Firm Element FAQs
Q. What is the Securities Industry Continuing Education Program?
A. The Securities Industry Continuing Education Program is a two-part program. The Regulatory Element consists of periodic computer-based training on regulatory, compliance, ethical and supervisory subjects. The Firm Element consists of annual, firm-developed and administered training programs designed to keep specified registered employees current regarding job- and product-related subjects.
Q. What is the Securities Industry/Regulatory Council on Continuing Education and what role does it play in the Securities Industry Continuing Education Program?
A. The Securities Industry/Regulatory Council on Continuing Education (the Council) has advisory and consultative responsibilities with regard to the development, implementation and ongoing operation of the Securities Industry Continuing Education Program. The Council currently is comprised of representatives from the industry and from self-regulatory organizations (SROs)¹ . Liaisons from the Securities and Exchange Commission and the North American Securities Administrators Association also participate in Council matters.
The Council maintains a web site - www.cecouncil.com - that is used to inform the industry about the Continuing Education Program. The Council web site also provides resources to assist the industry with complying in continuing education requirements.
Q. What is the Firm Element?
A. The Firm Element requires broker-dealers to annually evaluate and prioritize their training needs, i.e., conduct a Needs Analysis, and develop a written plan. In planning, developing, and implementing the Firm Element training, each broker-dealer must take into consideration its size, structure, scope of business, and regulatory concerns.
Q. Who is required to participate in the Firm Element?
A. The Firm Element requirements apply to all "covered persons." Covered persons is defined as registered persons, including salespeople, traders, sales assistants, investment company shareholder servicing agents, investment bankers, and others who have direct contact with public customers in the conduct of a securities sales, trading, or investment banking business, and their immediate supervisors, for as long as they are considered covered persons. The term "customer" in the definition of covered persons includes retail, institutional and investment banking customers, but does not apply to other broker-dealers.
Q. Are branch managers and supervisors/principals covered persons within the Firm Element?
A. Yes, if they directly supervise registered covered persons. If a branch manager or supervisor/principal also has customer accounts, then his or her immediate supervisor is a covered person as well.
Q. Are registered research analysts covered persons within the Firm Element?
A. Yes, if they interact with customers. This would include responding to customer questions or assisting institutional salespersons in direct dealings with institutional customers of the firm.
Q. Are registered sales assistants or registered investment company shareholder servicing agents, who handle service calls from customers, covered persons within the Firm Element?
A. Yes, if their activities including conducting a securities business in a sales context and otherwise require registration. The fact that such persons are registered means that they are qualified and that there is enough potential for customer contact of the type prescribed by the rules that these persons should be considered covered persons.
Q. If a firm prescribes that a particular covered person take part in the Firm Element training, must the covered person do so?
A. Yes. SRO rules require covered persons to participate in training as prescribed by their firms. Failure to do so could result in disciplinary action against the registered person by his or her firm or by a regulatory authority.
Q. Is any covered person exempt from the Firm Element?
A. No covered person is exempt from the Firm Element.
Q. Can registered persons who volunteer or are called into active military duty obtain relief from Firm Element obligations for the period of time that they are on active duty?
A. Yes. Both the NYSE and FINRA (see Information Memo 03-17 and Notice to Members 02-12) provide relief from both Regulatory and Firm Element continuing education obligations to registered persons who volunteer or are called into active military duty. The procedure requires the broker-dealer of the registered person to notify the CRD/Public Disclosure Department by means of a letter, on firm letterhead, identifying the name and CRD number of the person called into active duty, the name and CRD number of the firm (or firms) with whom the person is associated, and a copy of the official call-up notification. Letters should be mailed to P.O. Box 9495, Gaithersburg, MD 20898-9495 or faxed to (240) 386-4751.
The Needs Analysis
Q. What should broker-dealers consider when undertaking their annual Needs Analysis?
A. Each firm is required to analyze and evaluate its training needs in light of the firm's size, organizational structure, scope of business, types of products and services it offers, as well as regulatory developments and the performance of its registered persons in the Regulatory Element. Particular emphasis should be placed on changes to firm or industry demographics from the prior year. New products, new rules related to firm business and problems the firm has experienced, such as complaints, regulatory or legal actions, are other particularly important considerations.
Each firm must then administer its Firm Element continuing education program in accordance with its annual Needs Analysis and written plan, and must maintain records documenting the content of the program and completion of the program by covered persons.
Q. Must a firm utilize a questionnaire from its covered persons as part of its Needs Analysis?
A. Questionnaires from covered persons are not required, although they are one way in which a Needs Analysis can be conducted. They can be beneficial for covered persons to inform the firm about actual educational needs.
Q. Must each covered person meet personally with his or her supervisor to determine annual training requirements for that person?
A. No. However, some firms may decide that the most effective means to determine individual needs, is to meet with individuals to discuss training needs during regular performance reviews.
Q. Does the Needs Analysis require specific review of training needs for principals or supervisors?
A. Yes. Firms are required to specifically address training needs of supervisors in the annual Needs Analysis and training plan. Firm Element training for supervisors would typically include a review of the firm's internal supervisory policies, the effective use of internal monitoring or supervisory systems, and the sources of information or assistance available to supervisors within the firm.
Q. What should the firm's written training plan include regarding training for supervisors?
A. The written training plan should briefly describe the training activities (i.e., subjects, methods of delivery, and training) for the upcoming year that are reasonable in relation to the firm's size and resources. For very small firms that have only one or two supervisory individuals, the training may include regularly scheduled discussions about new rules and regulations or current supervisory issues the firm is experiencing.
Q. Must a firm's Needs Analysis be documented in writing as a part of its written training plan?
A. Yes. A firm should describe the methodology it uses in conducting its Needs Analysis. It should identify the factors considered by the firm, the kinds of information reviewed, and the conclusions reached from the analysis.
Q. Does a firm that is a sole proprietorship have to prepare a Needs Analysis and written training plan, and how detailed does it have to be?
A. Every firm must conduct a Needs Analysis and prepare a written training plan that is reasonable for its size and type of business it conducts or plans to conduct. The Needs Analysis of a sole proprietorship² should contain a brief description of the firm's products and services and the sole proprietor's background and industry experience. The Needs Analysis and written training plan should address any pertinent recommendations from the Firm Element Advisory, which is published semi-annually by the Council, and should briefly describe the sole proprietor's other training plans for the upcoming year.
Q. Must a firm make special provisions for employees newly hired from other firms in its Firm Element training? For example, does a covered person hired in September need to receive training already delivered earlier in the year?
A. The answer depends on an evaluation of the individual's experience, training and areas of business relative to what the individual will do at the new firm. It is beneficial for firms to conduct an orientation period or program for registered persons hired from other firms to familiarize them with their own policies, products, and expectations - and to determine whether the new employees would benefit from additional training, including material previously covered in the new firm's Firm Element training.
Q. Is there a required schedule for the Needs Analysis and written training plan?
A. The Needs Analysis and the plan must be completed (and available for regulatory inspection) by the end of each calendar or the end of the firm's fiscal year.
Q. Are there specific tools that firms should use in building their training plans?
A. Yes. Firms should review the Quarterly Performance Reports and the Firm Element Advisory to help prepare their Firm Element training Program. Firms should also utilize all other resources available from appropriate sources (e.g. regulatory, industry associations, private sector, academic, etc.). It is important to remember that firms should also address remedial training topics prompted by customer complaints and regulatory examination findings if applicable.
Q. How should firms use the Regulatory Element Quarterly Performance Report in planning the content of their Firm Element training programs?
A. The Quarterly Performance Reports provide the aggregate performance of a firm's registered employees who participated in the Regulatory Element during the most recent quarter. Performance is shown by subject area i.e., by module. Firms should review the reports to identify modules where firm personnel perform below the industry norm. For example, if a firm's aggregate performance is below average in the "Suitability" module, the firm should consider including suitability in its Firm Element training plan.
Q. What is the Firm Element Advisory and how should a firm use it?
A. The Firm Element Advisory provides an semi-annual listing of significant topics that the Council identifies from its review of industry performance on the Regulatory Element and regulatory advisories issued by industry regulators. Firms should use the Firm Element Advisory to identify training topics relevant to their business. For the latest edition of the Firm Element Advisory, please go to www.cecouncil.com => Publications/Resources => Publications by the Continuing Education Council => Firm Element Advisory.
Q. May firms use training materials or presentations provided by outside entities such as regulators, industry trade and professional associations, clearing firms, product manufacturers, and commercial training vendors?
A. Training materials and presentations available from sources outside the firm are often good training vehicles and their use is encouraged but not required. The program/material must be appropriate for the business of the firm, and the firm should be able to demonstrate that the training relates to products, services, and strategies offered by the firm.
Q. Will SROs or the Council pre-approve training materials and/or programs developed by members or providers?
A. Neither the SROs nor the Council will pre-approve training materials or training programs. Firms are responsible for training material content regardless of whether it was prepared by the firm or by an outside training provider.
Firm Element Training
Q. When must training begin each year?
A. There is no single date on which training must begin. Training dates are determined by the firm and incorporated into the training plan. Firms with limited products or small numbers of covered persons might find it appropriate and sufficient to conduct training on only one or two occasions during the year. Conversely, firms with multiple product lines and large numbers of covered persons may find it appropriate to conduct training on an on-going basis throughout the year. The primary responsibility that firms have is to ensure that training is relevant to identified needs and that it is adequate to convey the desired information.
Q. Is there a minimum or maximum number of hours of continuing education that each covered person must take in the Firm Element?
A. Each firm must provide continuing education that is reasonable and in accordance with the training needs identified by its annual Needs Analysis. There are no required numbers of hours for the Firm Element, but the firm may prescribe training measured in hours or credits to keep track of individual's compliance with the Firm Element.
Q. Can the annual compliance meeting required under Rule 3010(a)(7) of the FINRA Conduct Rules satisfy the firm's Firm Element training?
A. While firms very often leverage the opportunity presented by the annual compliance meeting to deliver training, Firm Element training should not be limited to compliance topics if there are identifiable training needs related to products and services offered by the firm. In most instances, it would probably be necessary for firms to significantly expand the material covered at the annual compliance meeting.
Q. If new training is added after completion of a specific year's training plan, must training originally specified be completed?
A. No, not if the change is appropriate and in keeping with the firm's changing needs and circumstances. A change would be logical if the new training improved on or replaced that originally planned, or if it were deemed necessary because changed circumstances suggested new training priorities. The annual training plan should be viewed as an evolving document that can be modified if circumstances warrant, and allow for deviation if experience or unanticipated developments suggest that changes are appropriate.
Q. May continuing education for insurance licenses or training taken in conjunction with professional designation programs such as the Certified Financial Planner Program satisfy Firm Element requirements?
A. Yes, but only the components of other continuing education requirements or accreditation programs dealing with securities may be used for Firm Element training. For example, if the covered person is insurance licensed, the firm offers insurance training related to investment-related insurance products such as variable annuities or variable life, and the Needs Analysis identified such topics as appropriate, then that training would be appropriate for meeting part of Firm Element requirements. Further, for individuals participating in training connected with obtaining or maintaining a professional designation program, if a firm determines that the material adequately covers subjects planned for its own Firm Element, such training can be used.
Q. What records will be needed to document Needs Analyses, training plans, program content, and registered person participation for regulatory examinations?
A. The conclusions reached in the annual Needs Analysis, and written training plans and other documentation, such as training materials and attendance records, must be retained for regulatory examination during routine SRO examinations or upon request. Various methods of record keeping are acceptable so long as they demonstrate the material covered, with whom, by whom, and when. For example, the actual copies of written or audio-visual materials used should be retained. When training involves classroom sessions, conference calls, or presentations, an outline or summary should be retained as documentation of the training. When written materials are disseminated such as internal memoranda, compliance alerts, regulatory bulletins, etc., which must be read as part of Firm Element training, having the participant initial and retain a copy would be an acceptable method for demonstrating completion. SEC Rule 17a-4 requires that the records be maintained for at least three years, the first two years in an easily accessible place.
Q. Must a firm develop supervisory procedures that address compliance with the Regulatory and Firm Elements of the Program?
A. Yes. Firms must develop written supervisory procedures designed to reasonably ensure compliance with the SRO rules governing the Program. Firms should, among other things:
- Designate an appropriate officer or principal to oversee compliance with the Program
- Ensure no improper activities are undertaken by persons with inactive registrations; and develop processes for creating and implementing Firm Element programs
Q. Are firms that are members of two or more SROs subject to redundant inspections for compliance with the continuing education requirements?
A. No. The SROs coordinate their field inspection efforts to avoid any unnecessary regulatory overlap for joint members. The SROs have developed a consistent approach to examining and enforcing both the Regulatory Element and the Firm Element requirements.
1 The American Stock Exchange, Inc., the Chicago Board Options Exchange, Inc., the Municipal Securities Rulemaking Board, the Financial Industry Regulatory Authority, the New York Stock Exchange, Inc., and the Philadelphia Stock Exchange, Inc.
2 For other information relating to the Firm Element and small firms (25 or fewer registered persons), see www.cecouncil.com => Publications and Resources => Publications by the Continuing Education Council => Firm Element Questions and Answers for Small Firms - June 2000.