FINRA Feedback Part-time CCO

by NCS Regulatory Compliance on March 3, 2015

FINRA Feedback: Part-Time CCO

By Evan Ignall, Director

Regulatory Compliance, LLC

 

The practice of employing part-time, multiply registered CCO’s (“MR-CCO”) is growing, and should continue to expand given robust interest in the market. Last year we cautioned that a MR-CCO does not fit every business model, reasoning that cost savings would not justify the risk where the arrangement did not suit a firm’s business (see article “Outsourced CCO: You May Now Proceed with Caution”). We’ve had productive dialogue with the FINRA Membership Application group around that topic recently, and we’d like to share a few take a ways from those conversations.

 

FINRA’s Membership Application group examines the adequacy of each proposed principal during a new member application review. Their analysis is substantive and detailed. Candidates are expected to maintain 1 year of direct or 2 years of related experience in their proposed function. FINRA often challenges candidate qualifications against that criteria. FINRA Membership has extended that review to challenge the adequacy of firm’s proposing a MR-CCO on a handful of recent applications.

 

First, that’s important feedback in and of itself: FINRA is examining the practice of using a MR-CCO. Diligently. Expect a considerate review, not a rubber stamp!

 

Second, we’ve ascertained that FINRA is guided by an analysis a firm’s business plan and proposed activity (accounts, transactions, volume, etc.), customer base, risk profile and the categorization of the applicant firm as Limited Purpose (or not). Clear examples of limited purpose BDs that would be the most appropriate candidates based upon these discussion are third-party marketing firms, private placement only firms, and M&A Advisors.

 

As FINRA rarely challenges the experience or qualification of principals outside of a membership proceeding, we find the Membership Application group to be the strongest gauge of FINRA’s thinking on the topic. And it’s clear that FINRA (Membership) thinks the practice of using a MR-CCO demands careful examination and is only appropriate for BDs engaged in a limited scope of business.

 

To learn more about Regulatory Compliance CCO services check out http://regulatorycompliance.com/Outsourced_CCO/

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