the Securities Industry/Regulatory
Council on Continuing Education (``CE Council'') and discussions with
stakeholders, including industry participants and the North American
Securities Administrators Association (``NASAA''), FINRA proposes the
following changes to the CE Program under Rule 1240.\15\
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    \15\ The proposed changes are based on the CE Council's
September 2019 recommendations to enhance the CE Program. See
Recommended Enhancements for the Securities Industry Continuing
Education Program, available at http://cecouncil.org/media/266634/council-recommendations-final-.pdf. The CE Council is composed of
securities industry representatives and representatives of SROs. The
CE Council was formed in 1995 upon a recommendation from the
Securities Industry Task Force on Continuing Education and was
tasked with facilitating the development of uniform continuing
education requirements for registered persons of broker-dealers.
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a. Transition to Annual Regulatory Element for Each Registration
Category
    As noted above, currently, the Regulatory Element generally must be
completed every three years, and the content is broad in nature. Based
on changes in technology and learning theory, the Regulatory Element
content can be updated and delivered in a timelier fashion and tailored
to each registration category, which would further the goals of the
Regulatory Element.\16\ Therefore, to provide registered persons with
more timely and relevant training on significant regulatory
developments, FINRA proposes amending Rule 1240(a) to require
registered persons to complete the Regulatory Element annually by
December 31.\17\ The proposed amendment would also require registered
persons to complete Regulatory Element content for each representative
or principal registration category that they hold, which would also
further the goals of the Regulatory Element.\18\
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    \16\ When the CE Program was originally adopted in 1995,
registered persons were required to complete the Regulatory Element
on their second, fifth and 10th registration anniversary dates. See
Securities Exchange Act Release No. 35341 (February 8, 1995), 60 FR
8426 (February 14, 1995) (Order Approving File Nos. SR-AMEX-94-59;
SR-CBOE-94-49; SR-CHX-94-27; SR-MSRB-94-17; SR-NASD-94-72; SR-NYSE-
94-43; SR-PSE-94-35; and SR-PHLX-94-52). The change to the current
three-year cycle was made in 1998 to provide registered persons more
timely and effective training, consistent with the overall purpose
of the Regulatory Element. See Securities Exchange Act Release No.
39712 (March 3, 1998), 63 FR 11939 (March 11, 1998) (Order Approving
File Nos. SR-CBOE-97-68; SR-MSRB-98-02; SR-NASD-98-03; and SR-NYSE-
97-33).
    \17\ See proposed Rules 1240(a)(1) and (a)(4). Some commenters
supported the proposed change to an annual requirement, while others
disagreed with it or expressed concerns with the burdens it would
impose on firms and registered persons. See infra Item II.C.(a) and
(b)(i).
    \18\ See proposed Rules 1210.07 and 1240(a)(1). Commenters
generally supported the development of tailored content that is
specific to each registration category. See infra Item II.C.(a).
However, some commenters questioned whether there would be
sufficient content for certain registration categories in a given
year, while others were concerned that some individuals could be
subject to duplicate or excessive content. See infra Item II.C.(a)
and (b)(i).
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    Under the proposed rule change, firms would have the flexibility to
require their registered persons to complete the Regulatory Element
sooner than December 31, which would allow firms to coordinate the
timing of the Regulatory Element with other training requirements,
including the Firm Element.\19\ For example, a firm could require its
registered persons to complete both their Regulatory Element and Firm
Element by October 1 of each year.
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    \19\ See proposed Rules 1240(a)(1) and (a)(4).
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    Individuals who would be registering as a representative or
principal for the first time on or after the implementation date of the
proposed rule change would be required to complete their initial
Regulatory Element for that registration category in the next calendar
year following their registration.\20\ In addition, subject to
specified conditions, individuals who would be reregistering as a
representative or principal on or after the implementation date of the
proposed rule change would also be required to complete their initial
Regulatory Element for that registration category in the next calendar
year following their reregistration.\21\
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    \20\ See proposed Rule 1240(a)(1).
    \21\ See proposed Rule 1240(a)(4).
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    Consistent with current requirements, individuals who fail to
complete their Regulatory Element within the prescribed period would be
automatically designated as CE inactive.\22\ However, the proposed rule
change preserves FINRA's ability to extend the time by which a
registered person must complete the Regulatory Element for good cause
shown.\23\
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    \22\ See proposed Rule 1240(a)(2). In Regulatory Notice 20-05
(February 2020), FINRA had proposed a 15-day grace period prior to
being designated as CE inactive, provided that the member documented
the reasons for the individual's failure to complete the Regulatory
Element within the prescribed calendar year and retained the
documentation for recordkeeping purposes. Some commenters noted that
the proposed grace period would increase administrative and
operational burdens, while one commenter requested that FINRA
provide a longer grace period. See infra Item II.C.(b)(i). FINRA has
determined to eliminate the proposed grace period to avoid any
unnecessary burdens.
    \23\ See supra note 22. The proposed rule change clarifies that
the request for an extension of time must be in writing and include
supporting documentation, which is consistent with current practice.
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    FINRA also proposes amending Rule 1240(a) to clarify that: (1)
Individuals who are designated as CE inactive would be required to
complete all of their pending and upcoming annual Regulatory Element,
including any annual Regulatory Element that becomes due during their
CE inactive

period, to return to active status; \24\ (2) the two-year CE inactive
period is calculated from the date individuals become CE inactive, and
it continues to run regardless of whether individuals terminate their
registrations; \25\ (3) individuals who become subject to a significant
disciplinary action may be required to complete assigned continuing
education content as prescribed by FINRA; \26\ (4) individuals who have
not completed any Regulatory Element content for a registration
category in the calendar year(s) prior to reregistering would not be
approved for registration for that category until they complete that
Regulatory Element content, pass an examination for that registration
category or obtain an unconditional examination waiver for that
registration category, whichever is applicable; \27\ and (5) the
Regulatory Element requirements apply to individuals who are
registered, or in the process of registering, as a representative or
principal.\28\ In addition, FINRA proposes making conforming amendments
to Rule 1210.07.
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    \24\ See supra note 22.
    \25\ See supra note 22.
    \26\ See proposed Rule 1240(a)(3). As previously noted, Rule
1240(a)(3) currently provides that such individuals may be required
to retake the Regulatory Element. See supra note 4.
    \27\ See proposed Rule 1240(a)(4).
    \28\ See proposed Rule 1240(a)(5).
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    Under the proposed rule change, the amount of content that
registered persons would be required to complete in a three-year,
annual cycle for a particular registration category is expected to be
comparable to what most registered persons are currently completing
every three years.\29\ In some years, there may be more required
content for some registration categories depending on the volume of
rule changes and regulatory issues. In addition, an individual who
holds multiple registrations may be required to complete additional
content compared to an individual who holds a single registration
because, as noted above, individuals would be required to complete
content specific to each registration category that they hold.\30\
However, individuals with multiple registrations would not be subject
to duplicative regulatory content in any given year. The more common
registration combinations would likely share much of their relevant
regulatory content each year. For example, individuals registered as
General Securities Representatives and General Securities Principals
would receive the same content as individuals solely registered as
General Securities Representatives, supplemented with a likely smaller
amount of supervisory-specific content on the same topics. The less
common registration combinations may result in less topic overlap and
more content overall.
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    \29\ As previously noted, some commenters questioned whether
there would be sufficient annual content for certain registration
categories and some commenters were concerned that some individuals
might be subject to duplicate or excessive content on an annual
basis. See supra note 18; see infra Item II.C.(a) and (b)(i).
    \30\ As discussed in the economic impact assessment, individuals
with multiple registrations represent a smaller percentage of the
population of registered persons.
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b. Recognition of Other Training Requirements for Firm Element and
Extension of Firm Element to All Registered Persons
    To better align the Firm Element requirement with other required
training, FINRA proposes amending Rule 1240(b) to expressly allow firms
to consider training relating to the AML compliance program and the
annual compliance meeting toward satisfying an individual's annual Firm
Element requirement.\31\ FINRA also proposes amending the rule to
extend the Firm Element requirement to all registered persons,
including individuals who maintain solely a permissive registration
consistent with Rule 1210.02 (Permissive Registrations), thereby
further aligning the Firm Element requirement with other broadly-based
training requirements.\32\ In conjunction with this proposed change,
FINRA proposes modifying the current minimum training criteria under
Rule 1240(b) to instead provide that the training must cover topics
related to the role, activities or responsibilities of the registered
person and to professional responsibility.\33\
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    \31\ See proposed Rule 1240(b)(2)(D). Commenters overwhelmingly
supported this proposed change. See infra Item II.C.(b)(ii).
    \32\ See proposed Rule 1240(b)(1). As noted earlier, the current
requirement only applies to ``covered registered persons'' and not
all registered persons. Not all commenters agreed with this proposed
change. See infra Item II.C.(b)(ii).
    \33\ See proposed Rule 1240(b)(2)(B). In Regulatory Notice 20-
05, FINRA had proposed to retain the current minimum training
criteria under Rule 1240(b)(2)(B). One commenter stated that the
current criteria is overly prescriptive and that the requirement
should be more flexible. See infra Item II.C.(b)(ii). FINRA is
revising the rule in response.
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c. Maintenance of Qualification After Termination of Registration
    FINRA proposes adopting paragraph (c) under Rule 1240 and
Supplementary Material .01 and .02 to Rule 1240 to provide eligible
individuals who terminate any of their representative or principal
registrations the option of maintaining their qualification for any of
the terminated registrations by completing continuing education.\34\
The proposed rule change would not eliminate the two-year qualification
period.\35\ Rather, it would provide such individuals an alternative
means of staying current on their regulatory and securities knowledge
following the termination of a registration(s). Eligible individuals
who elect not to participate in the proposed continuing education
program would continue to be subject to the current two-year
qualification period. The proposed rule change is generally aligned
with other professional continuing education programs that allow
individuals to maintain their qualification to work in their respective
fields during a period of absence from their careers (including an
absence of more than two years) by satisfying continuing education
requirements for their credential.
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    \34\ Commenters overwhelmingly supported this proposed change.
See infra Item II.C.(b)(iii). The proposed option would also be
available to individuals who terminate any permissive registrations
as provided under Rule 1210.02. However, the proposed option would
not be available to individuals who terminate a limited registration
category that is a subset of a broader registration category for
which they remain qualified. As previously noted, such individuals
currently have the option of reregistering in the more limited
registration category without having to requalify by examination or
obtain an examination waiver so long as they continue to remain
qualified for the broader registration category. In addition, the
proposed option would not be available to individuals who are
maintaining an eliminated registration category, such as the
category for Corporate Securities Representative, or individuals who
have solely passed the Securities Industry Essentials examination,
which does not, in and of itself, confer registration.
    \35\ One commenter requested that FINRA eliminate the two-year
qualification period. See infra Item II.C.(b)(iii).
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    The proposed rule change would impose the following conditions and
limitations:
     Individuals would be required to be registered in the
terminated registration category for at least one year immediately
prior to the termination of that category; \36\
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    \36\ See proposed Rule 1240(c)(1).
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     individuals could elect to participate when they terminate
a registration or within two years from the termination of a
registration; \37\
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    \37\ See proposed Rule 1240(c)(2). Individuals who elect to
participate at the later date would be required to complete, within
two years from the termination of their registration, any continuing
education that becomes due between the time of their Form U5
(Uniform Termination Notice for Securities Industry Registration)
submission and the date that they commence their participation. In
addition, FINRA would enhance its systems to notify individuals of
their eligibility to participate, enable them to affirmatively opt
in, and notify them of their annual continuing education requirement
if they opt in.

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     individuals would be required to complete annually all
prescribed continuing education; \38\
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    \38\ See proposed Rule 1240(c)(3). However, upon a participant's
request and for good cause shown, FINRA would have the ability to
grant an extension of time for the participant to complete the
prescribed continuing education. A participant who is also a
registered person must directly request an extension of the
prescribed continuing education from FINRA. The continuing education
content for participants would consist of a combination of
Regulatory Element content and content selected by FINRA and the CE
Council from the Firm Element content catalog discussed below. One
commenter suggested that the content, subject matter and volume of
training be the same for both participants and registered persons.
See infra Item II.C.(b)(iii). The content would correspond to the
registration category for which individuals wish to maintain their
qualifications. Participants who are maintaining their qualification
status for a principal registration category that includes one or
more corequisite representative registrations must also complete
required annual continuing education for the corequisite
registrations in order to maintain their qualification status for
the principal registration category. In Regulatory Notice 20-05,
FINRA had proposed that participants complete the prescribed
continuing education annually. The proposed rule change clarifies
that the prescribed continuing education must be completed by
December 31 of the calendar year, which is consistent with the
timing for the proposed annual Regulatory Element.
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     individuals would have a maximum of five years in which to
reregister; \39\
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    \39\ See proposed Rule 1240(c). As described in greater detail
in Item II.C. of this filing, in Regulatory Notice 20-05, FINRA had
proposed a seven-year participation period, and some commenters
suggested that there should not be any time limit on the
participation period. See infra Item II.C.(b)(iii). However, based
on discussions with NASAA and its support for a participation period
of five years, the proposed rule change provides a five-year
participation period in the interest of consistency and promoting
registration efficiency. See infra Item II.C.(b)(iii). The proposed
five-year participation period would continue to serve the diversity
and inclusion goals of the proposed rule change. In addition,
individuals applying for reregistration must satisfy all other
requirements relating to the registration process (e.g., submit a
Form U4 (Uniform Application for Securities Industry Registration or
Transfer) and undergo a background check).
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     individuals who have been CE inactive for two consecutive
years, or who become CE inactive for two consecutive years during their
participation, would not be eligible to participate or continue; \40\
and
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    \40\ See proposed Rules 1240(c)(4) and (c)(5).
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     individuals who are subject to a statutory
disqualification, or who become subject to a statutory disqualification
following the termination of their registration or during their
participation, would not be eligible to participate or continue.\41\
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    \41\ See proposed Rules 1240(c)(1) and (c)(6). Individuals who
are subject to a statutory disqualification would not be eligible to
enter the proposed continuing education program. Individuals who
become subject to a statutory disqualification while participating
in the proposed continuing education program would not be eligible
to continue in the program. Further, any content completed by such
participants would be retroactively nullified upon disclosure of the
statutory disqualification. The following example illustrates the
application of the proposed rule change to individuals who become
subject to a statutory disqualification while participating in the
proposed continuing education program. Individual A participates in
the proposed continuing education program for four years and
completes the prescribed content for each of those years. During
year five of his participation, he becomes subject to a statutory
disqualification resulting from a foreign regulatory action. In that
same year, FINRA receives a Form U4 submitted by a member on behalf
of Individual A requesting registration with FINRA. The Form U4
discloses the statutory disqualification event. FINRA would then
retroactively nullify any content that Individual A completed while
participating in the proposed continuing education program.
Therefore, in this example, in order to become registered with
FINRA, he would be required to requalify by examination. This would
be in addition to satisfying the eligibility conditions for
association with a FINRA member firm. See Exchange Act Sections
3(a)(39) and 15(b)(4) and Article III of the FINRA By-Laws.
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    The proposed rule change also includes a look-back provision that
would, subject to specified conditions, extend the proposed option to
individuals who have been registered as a representative or principal
within two years immediately prior to the implementation date of the
proposed rule change and individuals who have been FSAWP participants
immediately prior to the implementation date of the proposed rule
change.\42\
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    \42\ See proposed Supplementary Material .01 to Rule 1240. Such
individuals would be required to elect whether to participate by the
implementation date of the proposed rule change. If such individuals
elect to participate, they would be required to complete their
initial annual content by the end of the calendar year in which the
proposed rule change is implemented. In addition, if such
individuals elect to participate, their initial participation period
would be adjusted based on the date that their registration was
terminated. The current waiver program for FSAWP participants would
not be available to new participants upon implementation of the
proposed rule change. See proposed Rule 1210.09. However,
individuals who are FSAWP participants immediately prior to the
implementation date of the proposed rule change could elect to
continue in that waiver program until the program has been retired.
As noted above, FSAWP participants may participate for up to seven
years in that waiver program, subject to specified conditions. See
supra note 4. In Regulatory Notice 20-05, FINRA had proposed to
eliminate the FSAWP given that the participation period of seven
years for FSAWP participants would have been the same for
participants in the proposed continuing education program. As
discussed above, the proposed rule change provides a five-year
participation period for participants in the proposed continuing
education program. So as not to disadvantage FSAWP participants,
FINRA has determined to preserve that waiver program for individuals
who are participating in the FSAWP immediately prior to the
implementation date of the proposed rule change. Because the
proposed rule change transitions the Regulatory Element to an annual
cycle, FSAWP participants who remain in that waiver program
following the implementation of the proposed rule change would be
subject to an annual Regulatory Element requirement. See proposed
Rule 1240(a)(1). Finally, the proposed rule change preserves FINRA's
ability to extend the time by which FSAWP participants must complete
the Regulatory Element for good cause shown. See proposed Rule
1240(a)(2).
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    In addition, the proposed rule change includes a re-eligibility
provision that would allow individuals to regain eligibility to
participate each time they reregister with a firm for a period of at
least one year and subsequently terminate their registration, provided
that they satisfy the other participation conditions and
limitations.\43\ Finally, FINRA proposes making conforming amendments
to Rule 1210, including adding references to proposed Rule 1240(c)
under Rule 1210.08.
---------------------------------------------------------------------------

    \43\ See proposed Supplementary Material .02 to Rule 1240.
---------------------------------------------------------------------------

    The proposed rule change will have several important benefits. It
will provide individuals with flexibility to address life and career
events and necessary absences from registered functions without having
to requalify each time. It will also incentivize them to stay current
on their respective securities industry knowledge following the
termination of any of their registrations. The continuing education
under the proposed option will be as rigorous as the continuing
education of registered persons, which promotes investor protection.
Further, the proposed rule change will enhance diversity and inclusion
in the securities industry by attracting and retaining a broader and
diverse group of professionals. Moreover, if the proposed rule change
is implemented, FINRA will evaluate its efficacy following
implementation to ensure that it is meeting its goals.
    Significantly, the proposed rule change will be of particular value
to women, who continue to be the primary caregivers for children and
aging family members and, as a result, are likely to be absent from the
industry for longer periods.\44\ In addition, the proposed rule change
will provide longer-term relief for women, individuals with low incomes
and other populations, including older workers, who are at a higher
risk of a job loss during certain economic downturns and who are likely
to remain unemployed for longer periods.\45\
---------------------------------------------------------------------------

    \44\ See The Female Face of Family Caregiving (November 2018),
available at https://www.nationalpartnership.org/our-work/resources/economic-justice/female-face-family-caregiving.pdf.
    \45\ See The COVID-19 Recession is the Most Unequal in Modern
U.S. History (September 30, 2020), available at https://www.washingtonpost.com/graphics/2020/business/coronavirus-recession-equality/ and Unemployment's Toll on Older Workers Is Worst in Half
a Century (October 21, 2020), available at https://www.aarp.org/work/working-at-50-plus/info-2020/pandemic-unemployment-older-workers.

---------------------------------------------------------------------------

d. Other Enhancements to CE Program
    FINRA and the CE Council also plan to enhance the CE Program in
other ways.\46\ FINRA will work with the CE Council to incorporate a
variety of instructional formats to present the Regulatory Element
content. In addition, FINRA will work with the CE Council to publish in
advance the Regulatory Element learning topics for the next year.\47\
This will allow firms to review the Regulatory Element topics when
developing their Firm Element training plan to avoid unnecessary
duplication of topics. The proposed transition to an annual Regulatory
Element requirement would increase the number of registered persons who
would be required to complete the Regulatory Element on an annual
basis. To assist compliance with this proposed change, FINRA would
enhance its systems to provide firms and registered persons with
additional notification, management and tracking functionality. In
response to comments, FINRA would also make the Regulatory Element
available via a mobile compatible format.\48\
---------------------------------------------------------------------------

    \46\ These additional enhancements do not require any changes to
the FINRA rules. Most commenters supported these enhancements, while
some commenters had concerns and questions. See infra Item
II.C.(b)(iv).
    \47\ If there are any other critical rule changes or other
regulatory developments that arise during a given year, FINRA and
the CE Council will work to provide registered persons timely and
sufficient training on such rule changes and developments.
    \48\ See infra Item II.C.(b)(i).
---------------------------------------------------------------------------

    FINRA and the CE Council also will improve the guidance and
resources available to firms to develop effective Firm Element training
programs, such as updated guidance for developing and documenting
training plans and specific principles. Further, FINRA and the CE
Council will develop a catalog of continuing education content that
would serve as an optional resource for firms to select relevant Firm
Element content and create learning plans for their registered persons.
The catalog would include content developed by third-party training
providers, FINRA and the other SROs participating in the CE Program.
Firms would have the option of using the content in the catalog for
purposes of their Firm Element training; they would not be obligated to
select content from the catalog.
    If the Commission approves the proposed rule change, FINRA will
announce the implementation dates of the proposed rule change in a
Regulatory Notice to be published no later than 90 days following
Commission approval.
2. Statutory Basis
    The proposed rule change is consistent with the provisions of
Section 15A(b)(6) of the Act,\49\ 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, and Section 15A(g)(3) of the Act,\50\ which authorizes
FINRA to prescribe standards of training, experience and competence for
persons associated with FINRA members.
---------------------------------------------------------------------------

    \49\ 15 U.S.C. 78o-3(b)(6).
    \50\ 15 U.S.C. 78o-3(g)(3).
---------------------------------------------------------------------------

    FINRA believes that the proposed changes to the Regulatory Element
and Firm Element will ensure that all registered persons receive timely
and relevant training, which will, in turn, enhance compliance and
investor protection. Further, FINRA believes that establishing a path
for individuals to maintain their qualification following the
termination of a registration will reduce unnecessary impediments to
requalification and promote greater diversity and inclusion in the
securities industry without diminishing investor protection.

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

    FINRA does not believe that the proposed rule change would result
in any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. All members would be subject to
the proposed rule change.
Economic Impact Assessment
    FINRA has undertaken an economic impact assessment, as set forth
below, to further analyze the regulatory need for the proposed rule
change, its potential economic impacts, including anticipated costs,
benefits, and distributional and competitive effects, relative to the
current baseline, and the alternatives FINRA considered in assessing
how best to meet its regulatory objective.
Regulatory Need
    FINRA is proposing to make changes to the CE Program, including the
related FINRA rules, as part of ongoing efforts to address and
implement the CE Council's recommendations. As described above, the
proposed rule change focuses on: (1) Ensuring that all registered
persons receive relevant and sufficient Regulatory Element and Firm
Element training on an annual basis; (2) providing a path through
continuing education for individuals to maintain their qualification
following the termination of a registration; and (3) providing firms
with the guidance and resources necessary to design effective and
efficient Firm Element training programs.
    The proposed rule change is expected to result in a more efficient
CE Program that addresses relevant regulatory requirements and provides
individuals with improved tools and resources to understand and comply
with such requirements, enhancing investor protection. Moreover, the
proposed rule change would provide new channels for individuals to
maintain their qualification status for a terminated registration
category and, in so doing, could increase the likelihood that
professionals who need to step away from the industry for a period
could return, subject to satisfying all other requirements relating to
the registration process.
Economic Baseline
    The economic baseline for the proposed rule change is the existing
CE Program. As described above, registered persons of broker-dealers
are required to participate in continuing education consisting of a
Regulatory Element and a Firm Element. The Regulatory Element is
generally delivered every three years and focuses on regulatory
requirements and industry standards, while the Firm Element is an
annual requirement and focuses on securities products, services and
strategies firms offer, firm policies and industry trends.
    As stated above, under the current regime, individuals generally
have a two-year window from the termination of their association with a
member to reregister without requalifying by examination or obtaining a
waiver. According to FINRA's analysis, the total number of registered
persons, approximately 620,000, has shown a slow decrease over the past
few years even as individual registered persons regularly change their
status by ending and renewing their association with a firm.\51\ Across
this pool of registered persons, approximately 65% hold only one FINRA
registration category (for example either a General Securities
Representative (Series 7) registration or an Investment Company and
Variable Contracts Products Representative (Series 6) registration),
25% hold two FINRA registrations (for example a General Securities
Representative

registration and an Investment Banking Representative registration),
and the remainder hold three FINRA registrations or more. Moreover,
across the pool of registered persons, in addition to the FINRA
registration, approximately 90% hold at least one state registration,
and 50% hold more than five state registrations. With respect to
registration with a FINRA member, in recent years, out of the
approximately 620,000 registered persons, approximately 90,000 end
their registration with all firms with whom they are registered at some
point during the year. Out of these, about half do not renew their
registration and are considered to have left the securities industry.
---------------------------------------------------------------------------

    \51\ The number of registered persons has been decreasing at an
annual rate of approximately 1% per year. See, e.g., 2020 FINRA
Industry Snapshot, available at https://www.finra.org/rules-guidance/guidance/reports-studies/2020-industry-snapshot.
---------------------------------------------------------------------------

    Under the current baseline, registered persons who terminate a
registration are given a two-year grace period in which they can
reregister without being required to retake a qualification examination
or obtain an examination waiver. Individuals who seek to reregister
more than two years after terminating their association are required to
requalify by passing an examination or obtaining an examination waiver.
Requalification imposes costs in the form of time spent preparing for
and taking the examinations, potential limitations to the activities
permitted to be conducted until the requalification is completed,
opportunity costs for the individual and the potential employers in
terms of lost business, and the direct registration costs. FINRA
understands anecdotally that these costs currently deter some
significant portion of the population that give up their registrations
from reregistering.
    Figure 1, as an example, presents a plot of the number of
registered persons that reregister within a given number of years after
having terminated their registrations for at least 60 days.\52\ The
focus is on registered persons who terminated their registrations in
either 2007, 2008 or 2009 and the period of time until they reregister
with the same or a different firm.\53\ Each bar in Figure 1 represents
a 100-day period and, roughly speaking, three-and-a-half bars represent
one year. As can be observed in Figure 1, for all three origination
years, there is an increase in the number of previously registered
persons who reregister towards the end of the second year from their
date of termination. This is consistent with the incentive in the
current rule permitting individuals to reregister without having to
requalify by passing an examination or having to obtain an examination
waiver (i.e., the current two-year qualification period) and supports
the assumption that the requalification process imposes direct and
indirect economic costs. After this point, there is a significant drop
in the number of individuals who reregister.
---------------------------------------------------------------------------

    \52\ The minimum 60 days for employment gap follows the
definition used in the 2020 FINRA Industry Snapshot, available at
https://www.finra.org/rules-guidance/guidance/reports-studies/2020-industry-snapshot.
    \53\ The period of 2007-2009 covers the events before, during
and after the 2008 financial crisis. These events had an effect on
the number of individuals leaving the industry, which indeed rose
during this period. However, the trends observed for these years do
not appear to be extreme outliers and, moreover, potentially reflect
changes in labor markets that the proposed rule change is targeting.
Further, the three years selected for the analysis provide the means
to study the trends of individuals returning to the industry for up
to a period of 10 years of being away from it.
---------------------------------------------------------------------------

    Moreover, following the end of the second year after terminating
their registrations, the number of individuals reregistering remains
low and tapers off slowly. Finally, an analysis of the stage in the
Regulatory Element cycle at which registered persons terminate their
registrations, on average, across the time period of 2007-2016,
suggests that registered persons who terminate their registrations tend
to do so approximately 530 days before their next Regulatory Element
would be due (i.e., on average in the middle of a current three-year
Regulatory Element cycle).
[GRAPHIC] [TIFF OMITTED] TN24JN21.001

    Figure 1: Plot of the number of previously registered persons that
reregister within a given number of years after having terminated their
registrations for at least 60 days in either 2007, 2008 or 2009. Each
bar represents 100 days, and every year is accordingly represented by
approximately three-and-a-half bars.

    With respect to firms, the economic baseline is derived from the
current processes and procedures used to implement the existing CE
Program. Firms are currently responsible for the appropriate monitoring
of the compliance of their registered persons with the three-year
Regulatory Element cycle and for administering the annual Firm Element.
Further, firms may experience material negative impact where they are
not able to retain qualified experienced persons because of
professional and personal events that require such individuals to take
an extended leave of absence from the industry.
Economic Impacts
    FINRA believes that economic impacts of the proposed rule change
would result in both benefits and costs to firms and registered persons
and would potentially benefit the investor community. FINRA will
undertake an evaluation of the efficacy of the program within a
reasonable period following the implementation date. The aim of such an
evaluation is to ensure that the program is meeting its goals and
objectives, without resulting in unintended diminished investor
protections, or unintended increase in regulatory burden on any
relevant parties.
Anticipated Benefits
    FINRA believes that the proposed rule change would result in two
main benefits to registered persons.
    First, as discussed above, the proposed rule change would
transition the Regulatory Element from a three-year requirement to an
annual requirement. Such an annual requirement is implemented for other
professionals, such as Certified Public Accountants (``CPAs''),
Chartered Financial Analysts (``CFAs'') and lawyers.\54\ The 2015
transition to CE Online resulted in a more efficient program and added
a new dimension of flexibility to the CE Program in terms of the
content, timing and availability of the program. This change would
allow the Regulatory Element to focus on current issues and recent
regulatory changes and enhance registered persons' understanding of the
changes through more frequent assessments. A transition to an annual
cycle is expected to benefit registered persons by helping to ensure
that they understand recent regulatory changes and are thus able to
perform their work in a compliant and effective manner. Under the
current program, a regulatory change could take place in the beginning
of a three-year Regulatory Element cycle and thus result in some
portion of the individuals in that cycle being assessed on their
knowledge of the change at a significantly later date.
---------------------------------------------------------------------------

    \54\ In general, the CFA requires 20 hours of continuing
education on an annual basis. See CFA's Continuing Education (CE)
Program, available at https://www.cfainstitute.org/en/membership/professional-development/pl. The American Institute of CPAs
(``AICPA'') requires 120 credit hours of continuing education over a
three-year period, with the requirement of 40 credit hours per year.
See AICPA's Continuing Professional Education (CPE) Requirements for
CPAs, available at https://www.aicpa.org/cpe-learning/cperequirements.html. The continuing education requirement for
lawyers is different across states, but it generally ranges between
10-15 credit hours per year. See https://www.americanbar.org/content/dam/aba/directories/policy/aba_model_rule_comparison_by_state_meet_model_rule_noted.pdf. None
of these three professions requires members to be active
practitioners to maintain their credentials.
---------------------------------------------------------------------------

    Second, FINRA believes that a significant benefit of the proposed
rule change for registered persons would be the increased flexibility
in terms of maintaining their qualification for a terminated
registration category. As can be observed in Figure 1, there is an
increase in the number of individuals who reregister towards the end of
the two-year period, which is the current grace period for maintaining
their qualification status. Extending this period to five years through
the completion of continuing education would provide flexibility to
individuals, as well as potentially result in increased retention of
expertise in the industry.
    With respect to increased flexibility, extending the current two-
year period to five years would allow individuals to manage significant
life events, including professional changes and development (such as
pursuing educational goals, a career change to a role in the firm that
is not part of the broker-dealer, working overseas for an extended
period due to a career change or an attempt at a different career path)
or personal life events (such as birth or adoption of a child,
unexpected loss in the family or relocation due to family needs).\55\
Through discussions with industry representatives, FINRA has learned
that the proposed rule change could potentially lower the barrier to
reentry to the industry. Some firms indicated that a significant
benefit may arise in cases where an individual leaves the broker-dealer
to gain experience in an affiliate of a parent company, for instance in
an affiliated commercial bank, investment adviser or foreign affiliate.
Other firms indicated that the proposed rule change could potentially
be relevant for under-represented populations in the securities
industry, such as, for example, female registrants.\56\
---------------------------------------------------------------------------

    \55\ See, e.g., Christy Spivey, Time Off at What Price? The
Effects of Career Interruptions on Earnings, 59(1) Indus. & Lab.
Rel. Rev. 119-140 (2005); Jill K. Hayter, Career Interrupted for
What Reason? Job Interruptions and Their Wage Effects, 30(4) J. App.
Bus. Res. 1197-1210 (2014). Spivey (2005) uses the National
Longitudinal Survey of Youth (``NLSY'') data, and finds that the
total time spent out of the labor force for men was 2.9 years on
average, with a standard deviation of 3.7. The paper finds that
women spent on average 5.3 years out of the labor force, with a
standard deviation of 5.1. Finally, the paper reports that the
average number of interruptions was 2.53 for women and 0.93 for men.
Hayter (2014) also studies the NLSY data. The paper reports the
percentage of women and men in the sample who experienced various
types of employment disruptions, and the average cumulative length
of disruptions by type, conditional on having at least one
interruption. Non-family disruptions are found to have similar
impacts across genders. However, women are much more likely (15%
versus 2%) to experience family-related disruptions and the total
reported length out of the work force resulting from the disruption
is three times longer for women versus men (150 weeks versus 53
weeks).
    \56\ FINRA has repeated the analysis presented in Figure 1,
separating registered persons by gender. The analysis found that
female registered persons are underrepresented, at an approximate
ratio of one to four. With respect to the pattern of reregistering
under the baseline that is presented in Figure 1, the analysis found
that the pattern was similar for either male or female registered
persons, when studied separately. However, this does not rule out
that female registrants could especially benefit from the proposed
rule change, for the reasons discussed above.
---------------------------------------------------------------------------

    With respect to firms, FINRA believes that the proposed rule change
will result in three main benefits. First, FINRA believes that the
transition to an annual Regulatory Element cycle will reduce firms'
regulatory risk, as well as enhance compliance and reduce compliance-
related costs. This benefit would potentially result from the enhanced
timeliness and relevance afforded by the proposed annual cycle.
    Second, the proposed rule change would further enhance and
streamline the Firm Element requirement. These changes include an
express recognition of existing firm training programs, such as the
annual compliance meeting, toward satisfying a registered individual's
Firm Element requirement, potentially saving firms compliance resources
currently devoted to developing and implementing different training
programs. In addition, in conjunction with the proposed rule change,
FINRA and the CE Council would develop a content catalog, managed by
FINRA, that would serve as an optional resource from which firms could
select or supplement their Firm Element content.\57\ Such a catalog
could provide firms with a more cost-efficient resource for Firm
Element content.
---------------------------------------------------------------------------

    \57\ See supra Item II.A.1.(ii)d.
---------------------------------------------------------------------------

    Third, with respect to the extended time period for maintaining a
qualification status, FINRA believes that

the proposed rule change could result in added flexibility for firms in
terms of hiring qualified candidates. This could ultimately extend the
potential pool of securities industry professionals and potentially
benefit firms regardless of their size. Through discussions with
industry representatives, FINRA has learned that this could permit
firms to better retain skilled professionals, more easily provide
individuals with professional development outside the broker-dealer,
and facilitate the hiring process for experienced professionals who
have required the career flexibility.
    In addition, FINRA believes that the investor community will
ultimately benefit from the proposed rule change. These benefits will
stem from the potential increase in the knowledge and ongoing training
of registered persons, as well as through the increased flexibility of
retention of skill and experience in the industry.
    Finally, FINRA notes that these benefits may be limited for
individuals seeking to maintain FINRA and state registrations if there
are significant differences between the relevant requirements across
the various regulatory frameworks. For instance, currently, state
regulators require an individual to retake examinations for terminated
licenses after two years. Some individuals may be dissuaded from
remaining in the industry where the state requirements are more binding
than those proposed in this filing. Others may be dissuaded from taking
advantage of the flexibility provided by the proposed rule change at
the expense of other obligations. As discussed above, approximately 90%
of registered individuals hold some combination of FINRA and state
registrations. This may serve as an upper bound on an estimate of the
proportion of the population that may be limited in the full advantages
of the proposed rule change, depending on the combinations of
registrations held and individual state rules.\58\
---------------------------------------------------------------------------

    \58\ As of November 2020, out of the approximately 620,000 FINRA
registered persons, approximately 84% held a Series 7 or a Series 6.
This population is expected to potentially be impacted by regulatory
differences (or an estimate of the percentage of the relevant
population that may be constrained by differences between FINRA and
state rules). Further, approximately 78% of the total registered
persons population have at least one state license. Depending on
roles and responsibilities of FINRA registered persons, there is not
always a state licensure requirement (specifically, non-customer-
facing roles). The anticipated benefits of the proposed rule change
might be more fully achieved for these individuals. Finally, the
impacts of the potential differences may be particularly pronounced
in a few states that have more than 200,000 individuals licensed in
them. For these states, approximately 90% of these individuals (on
average across these states) hold a Series 7 or a Series 6.
---------------------------------------------------------------------------

Anticipated Costs
    FINRA believes that, alongside the anticipated benefits discussed
above, the proposed rule change would also result in costs for both
firms and registered persons.
    With respect to registered persons, FINRA anticipates three main
costs that may result from the proposed rule change. First, the move to
an annual Regulatory Element cycle will increase the frequency of the
required training and the associated impact of failing to complete the
annual content.\59\ Further, this anticipated increase in burdens is
expected to be smaller for individuals with a single registration
category than for individuals with more than one registration category.
Individuals with more than one registration category (approximately 35%
of registered persons) may have more Regulatory Element content
(including the associated time commitment) in a given year, in
comparison to individuals with only a single registration category.
Second, the introduction of Regulatory Element notifications directly
to registered persons could shift some of the time management burden to
them. Third, the eligibility requirements for maintaining a
qualification status for a terminated registration category will
require an individual to have been registered with FINRA in that
registration category for at least one year, which could limit
potential career changes that may occur within a shorter period.
---------------------------------------------------------------------------

    \59\ However, as discussed above, the amount of content that
registered persons would be required to complete in a three-year,
annual cycle for a particular registration category is expected to
be comparable to what most registered persons are currently
completing every three years. See supra Item II.A.1.(ii)a. Some
commenters expressed concerns regarding the costs and burdens that
the proposed annual requirement would impose on firms and registered
persons. See infra Item II.C.(a) and (b)(i). FINRA recognizes that
the transition to an annual Regulatory Element requirement may
result in potential costs and burdens. However, FINRA believes that
any such costs and burdens are appropriate and justified given the
significant regulatory benefit of more tailored and timelier
Regulatory Element. Further, FINRA believes that some of the
potential costs and burdens would be mitigated by the proposed
enhancements to the program.
---------------------------------------------------------------------------

    With respect to firms, FINRA anticipates some costs that may result
from the proposed rule change. The transition to an annual Regulatory
Element requirement could ultimately increase the administrative and
operational burden on firms due to changes to compliance systems. This
is anticipated in terms of the resources required to implement and
monitor compliance with the program on an annual basis. These resources
would also need to be potentially further increased to address the
proposed extension of the Firm Element requirement to all registered
persons.\60\
---------------------------------------------------------------------------

    \60\ Some commenters noted that the extension of the Firm
Element to all registered persons could result in unnecessary costs
and burdens, and they also noted that this proposed change could
have a disparate impact on firms with large home offices and firms
with large numbers of registered support staff and others holding
permissive registrations. See infra Item II.C.(b)(ii).
---------------------------------------------------------------------------

    It is anticipated that costs stemming from the change to an annual
Regulatory Element requirement will tend to increase with the number of
representatives at a firm and thus be higher in aggregate at larger
firms. However, economies of scale likely exist in the application of
the proposed requirements. Thus, the average additional cost per
representative at larger firms will likely be lower than that at
smaller firms.\61\
---------------------------------------------------------------------------

    \61\ One commenter suggested that the transition to an annual
Regulatory Element could increase administrative workloads and costs
on smaller firms and independent contractors. See infra Item
II.C.(b)(i).
---------------------------------------------------------------------------

Alternatives Considered
    FINRA has considered a range of alternatives in developing the
proposed rule change. These included alternative frequency of the
Regulatory Element requirement (periodic versus annual), alternative
time periods for becoming eligible to maintain a qualification status
for a terminated registration category (one year versus more than one
year) and alternative time periods for maintaining a qualification
status (seven years versus 10 or five years).
    The proposed rule change reflects a consideration of the various
alternatives. Within each of these alternatives there is a trade-off
between providing the flexibility to encourage more registered persons
to remain in the industry when other, outside demands arise versus
ensuring that those individuals are likely to be aware of current
regulations and best practices. For example, with respect to
maintaining qualifications, FINRA believes that a length of five years
could achieve the main goals and anticipated benefits of the program.
FINRA considered whether a seven-year period would better balance
flexibility against investor protection risks. Such a seven-year period
would also likely provide a reasonable upper limit on the length of the
proposed requalification option, in so far as a longer period might
erode the benefits of the proposed option. While the proposed
participation period of five years may limit some individuals' ability
to remain in the industry, it may better mitigate the impact of
differences

with state licensing requirements.\62\ Considering the discussion above
regarding economic impacts, issues stemming from other regulatory
frameworks, as well as the views expressed by commenters in response to
Regulatory Notice 20-05, including NASAA's support for a participation
period of five years, FINRA believes that a five-year period is more
appropriate.\63\
---------------------------------------------------------------------------

    \62\ Some commenters expressed support for an indefinite
participation period. See infra Item II.C.(b)(iii).
    \63\ See infra Item II.C.(b)(iii).
---------------------------------------------------------------------------

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

(a) Comments Relating to Regulatory Notice 18-26
    In September 2018, the CE Council published an initial document
outlining several potential enhancements to the CE Program under
consideration by the CE Council. In support of the CE Council, FINRA
published Regulatory Notice 18-26 (September 2018) (``Notice 18-26'')
requesting comment on the potential enhancements. In response to Notice
18-26, FINRA, on behalf of the CE Council, received 22 comment letters.
A copy of Notice 18-26 is available on FINRA's website at http://www.finra.org. Copies of the comment letters received in response to
Notice 18-26 are also available on FINRA's website.
    Most commenters generally supported the potential enhancements
outlined by the CE Council. The commenters expressed overwhelming
interest in implementing a mechanism for allowing previously registered
individuals to maintain their qualification after the termination of
their registrations for longer than the current two-year period. In
addition, most commenters agreed that there is value in moving to an
annual Regulatory Element requirement in order to provide registered
persons with more timely and relevant education and training. However,
many expressed concern that doing so could increase the administrative
and operational burden on both firms and registered persons,
particularly for firms with a narrowly focused business model (e.g.,
the sale of mutual funds and variable annuities). One commenter
expressed concern that increasing the frequency of the Regulatory
Element may exacerbate the existing burden on those without ready
access to a high-speed internet connection, which is currently required
for online access. Many commenters supported Regulatory Element content
that is tailored and specific to each registration category rather than
content that applies generally to all registered persons. Some of these
commenters questioned whether there are sufficient regulatory
developments occurring annually that would be relevant to individuals
with limited registrations, such as registered persons engaged in the
sale of mutual funds and variable annuities. Further, commenters widely
supported the creation of a content catalog that firms could leverage
for administering education and training for their Firm Element
programs. Finally, several commenters requested more guidance on the
Firm Element component, including express guidance that other training
requirements may count toward satisfying the Firm Element requirement.
    Following a review of the public comments and further discussions
with industry and SRO participants, in September 2019, the CE Council
published its recommendations to enhance the CE Program.\64\ As
previously noted, the proposed rule change is based on the CE Council's
recommendations.\65\
---------------------------------------------------------------------------

    \64\ See supra note 15.
    \65\ See supra note 15.
---------------------------------------------------------------------------

(b) Comments Relating to Regulatory Notice 20-05
    The proposed rule change was published for comment in Regulatory
Notice 20-05 (February 2020) (``Notice 20-05''). FINRA received 26
comment letters in response to Notice 20-05. A copy of Notice 20-05 is
available on FINRA's website at http://www.finra.org. Copies of the
comment letters received in response to Notice 20-05 are also available
on FINRA's website.\66\
---------------------------------------------------------------------------

    \66\ See SR-FINRA-2021-015 (Form 19b-4, Exhibit 2d) for a list
of abbreviations assigned to commenters (available on FINRA's
website at http://www.finra.org).
---------------------------------------------------------------------------

    Below is a summary of the comments on Notice 20-05 and FINRA's
responses.
(i) Transition to Annual Regulatory Element for Each Registration
Category
    Most of the commenters addressing the proposed annual Regulatory
Element requirement supported the change. Some of these commenters
qualified their support. ARM supported the proposed change if
individuals with multiple registrations would not be subject to
additional or duplicative requirements. SIFMA, Morgan Stanley, LPL and
Fidelity suggested an annual ``cap'' on the number of modules that
individuals must complete. Huntington was concerned about the potential
increase in compliance and supervisory burdens and duplicative
training. Monahan & Roth requested that the cost of the annual
requirement be proportionately less. STANY requested that FINRA be
mindful of the impact of costs and compliance efforts, especially for
smaller firms.
    Further, Integrated Solutions suggested that registrations that
have been held for longer periods be subject to less frequent
Regulatory Element. CFA suggested that an individual's ``primary''
registration be subject to an annual requirement and that the
individual's other registrations be subject to less frequent Regulatory
Element. PFS requested that Investment Company and Variable Contracts
Products Representatives be subject to less frequent Regulatory Element
because there may not be enough material to develop annual content for
such individuals. Morgan Stanley suggested that FINRA consider a phased
approach followed by a cost-benefit analysis to further assess the
impact of the transition. ARM and Foreside stated that the 15-day grace
period for completing the Regulatory Element, which was originally
proposed in Regulatory Notice 20-05, would increase administrative and
operational burdens. Morgan Stanley requested that FINRA provide a 30-
day grace period. Morgan Stanley and SIFMA also requested that FINRA
provide hiring firms with information regarding an individual's
Regulatory Element status at the prehire stage, subject to the
individual's consent.
    Several commenters did not support the proposed annual Regulatory
Element requirement or raised other concerns with the proposed change.
Executive Advisors, MML, Nationwide and Pacer did not support the
proposed annual requirement. FSI stated that the proposed change would
potentially increase administrative workloads and costs on smaller
firms and independent contractors as well as duplicative training. FSI
also requested clarification regarding the impact of a CE inactive
status on an individual's state registrations, including advisory
registrations, and adequate time for firms to implement the proposed
rule change. PFS stated that the proposed change to an annual
requirement would disparately impact those without broadband internet,
which is currently required to complete the Regulatory Element.
    Registered persons would not be subject to duplicative regulatory
content in any given year, regardless of how many registrations they
hold. Further, FINRA does not believe that it is

necessary to establish an annual ``cap'' on the amount of regulatory
content as suggested by some commenters. Rather, with respect to
individuals who hold a significant number of registrations, FINRA and
the CE Council would review the amount of content that such individuals
would be required to complete each year and, if necessary, the amount
would be adjusted so that it is reasonable and balanced. FINRA will
file a separate proposed rule change to establish the session fee for
the proposed annual Regulatory Element; we generally expect that the
fee for the annual Regulatory Element would be reduced and be the same
for all registered persons, regardless of the amount of content that
they would be required to complete (that is, an individual who holds
multiple registrations would be subject to the same annual fee as an
individual who holds a single registration).
    FINRA believes that the implementation of less frequent Regulatory
Element for certain registration categories or a phased implementation
as suggested by some commenters would be overly complex and cause
confusion. FINRA will work with the CE Council to ensure that there is
sufficient and appropriate content for each registration category. With
respect to the originally proposed 15-day grace period prior to being
designated as CE inactive, FINRA has eliminated the grace period from
the proposed rule change to avoid any unnecessary burdens on firms and
registered persons, as was suggested by some commenters. However, the
proposed rule change preserves the ability of a firm to request an
extension of time for an individual, if necessary. In addition, as is
currently the case, an individual's CE inactive status would impact the
individual's ability to function in a FINRA-registered capacity. As is
the case today, any questions regarding the impact of a CE inactive
status on state registrations should be directed to the appropriate
state securities regulator.
    Finally, in conjunction with the proposed rule change, FINRA would
enhance its systems to reduce the overall burden on firms and
registered persons. As part of these enhancements, FINRA would work
with firms to determine what information would be helpful and
appropriate prior to associating with or hiring individuals. FINRA
would also provide firms with adequate time to implement the proposed
rule change. Further, to mitigate any potential disparate impact on
individuals who do not have ready access to a high-speed internet
connection, FINRA would make the Regulatory Element available via a
mobile compatible format.
(ii) Recognition of Other Training Requirements for Firm Element and
Extension of Firm Element to All Registered Persons
    Commenters overwhelmingly supported the express recognition of AML
compliance program training and annual compliance meeting training
toward satisfying the Firm Element. Some of these commenters requested
additional flexibility and clarification regarding the Firm Element
requirement.
    Foreside requested that firms be provided with the flexibility to
combine the requirements of the Regulatory Element, Firm Element and
annual compliance meeting. Cambridge suggested that completion of
additional modules of Regulatory Element be applied toward satisfying
the Firm Element. Cambridge also recommended that ethics and
professional responsibility training be included in the Regulatory
Element rather than the Firm Element. Monahan & Roth stated that the
current Firm Element training criteria is overly prescriptive and that
the requirement should be more flexible, allowing firms to train to the
scope of their business and changing environment. NRS stated that other
training should count toward satisfying Firm Element training if the
other training is applicable to an individual's job function. STANY
requested that industry conferences count toward satisfying the Firm
Element. SIFMA requested that firms should continue to have the
flexibility to determine if leveraging other training makes sense given
their business model and the flexibility to cover the topics in the
Regulatory Element in Firm Element training. SIFMA also requested that
the Firm Element requirement recognize the unique needs of limited
purpose broker-dealers and suggested that Firm Element training be
designed to apply to other professional designations or training
requirements. NASAA stated that satisfaction of AML compliance program
training or annual compliance meeting training alone should not satisfy
Firm Element training.
    Not all commenters supported the extension of the Firm Element
requirement to all registered persons. FSI and STANY recommended that
it be optional for registered persons who are not currently covered
under the rule. STANY stated that extending the requirement to
individuals holding permissive registrations could create unnecessary
burdens and discourage permissive registrations. LPL stated that the
proposed change may result in unnecessary costs. MML stated that it
would have a disparate impact on firms with large home offices. SIFMA
stated that it would be overly burdensome, particularly for firms with
large numbers of registered support staff and others holding permissive
registrations who are not currently covered under the rule.
    The Regulatory Element cannot be combined with other training
requirements. Registered persons must complete prescribed regulatory
content provided by FINRA to establish that they have an appropriate
level of knowledge relating to regulatory requirements. However, the
Firm Element and annual compliance meeting may be combined, provided
that the criteria for each requirement is satisfied.
    FINRA and the CE Council will consider the possibility of making
additional Regulatory Element topics available to firms, which they
could apply toward satisfying Firm Element training based on their
needs analysis. FINRA and the CE Council will also consider whether
ethics and professional responsibility training should be covered in
the Regulatory Element.
    In response to comments, FINRA has revised the proposed rule change
to replace the current prescriptive Firm Element criteria with a
requirement that the training cover topics related to the role,
activities or responsibilities of the registered person and to
professional responsibility. Nothing in the proposed rule change would
preclude firms from covering the Regulatory Element topics in their
Firm Element training, consistent with their needs analysis. Further,
consistent with their needs analysis, firms would continue to have the
flexibility to determine whether other training, including industry
conferences, may be applied toward the Firm Element. In addition, the
CE Council will consider issuing best practices and guidance to help
firms evaluate other financial industry continuing education programs
for purposes of satisfying the Firm Element.
    The recognition of other training requirements toward satisfying
the Firm Element would still require firms to conduct a needs analysis
to determine the appropriateness of applying such other training toward
the Firm Element. However, based on a needs analysis, a firm may
determine that such other training requirements fully satisfy the Firm
Element requirement. FINRA is not considering developing Firm Element
training specifically to satisfy other professional designations or

training requirements, but some existing training is, and would
continue to be, appropriate for both Firm Element and other
professional requirements.
    The extension of the Firm Element requirement to all registered
persons would ensure that firms enhance the securities knowledge, skill
and professionalism of all registered persons, which is consistent with
the overall goal of the Firm Element. It would also ensure that
registered persons are provided more specific learning materials
relevant to their day-to-day activities, which will provide each
registered person a more complete training cycle. As indicated by
commenters, some firms already require that all their registered
persons complete Firm Element training. In addition, while firms with a
larger number of registered persons, including individuals who are
permissively registered, may incur additional burdens in implementing
the proposed rule change, some of that burden would be mitigated based
on the express recognition of other training requirements toward
satisfying the Firm Element requirement. In some cases, registered
persons may not have to complete any additional training beyond what
they are required to complete today. For example, with respect to
permissively registered persons working in a clerical or administrative
capacity for a firm, the firm may determine, based on a needs analysis,
that such individuals have satisfied the annual Firm Element
requirement by participating in the firm-wide annual compliance
meeting.
(iii) Maintenance of Qualification After Termination of Registration
    Commenters overwhelmingly supported the proposed change to provide
individuals the option of maintaining their qualification following the
termination of a registration by completing annual continuing
education. Some commenters requested additional changes, which are
discussed below.
    NASAA supported the goals of the proposed rule change, but it had
concerns regarding the seven-year participation period originally
proposed in Regulatory Notice 20-05. NASAA has expressed support for a
participation period of five years. CFA, Fidelity, Foreside, Integrated
Solutions and STANY stated that there should not be any time limit on
the participation period. FSI, Foreside, MML, SIFMA and STANY requested
that the proposed rule change also extend to state licenses.
    Cambridge suggested that the content, subject matter and volume of
training be the same for both participants and registered persons.
Cambridge also suggested that the learning topics for participants be
available to firms so that they may elect to apply it to their
registered persons. FSI recommended that individuals who elect to
participate at a later date following their Form U5 submission should
not be required to complete any content that is outdated. MML wanted to
know what would happen if a participant misses an annual cycle. In
addition, MML requested that individuals who became CE inactive within
three years prior to the implementation date of the proposed rule
change should be able to participate. SIFMA requested that hiring firms
be provided with information regarding a participant's status. CFA
recommended that the current two-year qualification period be
eliminated.
    The proposed time limit for participation is necessary to ensure
that previously registered individuals maintain an appropriate level of
securities experience throughout their professional careers. FINRA
believes that a seven-year period better serves the diversity and
inclusion goals of the proposed rule change. However, FINRA also
recognizes the benefits to the industry of having further alignment
between FINRA qualification requirements and state licensing
requirements. Therefore, in the interest of consistency and promoting
registration efficiency, the proposed rule change provides individuals
a maximum of five years in which to reregister, which will still serve
the diversity and inclusion goals. As noted above, following
implementation of the proposed rule change, FINRA will review the
efficacy of the program, which will include a review of the
participation period. In addition, FINRA will work with NASAA and state
regulators to provide for an appropriate process and system support to
allow states to track and process registration requests for individuals
operating under the two- or five-year examination provisions.
    Participants, including registered persons who elect to participate
for a terminated registration category, may be subject to more overall
content compared to registered persons who are not participants because
participants would be required to complete a minimum amount of non-
regulatory content selected by FINRA and the CE Council. FINRA and the
CE Council will consider publishing the learning topics for
participants for those firms that may elect to apply it to their
registered persons. FINRA and the CE Council will also work to ensure
that eligible individuals who elect to participate are not subject to
outdated content.
    Participants who miss an annual cycle for a registration category
would be provided with an opportunity to continue by completing any
missed content, provided that the registration category has not been
terminated for two or more years.\67\ Individuals who have been CE
inactive for two consecutive years prior to the implementation date of
the proposed rule change would not be eligible to participate because
of the long lapse in continuing education. FINRA would work with firms
to determine what information regarding a participant's status would be
helpful and appropriate. The current two-year qualification period
would not be eliminated because participation is optional and eligible
individuals may elect not to participate.\68\
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    \67\ Participants who fail to complete the required annual
content for a registration category that has been terminated for two
or more years would not be eligible to continue. For example, if the
proposed rule change were implemented on January 1, 2022, a
participant who completes the required annual content for the
General Securities Representative category in 2022, 2023 and 2024
but fails to complete the 2025 annual content would not be eligible
to continue beyond 2025. In the example above, if the individual
reregisters with a firm as a General Securities Representative in
2025, the individual would be required to complete any annual
Regulatory Element applicable to the General Securities
Representative registration category by December 31, 2025. If the
individual fails to complete such Regulatory Element by December 31,
2025, the individual would be designated as CE inactive in the CRD
system beginning on January 1, 2026. Alternatively, if the
individual decides to reregister with a firm as a General Securities
Representative at any point beyond 2025, the individual would be
required to requalify by examination, or obtain an examination
waiver, in order to reregister.
    \68\ In this regard, it should be noted that if an individual
who holds a single registration terminates that registration and
elects not to participate, the registration would be subject to the
two-year qualification period. Similarly, if an individual with
multiple registration categories terminates only some of those
registration categories (that is, files a partial termination) and
elects not to participate, the terminated registration category or
categories would also be subject to the two-year qualification
period, unless the terminated category is a subset of a broader
registration category for which they remain qualified.
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(iv) Other Enhancements to CE Program
    Most commenters supported the other enhancements to the CE Program.
However, some commenters had concerns and questions. SIFMA requested
that consideration be given to potential technical limitations and
challenges of registrants when designing diverse instructional formats
for the Regulatory Element. FSI, MML and SIFMA requested that the
Regulatory Element learning topics for each upcoming year be published
early.

    SIFMA suggested that firms be allowed to set the timing and
frequency of FINRA-generated notifications to registered persons,
especially where the firm's Regulatory Element deadline is sooner than
December 31. SIFMA also suggested that FINRA should consider providing
firms with the means to ``audit'' notifications sent to registered
persons regarding the Regulatory Element via the FINRA Financial
Professional Gateway (``FinPro[supreg]'') system and that continuing
education completion information, including information relating to
participants who elect the proposed option, should be displayed on
BrokerCheck[supreg]. Morgan Stanley requested that FINRA provide firms
with the option to communicate directly with registered persons so
firms may set their own internal timelines to fulfill the annual
Regulatory Element requirement. MML suggested that sending a
notification to the personal email of a registered person via the
FinPro system is inconsistent with general supervision and
recordkeeping requirements relating to business-related electronic
communications.
    NRS supported the development of a centralized Firm Element content
directory, which includes course title, description and length,
intended audience, learning objectives and skill level, rather than the
development of a content catalog. Among other reasons, NRS stated that
SROs should not create Firm Element content because it may have the
unintended consequence of being considered regulatory guidance.
    FINRA and the CE Council will work to create optimal instructional
formats for the Regulatory Element, taking into consideration the user
experience. Further, FINRA and the CE Council will consider the
possibility of publishing the Regulatory Element learning topics for
each upcoming year early to provide firms with sufficient time to
design their training for the upcoming year. FINRA will work with firms
to determine the necessary enhancements to the FinPro system to
facilitate the proposed transition to an annual Regulatory Element
requirement. The use of the FinPro system notification functionality
would not be inconsistent with the requirements relating to electronic
communications. Firms that elect to use the functionality would receive
copies of the system-generated notifications, which they could review
and retain.
    With respect to the availability of continuing education
information on BrokerCheck, an individual's CE inactive status is
currently displayed on BrokerCheck and it will continue to be displayed
under the proposed rule change. FINRA will also consider whether the
continuing education status of participants who elect the proposed
option should be displayed on BrokerCheck. Finally, with respect to the
development of a Firm Element content catalog, which most commenters
supported, SROs have historically created Firm Element content and have
provided firms with the option of using such content. FINRA and the CE
Council are considering creating a centralized location for such
content and to partner with third-party training providers to include
their content in the catalog. Based on the comments and industry
feedback, a content catalog would be a valuable resource and would
facilitate compliance by all firms, regardless of firm type.

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

    Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule
change should be 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<EMAIL_ADDRESS>Please include
File Number SR-FINRA-2021-015 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-2021-015. 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 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, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. 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-2021-015 and should be submitted
on or before July 15, 2021.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\69\
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    \69\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-13286 Filed 6-23-21; 8:45 am]
BILLING CODE 8011-01-P