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Federal Register / Vol. 86, No. 168 / Thursday, September 2, 2021 / Notices
b Any direct or indirect acquisition or transfer of a members assets or any asset, business or line of operation where the transferring member or an Associated Person of the transferring member has a covered pending arbitration claim, an unpaid arbitration award or an unpaid settlement related to an arbitration FINRA Rule 1017a6A
b Business expansion to add one or more Associated Persons involved in sales and one or more of those Associated Persons has a covered pending arbitration claim, an unpaid arbitration award or an unpaid settlement related to an arbitration FINRA
Rule 1017a6B
b Natural person seeks to become an owner, control person, principal or registered person of a member and has, in the prior five years, one or more final criminal matters or two or more specified risk events FINRA Rule 1017a7

These proposed conforming changes to this section of Form CMA will list all of the events under Rule 1017a.
Additionally, the specific references on Form CMA to the applicable subsections of Rule 1017 will give applicants clarity about which events require them to submit Form CMA to FINRA for approval.

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B. Incorporate Questions To Conform Form CMA to Rule 1017a7
Rule 1017i provides that in rendering a decision on a CMA, FINRA
must consider whether the applicant and its associated persons meet each of the standards in Rule 1014a. FINRA is proposing to amend two sections in Form CMA, which are Standard 1:
Overview of the Applicants, corresponding to Rule 1014a1
Standard 1, and Standard 3:
Compliance with securities laws, just and equitable principles of trade, corresponding to Rule 1014a3
Standard 3. FINRA believes that these proposed changes would conform Form CMA to, and are necessary to effectively account for, Rule 1017a7.
The proposed amendments to Form CMA are described in further detail below.
1. Form CMAs Standard 1: Overview of the Applicants Section Standard 1 requires FINRA to determine whether the application and all supporting documents are complete and accurate. Form CMAs Standard 1
section has several questions that, in general, focus on understanding the circumstances surrounding the contemplated change or event set forth under Rule 1017a, and are intended to elicit from the applicant the information necessary for FINRA to assess whether Standard 1 is met. For example, the applicant is required to provide a complete description of the
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contemplated change, the persons or entities that will become associated or affiliated with the applicant as a result of the contemplated change, and to the extent applicable, a description of the liabilities that will not be included in a transfer of assets or a line of business.19
FINRA is proposing to add several new questions to this section that would require the applicant to provide information necessary to support compliance with Rule 1017a7. These proposed questions are intended to collect the necessary information in an efficient manner, as further explained below.
Proposed new Question 5 would require, as marked by the asterisk, the applicant to provide a yes or no answer to the following question:
5. Is this application required because the Applicant seeks to add a natural person as an owner, control person, principal or registered person who, in the prior five years, has one or more final criminal matters or two or more specified risk events as defined in FINRA Rule 1011? As Rule 1017a7
provides, the term owner has the same meaning as direct owner and indirect owner on Form BD Schedules A and B, as amended from time to time, and the term control person means a person who would have control as defined on Form BD, as amended from time to time.

If the applicants answer to proposed Question 5 is yes, proposed Question 5.a. would prompt the applicant to identify in a chart, for each final criminal matter or specified risk event, the subject party, that persons CRD number, and, if the matter or event has not been reported on a Uniform Registration Form, a description of the nature of the activity, any findings, any fine or other dispositions.20
Specifically, proposed Question 5.a.
would ask: 21
19 See generally Exhibit 3 Form CMA, Standard 1, Questions 1, 2, and 3, within the category titled Overview of the proposed change.
20 See Exhibit 3 Form CMA, Standard 1, chart accompanying Proposed Question 5.a., within the category titled Overview of the proposed change.
This proposed chart would be similar to how members, when submitting a request for a materiality consultation pursuant to Rule 1017a7, would need to provide information about individuals final criminal matters and specified risk events. See Rule 1017a7
providing that the members written request for a materiality consultation must address the issues that are central to the materiality consultation;
Securities Exchange Act Release No. 88600 April 8, 2020, 85 FR 20745, 20753 April 14, 2020
Notice of Filing of File No. SRFINRA2020011
explaining that a member submitting a request for a materiality consultation would need to provide information relating to the individuals final criminal matters and specified risk events.
21 The following quoted material includes references to the Uniform Application for Securities Industry Registration or Transfer Form U4, the Uniform Termination Notice for Securities Industry
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a. If the answer to Question 5 is yes, for each final criminal matter or specified risk event, if the matter or event has been reported on a Uniform Registration Form i.e., Forms U4, U5, U6, BD, please provide the subject party and that persons CRD
number. If the matter or event has not been reported on a Uniform Registration Form, please also provide a description of the nature of the activity, any findings, any fine or other dispositions.

If the applicants answer to proposed Question 5 is no, the applicant would not be prompted to answer proposed Question 5.a.
The proposed conforming changes to Standard 1 of Form CMA are intended to collect necessary information efficiently. Proposed Question 5.a.
would reduce the burden on firms to provide FINRA with duplicate information by not requiring applicants to describe each final criminal matter or specified risk event that was already described on a Uniform Registration Form. Thus, if the matter or event has already been reported on a Uniform Registration Form, the applicant would only need to provide the subject party and that persons CRD
number. If the matter or event has not been reported on a Uniform Registration Form, the applicant also would be required to provide a description of the nature of the activity, any findings, any fine or other dispositions, to support compliance with Rule 1017a7.
Further, requiring firms to provide the subject partys CRD number would facilitate FINRAs coordination of information entered on Form CMA with information that has been entered on a Uniform Registration Form or provided in a related materiality consultation, and thus enable FINRA to more efficiently monitor for compliance with Rule 1017a7.
Form CMAs Standard 1 section also requests the applicant to provide information on contemplated changes in direct ownership and indirect ownership. For example, the applicant is currently prompted to provide, as applicable, the proposed direct or indirect owners CRD number, name, roles, the date the role was acquired, the persons ownership percentage, and whether the person is a control person, among other information. Rule 1017a7 applies when a natural person seeking to become an owner or control person among other roles has, in the prior five years, one or more final criminal matters or two or more specified risk events. Rule 1017a7
further provides that, for purposes of Registration Form U5, the Uniform Disciplinary Action Reporting Form Form U6, and the Central Registration Depository CRD.

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