Oversight Challenges for Operations Pros & Broker-Dealers

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The FINRA rule 1230(b)(6) requiring operations professionals at broker-dealers to register their activities, take qualifying exams and follow through on continuing education is surely a thorny subject. But the SEC has pushed forward and approved it. It's not a surprise that the industry isn't looking forward to dealing with additional regulations and certifications. Smaller firms are taking issue with the additional costs and time involved in the process.

The effective date is not yet set, but reports indicate that FINRA will announce it shortly. After the effective date, broker-dealers have 60 days to report their employees who would fall under the operations personnel classification. After that, operations professionals who aren't exempt from the new ruling have a year to take the new exam.

It seems the SEC's intention is not to re-qualify those who hold key certifications and registrations. Currently, operational professionals who possess the Series 6 and 7, as well as key U.K. and Canadian certifications, are exempt from the rule. But the rule will also include many third party service providers offering operations support. Some argue that the changes could drive third party vendors to get out of the game or pass the additional costs on to their clients.

Meanwhile, post-Madoff, the SEC is looking into a number of new ways to audit and oversee broker-dealers, in an interest to improve protections over customer assets. For broker-dealers with custody of client securities and money, they would need to take an exam, facilitated by a registered public accounting firm, confirming compliance with existing rules and appropriate controls. The proposed rule would also allow the SEC and other self-regulating organizations to inspect the custody profile of broker-dealer clients.

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