[Federal Register Volume 86, Number 184 (Monday, September 27, 2021)]
[Notices]
[Pages 53358-53365]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-20818]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93097; File No. SR-FINRA-2021-015]


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

September 21, 2021.

I. Introduction

    On June 3, 2021, the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to amend FINRA Rules 1240 
(Continuing Education Requirements) and 1210 (Registration 
Requirements) to, among other things, (1) require that the Regulatory 
Element of FINRA's continuing education program for registered persons 
of FINRA members (``CE Program'') be tailored to each registration 
category and completed annually rather than every three years and (2) 
provide a way for individuals to maintain their qualifications 
following the termination of registration through continuing education. 
The proposed rule change was published for comment in the Federal 
Register on June 24, 2021.\3\ On July 23, 2021, FINRA consented to 
extend until September 22, 2021, the time period in which the 
Commission must approve the proposed rule change, disapprove the 
proposed rule change, or institute proceedings to determine whether to 
approve or disapprove the proposed rule change.\4\ On August 12, 2021, 
FINRA responded to the comment letters received in response to the 
Notice.\5\ This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Exchange Act Release No. 92183 (Jun. 15, 2021), 86 FR 
33427 (Jun. 24, 2021) (File No. SR-FINRA-2021-015) (``Notice'').
    \4\ See letter from Afshin Atabaki, Special Advisor and 
Associate General Counsel, FINRA, to Edward Schellhorn, Special 
Counsel, Division of Trading and Markets, Commission, dated July 23, 
2021. This letter is available at https://www.finra.org/sites/default/files/2021-07/SR-FINRA-2021-015-Extension1.pdf.
    \5\ See letter from Afshin Atabaki, Special Advisor and 
Associate General Counsel, FINRA, to Vanessa Countryman, Secretary, 
Commission, dated August 12, 2021, 2021 (``FINRA Letter''). The 
FINRA Letter is available at https://www.sec.gov/comments/sr-finra-2021-015/srfinra2021015-9135950-247347.pdf.
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II. Description of the Proposed Rule Change

A. Background

    As discussed in the Notice, FINRA's CE Program is codified under 
Rule 1240. The CE Program currently requires registered persons to 
complete continuing education consisting of a Regulatory Element and a 
Firm Element.\6\ The Regulatory Element, which is administered by 
FINRA, focuses on regulatory requirements and industry standards,\7\ 
while the Firm Element is provided by each firm and focuses on, among 
other things, securities products, services and strategies the firm 
offers, firm policies, and industry trends.\8\ FINRA is proposing to 
amend Rule 1240 and make conforming amendments to Rule 1210 to modify 
aspects of both the Regulatory Element and the Firm Element.\9\
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    \6\ See FINRA Rule 1240. See also FINRA Rule 1210.07 (All 
Registered Persons Must Satisfy the Regulatory Element of Continuing 
Education).
    \7\ FINRA's website describes the Regulatory Element as being 
focused on compliance, regulatory, ethical and sales practice 
standards. According to FINRA, its content is derived from industry 
rules and regulations, and accepted standards and practices in the 
industry. Moreover, participants must demonstrate proficiency in 
order to satisfy the continuing education requirements. See https://www.finra.org/registration-exams-ce/continuing-education#regulatory.
    \8\ See Notice, 86 FR at 33428.
    \9\ FINRA stated that the proposed rule change was developed in 
close consultation with the Securities Industry/Regulatory Council 
(``CE Council'') and discussions with stakeholders, including the 
North American Securities Administrators Association (``NASAA''). 
Specifically, FINRA stated that the proposed changes to the CE 
Program are based in part on the CE Council's September 2019 
recommendations to enhance the CE Program. See Notice, 86 FR at 
33429.
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    In addition, FINRA stated in the Notice that it and the CE Council 
also plan to enhance the CE Program in other ways that do not require 
changes to FINRA's rules.\10\ Among other things, FINRA and the CE 
Council will work together to incorporate a variety of instructional 
formats (including a mobile-compatible format) and provide firms with 
advance notice of Regulatory Element topics as well as additional 
resources and guidance to help firms develop effective Firm Element 
training programs.\11\
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    \10\ See Notice, 86 FR at 33428.
    \11\ See id.
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B. Transition to an Annual Regulatory Element for Each Registration 
Category

    Currently, FINRA Rule 1240(a) initially requires a registered 
person to complete the applicable Regulatory Element within 120 days 
after the person's second registration anniversary date and, 
thereafter, within 120 days after every third registration anniversary 
date.\12\ FINRA's proposed rule change would amend FINRA Rule 1240(a) 
and Rule 1210.07 to require registered persons to complete the 
Regulatory Element of the CE Program annually by December 31. Firms, 
however, 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.\13\ Similarly, 
the proposed rule change would preserve FINRA's ability to extend the 
time by which a registered person must complete the Regulatory Element 
for good cause shown if requested in writing and with supporting 
documentation.\14\ Consistent

[[Page 53359]]

with current requirements, individuals who fail to complete their 
Regulatory Element within the prescribed period would be automatically 
designated as ``CE inactive'' \15\ in the Central Registration 
Depository (``CRD'') system \16\ until the requirements of the 
Regulatory Element have been satisfied.\17\
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    \12\ See FINRA Rule 1240(a)(1).
    \13\ See Notice, 86 FR at 33429. FINRA also stated that 
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. 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. See id. at 33429.
    \14\ See proposed Rule 1240(a)(2). See also Notice, 86 FR at 
33429. FINRA may also grant conditional examination waivers 
requiring individuals to complete the Regulatory Element by a 
specified date. Non-registered individuals who are participating in 
the Financial Services Affiliate Waiver Program (``FSAWP'') under 
Rule 1210.09 (``FSAWP Participants'') are also subject to the 
Regulatory Element. See Notice, 86 FR at 33428.
    \15\ See proposed Rule 1240(a)(2). A CE inactive person is 
prohibited from performing, or being compensated for, any activities 
requiring FINRA registration, including supervision. Additionally, 
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). See Notice, 86 
FR at 33428.
    \16\ See https://www.finra.org/registration-exams-ce/classic-crd. As stated on the website, FINRA integrated the registration 
filing functionality that supports the CRD Program into FINRA 
Gateway, available at https://www.finra.org/filing-reporting/finra-gateway. The standalone CRD features were retired August 21, 2021.
    \17\ See Notice, 86 FR at 33428.
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    FINRA stated that the current content of the Regulatory Element is 
broad in nature, applying to both representatives and principals in a 
single format that leads individuals through a story depicting 
scenarios that they may encounter in the course of their work.\18\ The 
proposed rule change would instead tailor the content of the Regulatory 
Element to each registration category. Thus, registered persons would 
be required to complete content specifically designed for each 
representative or principal registration category that they hold.\19\
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    \18\ See id. FINRA stated that the Regulatory Element currently 
consists of a subprogram for registered persons generally, and a 
subprogram for principals and supervisors. According to FINRA, 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. FINRA also 
stated that 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. Since 2015, FINRA has 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. 
According to FINRA, the transition to CE Online has enhanced FINRA's 
ability to update continuing education content in a timelier fashion 
and to develop content that is tailored to each registration 
category as well as to present the materials in an optimal learning 
format. See id.
    \19\ See proposed Rules 1240(a)(1) and (a)(4).
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    FINRA's proposed rule change also proposes to amend Rule 1240(a) to 
include five additional elements such 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; \20\ (2) the two-year CE inactive period would 
be calculated from the date individuals become CE inactive, and would 
continue to run regardless of whether individuals terminate their 
registrations; \21\ (3) individuals who become subject to a significant 
disciplinary action may be required to complete assigned continuing 
education content as prescribed by FINRA; \22\ (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; \23\ and (5) the 
Regulatory Element requirements would apply to individuals who are 
registered, or are in the process of registering as a representative or 
principal.\24\
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    \20\ See Notice, 86 FR at 33429-30.
    \21\ See Notice, 86 FR at 33430.
    \22\ See id.
    \23\ See Notice, 86 FR at 33430.
    \24\ See id.
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    FINRA stated that moving to an annual Regulatory Element 
requirement that is tailored to each registration category would 
further the goals of the Regulatory Element by helping ensure that 
registered persons are better trained in more recent regulatory issues, 
allowing them to perform their work in a more compliant and effective 
manner.\25\ For instance, FINRA stated that transitioning to an annual 
Regulatory Element cycle would help ensure that registered persons 
receive more frequent assessments on current issues and better 
understand recent regulatory changes.\26\ Specifically, FINRA stated 
that registered persons would be current on issues and regulatory 
changes that would enable them to perform their work in a more 
compliant and effective manner than would otherwise be possible with 
Regulatory Element training taking place only once every three years 
under the current CE Program.\27\ According to FINRA, this enhanced 
timeliness and relevance of the Regulatory Element would reduce firms' 
regulatory risk as well as enhancing compliance and reducing 
compliance-related costs.\28\
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    \25\ See Notice, 86 FR at 33434.
    \26\ See id.
    \27\ See id.
    \28\ See id.
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C. Recognition of Other Training Requirements for Firm Element and 
Extension of Firm Element to All Registered Persons

    Currently, Rule 1240(b) requires a firm to develop and administer 
an annual Firm Element training program for its covered registered 
persons.\29\ The Firm Element must, at a minimum, include training in 
ethics and professional responsibility, as well as training in 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.\30\ Firms 
are required to conduct an annual needs analysis to, at minimum, 
determine the appropriate Firm Element training for covered registered 
persons at the firm based on the specific business of the member, and 
then provide the Firm Element training annually.\31\ 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, for purposes of 
satisfying the Firm Element training.\32\
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    \29\ See Rule 1240(b). See also Notice, 86 FR at 33428. 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).
    \30\ See Rule 1240(b). See also Notice, 86 FR at 33428.
    \31\ See Rule 1240(b). See also Notice, 86 FR at 33428.
    \32\ See Rule 3310(e) and Rule 3110(a)(7). See also Notice, 86 
FR at 33429.
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    FINRA's proposed rule change would amend Rule 1240(b) to allow for 
recognition of the successful completion of existing firm training 
programs relating to the AML compliance program and the annual 
compliance meeting toward satisfying an individual's annual Firm 
Element requirement.\33\ The proposed rule change would also amend 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, thereby further aligning the Firm Element 
requirement with other broadly-based training requirements.\34\ FINRA 
also is

[[Page 53360]]

proposing to modify the current minimum training criteria under Rule 
1240(b) to provide that Firm Element training must cover topics related 
to the role, activities, or responsibilities of the registered person, 
as well as professional responsibility.\35\
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    \33\ See proposed Rule 1240(b)(2)(D). See also Notice, 86 FR at 
33430.
    \34\ See proposed Rule 1240(b)(1). See also Notice, 86 FR at 
33430.
    \35\ See proposed Rule 1240(b)(2)(B). See also Notice, 86 FR at 
33430.
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    FINRA stated that the proposed rule change would further enhance 
and streamline the Firm Element requirement.\36\ Specifically, FINRA 
stated that the inclusion of an express recognition of existing firm 
training programs, such as the annual compliance meeting or AML 
training, toward satisfying an individual's Firm Element requirement 
would help firms conserve compliance resources currently devoted to 
duplicative training programs.\37\ Additionally, FINRA stated that the 
extension of the Firm Element requirement to all registered persons 
would help ensure that firms enhance the securities knowledge, skill, 
and professionalism of all registered persons.\38\ FINRA stated that it 
would also ensure that registered persons are provided more specific 
learning materials relevant to their day-to-day activities.\39\
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    \36\ See Notice, 86 FR at 33434.
    \37\ See id.
    \38\ See Notice, 86 FR at 33438.
    \39\ See id.
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D. Maintenance of Qualification After Termination of 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'').\40\ The proposed rule change would not 
eliminate the two-year qualification period. Instead, the proposed rule 
change would amend the rules governing requalification of registered 
representatives who have terminated their registration to provide 
individuals an alternative means of maintaining their qualifications 
and staying current on their regulatory and securities knowledge 
following the termination of a registration, subject to conditions and 
limitations outlined in further detail below.\41\
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    \40\ See Rule 1210.08 (Lapse of Registration and Expiration of 
SIE). FINRA also stated that the current two-year qualification 
period before an individual would need to retest and pass their 
examinations 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. See 
Notice, 86 FR at 33429.
    \41\ See Notice, 86 FR at 33430. Eligible individuals who elect 
not to participate in the proposed continuing education program to 
maintain their qualifications would continue to be subject to the 
two-year qualification period.
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    Specifically, the proposed rule change would adopt 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 for up to 
five years by completing continuing education.\42\ This optional 
program would be limited by the following conditions: (1) Individuals 
would be required to be registered in the terminated category for at 
least one year immediately prior to the termination of the category; 
\43\ (2) individuals could elect to participate when they terminate a 
registration or within two years from the termination of a 
registration; \44\ (3) individuals would be required to complete 
annually all prescribed continuing education; \45\ (4) individuals 
would have a maximum of five years in which to reregister; \46\ (5) 
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; \47\ 
and (6) 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 in, or continue with, the program.\48\
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    \42\ See proposed Rule 1240(c) and Supplementary Material .01 
and .02 to Rule 1240. See also Notice, 86 FR at 33430.
    \43\ See Notice, 86 FR at 33430.
    \44\ See id. FINRA stated that 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 
submission and the date that they commence their participation. In 
addition, FINRA stated that it plans to 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. See id.
    \45\ See Notice, 86 FR at 33431. FINRA's proposed rule change 
would also allow FINRA to grant an extension of time for the 
participant to complete the prescribed continuing education 
following a participant's request in writing with supporting 
documentation and a showing of good cause. See id.
    \46\ See Notice, 86 FR at 33431.
    \47\ See id.
    \48\ See id. In addition, FINRA stated that any continuing 
education content completed in furtherance of this proposed program 
would be retroactively nullified upon disclosure of the statutory 
disqualification. See id.
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    FINRA also is proposing two additional provisions in the proposed 
rule change. The first is a look-back provision that would, subject to 
specified conditions, extend the application of the proposed five-year 
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.\49\ The second is a re-eligibility provision that 
would allow individuals to regain eligibility to participate in the 
proposed five-year continuing education option 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.\50\
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    \49\ See Notice, 86 FR at 33431. Among other things, proposed 
Supplementary Material .01 to Rule 1240 and proposed Rule 1210.09 
would provide the requirements and limitations to participation in 
this optional five-year continuing education period for FSAWP 
Participants, including when they would need to elect to 
participate, when they would need to complete their initial annual 
content, and adjustment of their initial participation period based 
on the date that their registration was terminated. Additionally, 
FINRA stated that while the current waiver program for FSAWP 
Participants would not be available to new participants upon 
implementation of the proposed rule change, 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. The proposed rule change 
would preserve FINRA's ability to extend the time by which FSAWP 
Participants must complete the Regulatory Element for good cause 
shown under proposed Rule 1240(a)(2). See Notice, 86 FR at 33431.
    \50\ See Notice, 86 FR at 33431.
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    FINRA also is proposing conforming amendments to Rule 1210, 
including adding references to proposed Rule 1240(c) under Rule 
1210.08.\51\
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    \51\ See id.
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    According to FINRA, the continuing education content for 
participants of the proposed five-year continuing education option 
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 further below.\52\ The content would 
correspond to the registration category for which individuals wish to 
maintain their qualifications.\53\ The proposed rule change would also 
provide that the continuing education content for participants of the 
proposed five-year continuing education option must be completed 
annually by December 31

[[Page 53361]]

each year, consistent with the proposed annual Regulatory Element 
provision.\54\ In addition, FINRA stated that participants who are 
maintaining their qualification status for a principal registration 
category that includes one or more corequisite representative 
registrations would also need to complete required annual continuing 
education for the corequisite registrations in order to maintain their 
qualification status for the principal registration category.\55\
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    \52\ See id.
    \53\ See id.
    \54\ See id. See also supra note 11 and accompanying text.
    \55\ See Notice, 86 FR at 33431.
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    FINRA stated that the proposed rule change would: (1) Incentivize 
individuals to stay current on their respective securities industry 
knowledge following the termination of any of their registrations; (2) 
promote investor protection given that the individuals availing 
themselves of this optional program would be subjected to continuing 
education that is as rigorous as the continuing education of registered 
persons, while providing an opportunity for the securities industry to 
retain skilled and experienced workers; (3) increase flexibility for 
individuals to address life and career events and necessary absences 
from registered functions without having to requalify each time; and 
(4) enhance diversity and inclusion in the securities industry by 
attracting and retaining a broader and diverse group of 
professionals.\56\ FINRA has also stated that it plans to evaluate the 
efficacy of the proposed rule change following its implementation to 
ensure that it is meeting its goals.\57\
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    \56\ See Notice, 86 FR at 33431, 33435. According to FINRA, the 
proposed rule change may be of particular value to women and older 
workers. FINRA stated that women 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 of time 
than men. Additionally, FINRA stated that the proposed rule change 
would provide longer-term relief for 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 of time than 
younger workers. See Notice, 86 FR at 33431.
    \57\ See Notice, 86 FR at 33431.
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E. Other Enhancements to the CE Program

    FINRA stated in the Notice that it intends to make additional 
enhancements to the CE Program that will not require changes to FINRA 
rules.\58\ FINRA stated that it would work with the CE Council to 
incorporate a variety of instructional formats to present the 
Regulatory Element content, including via a mobile compatible 
application.\59\ In addition, FINRA stated that it would work with the 
CE Council to publish in advance the Regulatory Element learning topics 
for the next year so that firms may review those topics when developing 
their Firm Element training plan to avoid unnecessary duplication of 
topics if desired.\60\ Given that the proposed rule change would 
transition to an annual Regulatory Element requirement, FINRA stated 
that it would assist firms with compliance with that requirement by 
enhancing its systems to provide firms and registered persons with 
additional notification, management, and tracking functionality.\61\
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    \58\ See Notice, 86 FR at 33432.
    \59\ See id. In response to a Regulatory Notice that FINRA 
issued concerning proposed changes to the CE Program, it received a 
comment letter encouraging FINRA to make continuing education 
available via a mobile application. FINRA stated that it intends to 
take that suggestion and plans to make the Regulatory Element 
content available via a mobile application. See FINRA Letter at 2-3.
    \60\ See Notice, 86 FR at 33432.
    \61\ See id. FINRA stated that the transition to an annual 
Regulatory Element requirement would have the effect of increasing 
the number of registered persons who would be required to complete 
the Regulatory Element on an annual basis. As such, FINRA stated 
that the enhancement of notification, modification, and tracking 
functionality in its systems will be helpful for firms and 
individuals. See Notice, 86 FR at 33432.
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    FINRA also stated that it would 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.\62\ Further, FINRA stated that it would work 
with the CE Council to 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.\63\ According to FINRA, the catalog would include 
content developed by third-party training providers, FINRA, and the 
other Self-Regulatory Organizations participating in the CE 
Program.\64\
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    \62\ See Notice, 86 FR at 33432.
    \63\ See Notice, 86 FR at 33432, 33434. FINRA stated that firms 
would have the option of using the content in this catalog for 
purposes of their Firm Element training and would not be obligated 
to select content from the catalog.
    \64\ See Notice, 86 FR at 33432.
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F. Effective Date

    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.\65\
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    \65\ See id.
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III. Discussion and Commission Findings

    After careful review of the proposed rule change, the comment 
letters, and FINRA's response to the comments, the Commission finds 
that the proposed rule change is consistent with the requirements of 
the Exchange Act and the rules and regulations thereunder that are 
applicable to a national securities association.\66\ Specifically, the 
Commission finds that the proposed rule change is consistent with 
Section 15A(b)(6) of the Exchange Act, which requires, among other 
things, that FINRA rules 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.\67\
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    \66\ In approving this rule change, the Commission has 
considered the rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \67\ 15 U.S.C. 78o-3(b)(6).
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A. Transition to Annual Regulatory Element for Each Registration 
Category

    As stated above, FINRA is proposing to amend Rule 1240(a) and Rule 
1210.07 to require registered persons to complete the Regulatory 
Element of the CE Program annually by December 31 and to require 
registered persons to complete the Regulatory Element content that is 
tailored for each representative or principal registration category 
that they hold.
    Most commenters were supportive of FINRA's proposed rule 
change.\68\ One such commenter stated that it appreciated that member 
firms would be allowed greater flexibility to administer the Regulatory 
Element in conjunction with other training requirements.\69\ Another 
cited: (1) The flexibility it would afford in allowing firms to 
complete training prior to December 31; (2) its availability to 
individuals via mobile application; and (3) that the proposed 
Regulatory Element would still require a comparable amount of overall 
continuing education as it did prior to the proposed rule change.\70\
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    \68\ See letter from James Rabenstine, Vice President and Chief 
Compliance Officer, Nationwide Office of the Chief Legal Officer, 
Nationwide Financial Services, Inc. (``NFS''), dated July 13, 2021 
(``NFS Letter''); letter from Lisa Hopkins, NASAA President, General 
Counsel, and Senior Deputy Commissioner of Securities, West 
Virginia, NASAA, dated July 14, 2021 (``NASAA Letter''); letter from 
Kevin Zambrowicz, Managing Director and Associate General Counsel, 
Securities Industry and Financial Markets Association (``SIFMA''), 
dated July 14, 2021 (``SIFMA Letter'').
    \69\ See SIFMA Letter at 2.
    \70\ See NFS Letter at 1. The NFS Letter also suggested that it 
would be helpful for the Regulatory Element topics to be published 
by October 1 of each year. FINRA stated that it would publish the 
topics by no later than October 1 of each year in order to provide 
firms with sufficient time to review the Regulatory Element topics 
for each upcoming year. See FINRA Letter at 2 n.4.

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[[Page 53362]]

    One commenter, although generally supportive of the proposed rule 
change, expressed concern that moving to an annual Regulatory Element 
may increase overall costs and burdens, both for firms and registered 
persons, associated with an annual increase in required training.\71\ 
The commenter also suggested that the proposed transition from the 
current three-year cycle to an annual requirement may not be 
necessary.\72\ Alternatively, the commenter suggested that any 
transition be done in two phases: (1) From three years to two years to 
determine if its objectives were met; and then (2) from two years to 
one year.\73\
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    \71\ See letter from Brian Egwele, dated July 2, 2021 (``Egwele 
Letter''). FINRA also identified that the cost of changing to an 
annual Regulatory Element generally would increase with the number 
of representatives at a firm and thus would be higher in aggregate 
at a larger firm. However, FINRA stated that economies of scale 
likely exist in the application of the proposed requirements such 
that the average additional cost of implementing this proposal per 
representative at larger firms would likely be lower than at smaller 
firms. See Notice, 86 FR at 33435.
    \72\ See Egwele Letter (expressing support for the proposed rule 
change by stating that, even though the proposed rule change may 
increase administrative workload and costs, the ``price is worth it 
to remain compliant.'').
    \73\ See Egwele Letter.
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    In response, FINRA stated that the overall amount of training in a 
three-year period would remain approximately the same as the amount of 
training currently undertaken by completing the Regulatory Element once 
every three years.\74\ Additionally, FINRA explained that the impact on 
individuals from increased training requirements, such as the time 
commitment associated with those trainings, would be limited in that 
the overwhelming majority of registered persons only hold a single 
registration category.\75\
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    \74\ See Notice, 86 FR at 33430.
    \75\ See Notice, 86 FR at 33435. According to FINRA, individuals 
with more than one registration category account for approximately 
35 percent of all registered persons.
---------------------------------------------------------------------------

    With respect to the commenter's proposed transition period, FINRA 
responded that it believes that a phased implementation with different 
timing requirements for any of the proposed components would be overly 
complex and cause confusion. Additionally, FINRA stated that a phased 
approach would require more resources and could result in greater costs 
to keep multiple varying Regulatory Element systems and programs 
running, including potential additional costs to firms to track and 
manage differing requirements.\76\ For these reasons, FINRA declined to 
amend the proposed rule change in response to the commenter's concerns.
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    \76\ See FINRA Letter at 3. FINRA also stated that the proposed 
rule change includes several interrelated annual Regulatory Element 
components: (1) Annual Regulatory Element content for registered 
persons; (2) annual Regulatory Element content for non-registered 
individuals who are participating in the waiver program under FINRA 
Rule 1210.09; and (3) annual Regulatory Element content for 
individuals who elect to maintain their qualification status for a 
terminated registration category. See id.
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    In addition, one commenter opposed the proposed change to increase 
the frequency of the Regulatory Element, believing that it would have a 
disparate impact on members of underrepresented populations who may 
have more limited access to a broadband or high-speed internet 
connection.\77\ The commenter also stated that a mobile compatible 
format may not be adequate for continuing education given that mobile 
devices may not meet all learning needs, and that potential access and 
connectivity challenges will also make this an insufficient 
solution.\78\ By contrast, a separate commenter was fully supportive of 
FINRA making the Regulatory Element available via a mobile-compatible 
format on the grounds that it would simplify the process for 
individuals that have terminated their registration and wanted to 
reenter the industry at some point in their career.\79\
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    \77\ See letter from John Watts, Senior Vice President and Chief 
Counsel, PFS Investments, Inc. (``PFS''), dated July 15, 2021 (``PFS 
Letter''). As noted above, the delivery of the Regulatory Element is 
available through CE Online, which allows individuals to complete 
the content online at a location of their choosing, including their 
private residence. See supra note 19. Additionally, FINRA and the CE 
Council have committed to making the annual Regulatory Element 
content available to users via a mobile application. See supra note 
60.
    \78\ See id.
    \79\ See NFS Letter at 2 (also expressing support for FINRA's 
intention to publish learning topics in advance on the grounds that 
it would be helpful for securities industry professionals).
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    In response, FINRA stated that it specifically tailored the 
proposed rule change to help meet the individual needs of registered 
persons and firms.\80\ Accordingly, FINRA stated that the Regulatory 
Element would be designed to deliver content in a manner that is 
broadly accessible and compatible with the diverse needs of individuals 
and their learning needs.\81\ In developing the mobile-compatible 
format, which includes a mobile responsive design, FINRA intends mobile 
device users to be able to easily, quickly, and intuitively navigate 
the Regulatory Element content.\82\ FINRA has committed to developing 
the mobile application so that access to the training material and the 
overall learning experience is engaging and intuitive for users such 
that it would be a comparable to those taking the training on a 
desktop.\83\ FINRA believes that these enhancements and the 
availability of mobile compatibility would address the potential access 
and diversity concerns that the commenter raised.\84\ Furthermore, 
FINRA explained that it has made available in the past, and will 
continue to do so in the future, additional options for individuals who 
may need or prefer other solutions to fulfill their Regulatory Element 
content obligations.\85\ For instance, FINRA stated that the Regulatory 
Element training would also be accessible in other convenient ways, 
including through a computer or other device at a firm location or on 
various widely available public and community locations where computer 
and broadband internet access is available for free.\86\ For these 
reasons, FINRA declined to amend the proposed rule change in response 
to the commenter's concerns.
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    \80\ See FINRA Letter at 3.
    \81\ See id.
    \82\ See FINRA Letter at 4 (FINRA committed to structuring and 
formatting the Regulatory Element content to ensure that mobile 
device users have a comparable experience to that of a desktop user 
even in low bandwidth conditions).
    \83\ See FINRA Letter at 4.
    \84\ See FINRA Letter at 3-4. Additionally, FINRA stated that it 
remains committed to understanding specific technology or access 
needs and to provide potential solutions. See FINRA Letter at 4.
    \85\ See FINRA Letter at 4.
    \86\ See id. FINRA offers individuals the option of completing 
their Regulatory Element session at test centers in various 
locations of every state as well as internationally. Id.
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    The Commission finds that the proposed rule change to move to an 
annual Regulatory Element training with content tailored to an 
individual's representative or principal registration categories is 
designed to protect investors and is in the public interest. The 
Commission finds that the rule is reasonably designed to minimize the 
potential adverse impact on firms and their registered persons. 
Furthermore, increasing the timeliness of registered persons' training, 
as well as the relevance of the training's content by tailoring it to 
each registration category that they hold, would enhance their 
education and compliance with their regulatory obligations.
    The Commission further finds that a shift to an annual Regulatory 
Element training is more advantageous when compared to the current CE 
Program in which some existing registered persons may not receive 
consistent updated

[[Page 53363]]

training from regulators on regulatory developments for up to three 
years. More specifically, transitioning to an annual Regulatory Element 
requirement, rather than taking a phased approach, should enhance a 
firm's regulatory compliance, and reduce a firm's overall regulatory 
risk because of the increased timeliness and relevance of the more 
tailored content provided through an annual Regulatory Element 
training. Additionally, the Commission also finds that the proposed 
rule change would allow firms to maintain some flexibility for 
administering the annual Regulatory Element given that firms may 
require their registered persons to complete the annual requirement 
earlier than December 31 each year so as to coincide with other 
training requirements. The Commission also finds that FINRA has 
reasonably determined that its proposed mobile accessibility would 
provide a flexible, accessible, and effective learning experience for 
users who choose to access the Regulatory Element through mobile 
technology. The proposed mobile application compatibility would also 
likely allow for a more diverse candidate pool by allowing individuals 
to reenter or remain in the workforce if they have previously completed 
the required examinations and have already proven themselves worthy, as 
suggested by a commenter.\87\ Moreover, to the extent registered 
persons need or prefer an alternative to mobile compatibility to 
fulfill their Regulatory Element obligations, FINRA is committed to 
making alternative options available. As outlined above, these 
additional options include widely-available test centers as well as 
public and community locations where computer and broadband access is 
available for free. The Commission finds that FINRA has provided 
reasonable solutions to address commenter concerns on accessibility.
---------------------------------------------------------------------------

    \87\ See NFS Letter at 2.
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    Accordingly, for the reasons set forth above, the Commission finds 
that the proposed rule change is designed to protect investors and is 
in the public interest.

B. Recognition of Other Training Requirements for Firm Element and 
Extension of Firm Element Training to All Registered Persons

    As stated above, FINRA's proposed rule change would amend Rule 
1240(b) to allow for recognition of the successful completion of 
existing firm training programs relating to the AML compliance program 
and the annual compliance meeting toward satisfying an individual's 
annual Firm Element requirement. The proposed rule change would also 
amend the rule to extend the Firm Element training requirement to all 
registered persons, including individuals who maintain solely a 
permissive registration consistent with Rule 1210.02, thereby further 
aligning the Firm Element requirement with other broadly-based training 
requirements.
    A number of commenters addressed the Firm Element training 
component of FINRA's proposed rule change. Most commenters supported 
allowing the Firm Element to recognize a firm's AML compliance training 
and annual compliance meeting as fulfilling that requirement.\88\ One 
commenter stated that it appreciated that the Firm Element would 
recognize other trainings that members provide to their registered 
persons.\89\ Another commenter supported this proposal because (1) 
requiring training to cover ``topics related to the role, activities or 
responsibilities of the registered person'' \90\ and (2) requiring 
members to develop written training plans that are evaluated annually 
\91\ should mitigate any concerns that AML compliance and annual 
compliance meeting trainings would simply be substituted for more 
tailored training requirements.\92\
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    \88\ See NFS Letter at 1; SIFMA Letter at 2; NASAA Letter at 1-
2.
    \89\ See SIFMA Letter at 2.
    \90\ Proposed Rule 1240(b)(2)(B).
    \91\ See proposed Rule 1240(b)(2)(A).
    \92\ See NASAA Letter at 1-2.
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    One commenter stated, however, that a firm's annual needs analysis 
and written training plan should not need to be recompleted every year 
if the firm has not changed business models.\93\ Additionally, the 
commenter recommended that FINRA consider making the Regulatory Element 
training the primary, if not the sole means, by which securities 
industry personnel are made aware of important rules and issues.\94\
---------------------------------------------------------------------------

    \93\ See Letter from Anonymous, dated July 1, 2021 (``Anonymous 
Letter'').
    \94\ See Anonymous Letter.
---------------------------------------------------------------------------

    In response, FINRA stated that the Firm Element, which is firm-
specific and may vary from firm-to-firm, is a necessary component of 
the CE Program, complementing the Regulatory Element, which ensures 
that registered persons receive uniform and comprehensive training from 
regulators on regulatory developments.\95\ Similarly, FINRA stated that 
even if a firm's business model has not changed, the regulatory or 
industry developments that may have taken place still necessitate an 
annual needs analysis to account for changes in addressing products, 
services, or strategies offered by the firm.\96\ For these reasons, 
FINRA declined to amend the proposed rule change to eliminate the Firm 
Element component of its CE Program in response to the commenter's 
concerns.
---------------------------------------------------------------------------

    \95\ See FINRA Letter at 5.
    \96\ See id.
---------------------------------------------------------------------------

    The Commission finds that proposed Rule 1240(b), which expressly 
allows firms to consider training relating to their AML compliance 
program and the annual compliance meeting toward satisfying an 
individual's annual Firm Element requirement, combined with the 
proposed rule's provision to extend the Firm Element requirement to all 
registered persons, reasonably aligns the Firm Element requirement with 
other required training.
    The proposed rule change would allow firms to satisfy the Firm 
Element requirement with important, pre-existing AML compliance 
training and annual compliance meetings, which should reduce otherwise 
duplicative training programs for firms. In addition, extending the 
Firm Element requirement to all registered persons at the firm, 
including those with permissive registrations, would also help to 
ensure a better trained and more compliant securities workforce, which 
is to the advantage of the investing public. Furthermore, the 
Commission finds that FINRA's determination to retain the Firm Element 
of its CE program and the obligation that firms conduct an annual needs 
analysis and written training plan, even in the absence of any new 
regulatory or industry developments year-to-year, is reasonable.\97\ 
For these reasons, the Commission finds that the proposed rule change 
is designed to protect investors and is in the public interest.
---------------------------------------------------------------------------

    \97\ See id.
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C. Maintenance of Qualification After Termination of Registration

    As stated above, subject to certain conditions, proposed Rule 
1240(c), and Supplementary Material .01 and .02 to Rule 1240, would 
provide eligible individuals who terminate any of their representative 
or principal registrations the option of maintaining their 
qualification for any of their terminated registrations for up to five 
years without having to requalify by examination or having to obtain an 
examination waiver by completing continuing education.\98\
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    \98\ See proposed Rule 1240(c) and Supplementary Material .01 
and .02 to Rule 1240. See also Notice, 86 FR at 33430.
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    Most commenters expressed overall support for FINRA's proposal to 
allow registered persons to maintain their

[[Page 53364]]

qualifications for up to five years through continuing education 
without the need for reexamination after termination of a 
registration.\99\ One commenter stated that the proposed change is one 
step in the process to achieving greater diversity and inclusion in the 
securities industry by reducing unnecessary barriers to reentry.\100\
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    \99\ See SIFMA Letter at 2; NASAA Letter at 2; NFS Letter at 2; 
letter from Frederick Greene, Executive Vice President, Woodforest 
Wealth Strategies, dated July 11, 2021 (``Woodforest Letter''); 
letter from Carrie Chelko, Chief Compliance Officer, Fidelity 
Investments, dated July 14, 2021 (``Fidelity Letter''); and letter 
from Howard Spindel, Senior Managing Director, Integrated Solutions, 
dated July 14, 2021 (``Integrated Letter'').
    \100\ See SIFMA Letter at 2.
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    Several commenters, however, expressed a preference for a longer 
period of time that an individual could maintain their qualifications 
following termination of a registration, instead of the five-year 
period that FINRA proposed.\101\ One of those commenters strongly 
supported this aspect of the proposal as a welcome and necessary 
improvement to continuing education, but preferred a seven-year period 
of time to maintain qualifications so as to more closely align with the 
existing seven-year period in the FSAWP program.\102\ Other commenters 
suggested that a seven-year period would be ideal in order to further 
enhance the diversity benefits of this proposed rule change.\103\ 
Another commenter supported a longer period to maintain qualifications, 
especially for individuals who are active within the securities 
industry in a non-registered capacity who could be ``grandfathered in'' 
rather than needing to go through a waiver process that the commenter 
described as ``onerous'' and ``subjective.'' \104\
---------------------------------------------------------------------------

    \101\ See Fidelity Letter at 2; Integrated Letter at 2-3; NFS 
Letter at 2; and Woodforest Letter at 1.
    \102\ See Fidelity Letter at 2.
    \103\ See NFS Letter at 2; Woodforest Letter at 1-2. 
Additionally, the Woodforest Letter suggested that individuals 
availing themselves of this program should be required to complete 
at least the minimum Firm Element requirement, including training on 
ethics, AML, regulations, and products and, if applicable, 
additional continuing education relating to supervisory functions. 
In response, FINRA stated that the continuing education content for 
individuals who elect the proposed option would consist of a 
combination of Regulatory Element content and content selected by 
FINRA and the CE Council from the Firm Element content catalog. 
According to FINRA, that content would correspond to the 
registration category, including any supervisory or principal 
registration category, for which individuals wish to maintain their 
qualifications. In addition, FINRA stated that the content selected 
from the Firm Element content catalog would be based on the minimum 
standards for Firm Element training, including training in 
professional responsibility. See FINRA Letter at 6. Commenters were 
supportive of the content catalog, stating that it would enable more 
timely and increased awareness that would enhance customer 
protection, for example, by providing relevant information 
regarding, among other things, trends in retail investor trading, 
regulatory rule changes, and cybersecurity. See NASAA Letter at 1. 
See also Fidelity Letter at 1.
    \104\ See Integrated Letter at 2-3.
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    In response, FINRA stated that it believes the proposed 
participation period of up to five years would serve the diversity and 
inclusion goals of the proposed rule change while still providing the 
appropriate level of training for registered persons and protection for 
investors.\105\ In particular, FINRA believes that this proposal would 
help attract and retain a broader, more diverse population of 
individuals to the securities industry by offering a program that is 
sufficiently flexible to meet the individual needs of registered 
persons and firms.\106\ Moreover, FINRA believes that limiting this 
option to five years would help ensure that individuals' knowledge of 
the industry does not become outdated.\107\
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    \105\ See FINRA Letter at 6. See also Notice, 86 FR at 33435 
(explaining that FINRA believes a length of five years could achieve 
the main goals and anticipated benefits of the proposed changes to 
the CE Program. FINRA further stated that a seven-year period may 
not best protect investors and that a five-year period may better 
mitigate the impact of differences with state licensing 
requirements.).
    \106\ See FINRA Letter at 3.
    \107\ See Notice, 86 FR at 33435-36.
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    FINRA also stated, however, that the proposed five-year maintenance 
option is not intended to address every situation in which an 
individual terminates a registration and subsequently decides to 
reregister.\108\ FINRA explained it has always provided an individual 
who continues to work in the securities industry or a field ancillary 
to the securities industry the ability to request an examination waiver 
following a significant absence from a registered role or 
function.\109\ For the above reasons, FINRA believes that the proposed 
new five-year maintenance period is appropriate.\110\
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    \108\ See FINRA Letter at 6.
    \109\ See id. FINRA further stated that in determining whether 
to grant a waiver in such cases, FINRA expressly considers whether 
the individual was previously registered, and for how long relative 
to the duration of time that the individual has been unregistered. 
FINRA also explained that it considers whether the individual worked 
in a field ancillary to the securities industry, and for how long, 
while unregistered. See id.
    \110\ See FINRA Letter at 6.
---------------------------------------------------------------------------

    Although FINRA declined to amend the participation period at this 
time, FINRA stated that it would continue to monitor the efficacy of 
the proposed CE Program, which will include a review of the 
participation period.\111\
---------------------------------------------------------------------------

    \111\ See Notice, 86 FR at 33431.
---------------------------------------------------------------------------

    One commenter, although supporting the proposed rule change, also 
suggested that, if the rule change is adopted, FINRA should enhance CRD 
to allow states that have not revised existing regulations to 
efficiently process registration applications of persons who maintain 
their qualifications beyond two years.\112\ In response, FINRA 
recognized the benefits to the industry of having further alignment 
between FINRA qualification requirements and state licensing 
requirements.\113\ Thus, FINRA stated that it would work with NASAA and 
state regulators to provide for an appropriate process and system to 
allow states to track and process registration requests for individuals 
operating under the two- or five-year examination provisions.\114\
---------------------------------------------------------------------------

    \112\ See NASAA Letter at 2.
    \113\ See FINRA Letter at 6.
    \114\ See FINRA Letter at 5-6.
---------------------------------------------------------------------------

    The Commission finds that FINRA's proposed Rule 1240(c), and 
proposed Supplementary Material .01 and .02 to Rule 1240, is in the 
public interest and would protect investors because it would, among 
other things, help enhance the education of registered persons and 
their compliance with their regulatory obligations, thus reducing 
regulatory risk. In particular, by providing a means for individuals to 
maintain their qualifications after termination of a registration for a 
longer period of time, the proposed rule change would aid the 
securities industry in attracting and retaining a more diverse 
workforce. Additionally, this proposed rule change would provide 
registered persons with increased flexibility 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). In 
addition, the Commission finds that FINRA's decision to choose five 
years as the time period for maintaining qualifications after 
termination of a registration, while also continuing to monitor the 
efficacy of the proposed CE Program, is reasonable.
    The proposed rule change would also increase opportunities for 
reentry to the securities industry for individuals who may not have 
otherwise been able to do so without retaking their qualification 
examinations. As a result, this proposed rule change would provide 
firms with a more diverse pool of applicants from under-represented 
populations in the

[[Page 53365]]

securities industry, such as female and older registrants. In turn, 
this proposed rule change would allow the industry to retain expertise 
from skilled individuals, providing investors with the advantage of 
greater experience among the individuals working in the industry. For 
these reasons, the Commission finds the proposed rule change is 
designed to protect investors and is in the public interest.

IV. Conclusion

    It is therefore ordered pursuant to Section 19(b)(2) of the 
Exchange Act \115\ that the proposed rule change (SR-FINRA-2021-015), 
be, and hereby is, approved.
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    \115\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\116\
---------------------------------------------------------------------------

    \116\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-20818 Filed 9-24-21; 8:45 am]
BILLING CODE 8011-01-P