FINRA Issues Notice on New Rules and Amendments Relating to Transaction-Based Compensation, Membership and Sanctions

FINRA Issues Notice on New Rules and Amendments Relating to Transaction-Based Compensation, Membership and Sanctions

The Financial Industry Regulatory Authority released Regulatory Notice 15-07 to alert member firms of the new consolidated rules regarding payments to unregistered persons and membership. The notice also alerts member firms of amendments to a FINRA rule regarding sanctions related to improper payments by member firms to persons subject to suspension, revocation, cancellation, bar or other disqualification.

The Securities and Exchange Commission approved FINRA Rule 2040, which governs the payment of transaction-based compensation by member firms to unregistered persons. The new rule expressly aligns with Section 15(a) of the Securities Exchange Act of 1934, as amended, in terms of providing guidance to determine if registration as a broker-dealer is required for persons to receive transaction-related compensation. FINRA Rule 2040 also addresses and codifies FINRA’s “continuing commission” policy relating to the payment of ongoing commissions to retiring registered representatives and provides guidance regarding the payment of transaction-related compensation to non-registered foreign finders and the conditions that apply to such payments.

The SEC also approved FINRA Rule 0190, which provides that a member firm will be considered a non-member of FINRA from the effective date of any SEC or FINRA order or notice issuing a revocation or cancellation of its membership or expulsion from FINRA. In addition, the SEC approved amendments to FINRA Rule 8311, which clarify that if an associated person becomes subject to a sanction or disqualification, the member firm may not allow such person to be associated with it in any capacity that is inconsistent with the sanction.

The effective date for FINRA Rules 2040 and 0190, as well as the amendments to Rule 8311, is August 24.


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