One of the most powerful tools available to FINRA, Rule 8210, has received a fair amount of criticism from the industry. However, having a perspective from both sides is important to understanding the operation of this rule.
Because FINRA does not have the power to issue subpoenas to conduct its investigation, it must use other means to obtain information from its membership. That means is Rule 8210. By entering the securities industry (signing a Form U-4), a registered representative submits to the jurisdiction of FINRA and thus becomes subject to FINRA’s rules. FINRA retains this jurisdiction over a registered person for two years after the registered person has terminated their association with a broker-dealer. This two year period may be extended in some instances. For example, if the broker-dealer files an amendment to the representative’s Form U-5 (e.g. the representative becomes subject to an internal investigation or other item requiring a “yes” answer on the form) then FINRA’s jurisdiction extends two years from the date of that amendment. This allows FINRA time to investigate the issues surrounding the individual’s termination or events that occurred prior to termination. FINRA’s jurisdiction during this time period extends to the activities of the representative prior to termination from the last employing broker-dealer but does not extend to the activities during the two year period following that termination – the period while the registered representative was not associated with a broker-dealer.
Rule 8210 states that FINRA may request information from persons associated with broker-dealers in connection with an examination. This permits FINRA to require testimony from its associated persons and to compel the production of documents and other information. FINRA is permitted by Rule 8210 to serve an 8210 request on the last address reported to the CRD system, so it is important for representatives to keep their CRD address updated. The Rule permits FINRA broad authority to request information, including information that may be considered “personal” in nature such as cellular telephone bills, tax returns and personal bank statements. This is because these items may contain information necessary to complete an investigation.
Many have criticized this Rule. It certainly gives FINRA significant authority. And some complain that they believe FINRA oversteps that authority, either by asking for items that may seem unrelated to the investigation or asking for too much information (e.g. scope of email requests). However, without this rule FINRA would arguably have a difficult or impossible task in carrying out its regulatory responsibilities. Representatives should be aware that FINRA executives have stated in numerous instances that FINRA is willing to negotiate the scope and volume of information requested under Rule 8210. A well-reasoned argument often goes a long way in securing a negotiated production in terms of due dates and scope.
Mitch Atkins, FINRA’s former South Region Director has extensive experience with Rule 8210 requests, including the preparation of responses and negotiated production. Call Mitch Atkins, Principal of FirstMark Regulatory Solutions at 561-948-6511.
There are other ways that FINRA can assert jurisdiction, even if an individual never signed a Form U4. However, for purposes of this piece, we will leave it at this to keep it simple.