Newly-adopted FINRA Rules 1230(b)(6) and 1250 establish the new registration category of "Operations Professional" and a related qualification exam, respectively.  Both take effect 10/17/11.  Impacted by the new FINRA requirements are those individuals engaged in, responsible for, or supervising certain member firm operations functions - i.e., "covered persons" involved in "covered functions." It's been long known in the industry that Operations Professionals and their staffs serve an integral function at every broker-dealer, and their activities have a meaningful connection to customer funds, accounts and transactions. Belated Recognition of 'Back Office' or Infrastructure Personnel. It's only now that FINRA properly recognizes persons who perform "back office," or "infrastructure," functions.  Historically, FINRA has focused on "front office" personnel - i.e., those having contact with customers or are otherwise directly involved in effecting securities transactions, This would include recordkeeping, trade confirmation, transaction settlement, internal auditing, and securities lending operations. FINRA is correct to note its beliefs that registration, qualification and CEP requirements for "operations professionals" will help ensure that investor protection mechanisms are in place in all areas of a member firm’s business that could harm the firm, a customer, the integrity of the marketplace or the public.  And FINRA Rule 1230(b)(6) is intended, among other things, to increase covered persons’ awareness and knowledge that they are operating in a regulated environment designed to protect investors’ interests and the integrity of the operations of a broker-dealer. CEP Requirements Updated.   As noted above, new FINRA Rule 1250 (Continuing Education Requirements), based principally on NASD Rule 1120, also has been updated to require that Operations Professionals be subject to both Regulatory Element and Firm Element Programs. Operations Professional Registration - Covered Persons. There are 3 categories of persons are subject to the registration, qualification and CEP requirements as an Operations ("Ops") Professional. Those who perform a covered function, but whose responsibilities are below these specified levels, are not  required to register as Ops Professionals.  It's up to each firm to determine whether such person would be considered a covered person and subject to the requirements.  The 3 categories are:

• senior management with direct responsibility over the covered functions;

• any person designated by senior management specified in FINRA Rule 1230(b)(6)(A)(i) as a supervisor, manager or other person responsible for approving or authorizing work, including work of other persons, in direct furtherance of each of the covered functions, as applicable, provided that there is sufficient designation of such persons by senior management to address each of the applicable covered functions; and

• persons with the authority or discretion materially to commit a member firm’s capital in direct furtherance of the covered functions or to commit a member firm to any material contract or agreement (written or oral) in direct furtherance of the covered functions.

• What constitutes “materially” or “material” in the third category of covered persons? It's based on a member firm’s pre-established spending guidelines and risk management policies.  Generally, persons who do not have the authority or discretion to commit a member firm’s capital, or to commit a member firm to a contract or agreement, above such pre-established spending guidelines and risk management policies are not subject to registration as an Ops Professional under this provision.

Consistent with FINRA guidance, persons subject to the new Ops Professional registration category are considered associated persons of a member firm insofar as they perform regulated B/D functions on behalf of the firm, irrespective of their employing entity, and are subject to all FINRA rules applicable to associated persons and/or registered persons.  Moreover, FINRA notes that the scope of covered persons and covered functions set forth in FINRA Rule 1230(b)(6) is not exhaustive in terms of who may be considered an associated person of the member firm based on the nature of the operational activities being conducted on behalf of a firm. Rather, FINRA has made a determination that the persons subject to the new requirements are engaged in members’ operational activities of such significance to require registration, qualification and continuing education requirements. Finally, notwithstanding a person’s job title, FINRA expects firms to look to each person’s responsibilities in connection with the covered functions (as described in the Regulatory Notice) independently to determine who must register.  The Ops Professional registration category is function-based and, therefore, not conditioned upon an individual’s relationship to a particular department within a firm.

For further details, go to:   [FINRA RegNote 11-33, July 2011, "Operations Professionals"] FINRA Staff Contacts. Direct questions to:   Joe McDonald, Testing and Continuing Ed. Dept - (240) 386-5065;  Erika Lazar, Office of General Counsel - (202) 728-8013.