August 22, 2018
Big Changes Coming for Small Firms
FINRA recently received approval from the SEC to require all firms to designate a Chief Operations Officer (COO) at their firm. While this may not seem like a big deal, like everything else with FINRA there is a trickle-down effect that can put many firms in a squeeze. Most small firms utilize a part time or Rent-a-FINOP to handle their monthly or quarterly focus reports. In some instances, I have seen some of these part time FINOPS also act as the firm's CFO or COO. Under this new rule that goes into effect in October, the firm must have a COO and he/she must have at least 2 years of experience. This could be the tricky part for many small firms who may or may not meet this requirement or even have the license. The easy solution would be to go to a securities consulting firm and just hire somebody or ask your part time FINOP to serve as COO, but unfortunately you cannot work for multiple firms in that capacity.
Small firms with limited personnel will now have to appoint a COO and possibly take exams to fulfill that role. This could significantly increase the burden of work on a small firm with limited business and employees. While some may just designate themselves as the COO to save money in a small firm, just remember that YOU are now responsible for what happens in your operations. When a trade is not submitted promptly, reported to ACT or OATS promptly or your new account procedures are deemed insufficient, the COO can now be directly linked to the errors of staff and just like that your Letter of Caution can become a fine against you. Think that is bad? Hold on to your hats because things are about to get scary!
According to some sources, the exemption of the two principal waiver is being seriously discussed by FINRA and they want to have it abolished. Even for a one man or two man operation in the middle of nowhere U.S.A. The reasoning behind this change is that self supervision is not enough and each and every firm needs two principals. Now let's look at the options when, not if, they pass this reform. Many small firms might think they can just have their rental FINOP register with the firm, but as we noted earlier, most states and FINRA will not allow for dual registration in a principal capacity. This could force a small broker to hire a Series 24 to sit in his office and twiddle his thumbs while doing nothing. In addition, in a small firm with a few employees, it will force firms to obviously pay more money to get one of their employees to put their license up. These changes can have a devastating impact on small firms already struggling with over burdensome regulation costs.
Now is the time to start making plans for your firm and if you need any assistance, please feel free to contact us. John@BDexchange.com
ABOUT THE AUTHOR
John Busacca, Managing Director
John Busacca has been in the securities industry for almost 20 years. Starting out as a broker on Wall Street, he quickly found his passion on the Compliance side of the industry in the mid 1990's. He has worked as a Compliance Officer for large wirehouses and NYSE member clearing firms. In 2000, John formed a well known South Florida bond house before moving to Orlando. He moved to the sales side and became President of start-up clearing firm, and quickly grew the business from a handful of correspondents to over 75. In 2006, John was elected to the NASD Business Conduct Committee for District 7 and was also elected to the Board of Governors of the Florida Securities Dealers Association. He is an accomplished writer for many national publications and has been quoted in hundreds of press stories. John acquired BDexchange in 2007, and has relationships with nearly every clearing firm and prominent securities consultants.
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