FINRA has a new rule for governing reporting requirements - FINRA Rule 4530 - that's modeled after NASD Rule 3070 and NYSE Rule 351.  The rule takes effect on 7/1/11.  For complete details - including rule text and event codes - go to [FINRA RegNote 11-06, February, "Reporting Requirements."]  Otherwise, continue reading our executive summary.

    FINRA Contacts.   Afshin Atabaki, Office of General Counsel (202-728-8902).  For technical questions on Rule 4530 Application submissions and test system issues, contact the FINRA Help Desk (800-321-6273).

New FINRA Rule 4530 doesn't change existing NASD and NYSE requirements so much as it strengthens or clarifies them.  As written, the rule requires all member firms to:

• report to FINRA certain specified events and quarterly statistical and summary information re: written customer complaints; and
• file with FINRA copies of certain criminal actions, civil complaints and arbitration claims.

    Regarding Effective Date.   Any matter that becomes subject to reporting or filing prior to 7/1/11, must be reported or filed in accordance with the requirements of NASD Rule 3070 and NYSE Rule 351, as applicable.  Thereafter, reports and/or filings must follow the requirements of FINRA Rule 4530.The first report based on the requirements of FINRA Rule 4530(d) - quarterly statistical and summary complaint information - is due by 10/15/11, the reporting deadline for customer complaints received during the 3rd calendar quarter.

    A Firm's Self-Determination of a Violation.   Under Paragraph (b), a member firm has 30 calendar days to report to FINRA violations of any securities-, insurance-, commodities-, financial- or investment-related laws, rules, regulations or standards of conduct committed by the firm or one of its associated persons.  The 30-day window begins when the firm has concluded, or reasonably should have concluded, that a violation took place.  This requirement is generally modeled after a requirement in NYSE Rule 351.  Here are some details:

• Firms are not required to report every instance of noncompliant conduct.
• Firm are required to report only conduct that has widespread or potential widespread impact to the firm, its customers or the markets, or conduct that arises from a material failure of the firm’s systems, policies or practices involving numerous customers, multiple errors or significant dollar amounts.
• Violative conduct by an associated person must be reported only when it has widespread or potential widespread impact to the firm, its customers or the markets; conduct that has a significant monetary result on a member firm(s), customer(s) or market(s); or multiple instances of any violative conduct.
• The "reasonably should have concluded” standard will be applied on a good faith basis (by the firm) - if a reasonable person would have concluded that a violation occurred, then the matter is reportable; if a reasonable person would not have concluded that a violation occurred, then the matter is not reportable.  Firms will determine who, within the firm, is responsible for making such determinations.
• However, stating that a violation was of a nature that did not merit consideration by such a responsible person is not a defense to a failure to report such conduct. 
• The reporting obligation and internal review processes set forth under other rules - eg., FINRA Rule 3130 - are mutually exclusive.
• While internal review processes may inform a firm’s determination that a specific violation occurred, they do not by themselves lead to the conclusion that the matter is reportable - e.g., FINRA would not view a discussion in an internal audit report regarding the need for enhanced controls in a particular area, standing alone, as determinative of a reportable violation.  An internal audit finding would serve only as one factor, among others, that a firm should consider in determining whether a reportable violation occurred.
• Lastly, certain disciplinary actions taken by a firm against an associated person must be reported under a separate provision, rather than under the internal conclusion provision.

    Other Reportable Events.   In addition to "Internal Conclusions" or, as we say "Self Determinations," FINRA Rule 4530 gives member firms 30 calendar days to report to FINRA any known (or "should have known") events.  firm or an associated person of the firm.  Current reporting obligations - as per NASD Rule 3070 and NYSE Rule 351 - have been somewhat modified in the new rule. 

FINRA addresses this area - starting on page 3 of RegNote 11-06.  "Other Reportable Events" would include:

• External Findings.
• Complaints Involving Certain Allegations.
• Named in a Regulatory Proceeding; Subject to Other Regulatory Actions;  or Associated with a Financial Entity Subject to Certain Actions.
• Criminal Actions Involving Felonies and Certain Misdemeanors.
• Civil Litigation; Arbitration Matters.
• Certain Claims for Damages Statutory Disqualifications.
• Disciplinary Actions Taken by a Firm Against an Associated Person.

    Other Rule Categories.  (i)  Obligation of Associated Persons;  (ii) Exception for Information Disclosed on the Form U5;  (iii) Reporting an Event Under the Most Appropriate Provision;  (iv) Quarterly Statistical and Summary Complaint Information;  (v) Obligation to Report Matters Relating to Former Associated Persons;  (vi) Filing Requirements.