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Federal Register / Vol. 86, No. 168 / Thursday, September 2, 2021 / Notices Rule 1017a7, 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. To conform with Rule 1017a7, FINRA is proposing to add a question about whether the contemplated direct or indirect owner of the applicant is a FINRA Rule 1017a7 Person i.e. , whether such person has one or more final criminal matters or two or more specified risk events in the prior five years. 22
2. Form CMAs Standard 3:
Compliance with securities laws, just and equitable principles of trade Section
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Standard 3 requires FINRA to determine whether an applicant and its associated persons are capable of complying with the applicable securities laws and regulations, and with applicable FINRA rules. Standard 3 sets forth several factors, including past and current disciplinary actions and customer claims, that FINRA must consider in making that determination.
The existence of certain factors that raise a question of capacity to comply with the federal securities laws and the rules of FINRA results in a rebuttable presumption to deny the application.23
In general, Form CMAs Standard 3
section currently includes questions that require an applicant to indicate whether it or any of its associated persons are subject to any of the specified factors described in Standard 3, direct the applicant to provide additional information about those factors, require the applicant to explain, even with the existence of the specified factors, how it will be able to comply with applicable securities laws and regulations and with applicable FINRA
rules, ask arbitration-related questions, and prompt the applicant to provide supporting documents.24
22 Member firms also would identify these direct and indirect owners in materiality consultations pursuant to Rule 1017a7. See Rule 1017a7
providing that a 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 subject person, supra note 20.
23 See Notice to Members 0410 February 2004
announcing amendments to Rules 1011, 1014, and 1017; and Rule 1017i setting forth the events that create a rebuttable presumption to deny a CMA.
24 See generally Form CMA, Standard 3, Questions 1, 2, 3, and 4 within the category titled Explain how this Standard is met.. In 2020, some questions in Form CMAs Standard 3 section underwent adjustments to align with the arbitration-related amendments to the MAP rules as
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FINRA is proposing to add new questions to Form CMAs Standard 3
section for the same reason that FINRA
is proposing new questions to Form CMAs Standard 1 section, which is to 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.
FINRA is proposing to add new Question 5 to Form CMAs Standard 3
section, using language similar to proposed Question 5 in Form CMAs Standard 1 section. A similar question in Form CMAs Standard 3 section is needed because information concerning a person described in Rule 1017a7
would be relevant to a CMA filed pursuant to other subparagraphs of Rule 1017a.25 Specifically, proposed Question 5 would require the applicant to provide a yes or no answer to the following:
5. Does this application propose 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? See FINRA Rule 1017a7.
For purposes of Rule 1017a7, 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 applicant answers yes, the applicant would then be asked in proposed Question 5.a. whether the information was provided above in the section concerning Standard 1, Question 5.a. If the answer to Standard 3, Question 5.a. is yes, then the applicant would not be required to complete Question 5.b. If the answer to Standard 3, Question 5.a. is no, then the applicant would be required to respond to proposed Question 5.b.:

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The applicant would be able to provide the information requested in proposed Question 5.b. in a chart identical to the chart proposed to follow Question 5.a.
in Form CMAs Standard 1 section.26
The proposed conforming changes to Standard 3 of Form CMA are intended to collect necessary information efficiently. Proposed Questions 5.a. and 5.b. and the accompanying chart to Form CMAs Standard 3 section would reduce the burden on firms to provide FINRA with duplicate information already provided earlier on Form CMA
or separately in a Uniform Registration Form. If the matter or event has already been described in Form CMAs Standard 1 section, the applicant would be able to cross-reference that description. If the matter or event was not already described in Form CMAs Standard 1
section but was already 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 in Form CMAs Standard 1 section or on a Uniform Registration Form, the applicant would also 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 a CRD number would enable FINRA to 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 therefore enable FINRA to more efficiently gather relevant information.
C. Other Proposed Non-Substantive, Technical Amendments to Form CMA

b. If the answer to Question 5.a. is no, 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.

FINRA is also proposing several nonsubstantive, technical changes to Form CMA. First, FINRA is proposing to include in Form CMAs Standard 1
section and Standard 3 section a reminder to the applicant that, every Form U4 shall be kept current at all times by supplementary amendments to the original Form U4. See FINRA ByLaws, Art. V, Sec. 2c. Form U4 is one of the Uniform Registration Forms, as defined by amendments to the MAP
rules.27 Second, FINRA is proposing to amend Form CMAs Type of Continuing Membership Application section to change comprising to
described in File No. SRFINRA2019030. See supra note 18.
25 Rule 1017a7 requires a member to file a CMA only when the member is not otherwise required to file a Form CMA in accordance with Rule 1017.

26 See Exhibit 3 Form CMA, Standard 3, chart accompanying Proposed Question 5.b., within the category titled Explain how this Standard is met.
27 See paragraph r under Rule 1011 defining Uniform Registration Forms as amended by SR
FINRA2020011, supra note 5.

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