The Financial Industry Regulatory Authority has filed a proposal with the Securities and Exchange Commission that, if enacted, would revamp its current examination structure and harmonize NASD and NYSE regulations around registration.
The regulator put two similar proposals out for comment in July 2015, which Wealthmanagement.com covered, and December 2009. This new proposal is a combination of the two with a few changes.
Under the proposal, potential registrants would take a general knowledge exam, similar to the Series 7, without the need for a firm agreeing to sponsor them.
The new exam, if passed, would be valid for up to four years, giving individuals time to find a job. Once they join a firm, they'd be required to take a more specialized exam correlated to their particular role such as Investment Company and Variable Contracts Products Representative, General Securities Representative, Equity Trader, or Investment Banking Representative. In the event of a job change, they would not have to retake the general exam, just the specialized test associated with that position. Those exams would still expire after two years.
“I really think that this is a great development as far as recruiting new people into the industry because it’s going to allow people who haven’t even spoken to a firm to become basically pre-qualified to enter the industry,” said Robin Traxler, vice president of regulatory affairs and associate general counsel at the Financial Services Institute. “It’s kind of a universal concern that new qualified people enter the industry and are able to assist the investing public.”
To avoid duplication of questions, Series 7, the most common test for potential registered reps, would have half as many questions (125 questions versus 250 questions today). The general knowledge exam would include 75 questions.
In 2014, FINRA administered 210,000 exams, 43,000 of which were for the Series 7. That declined to 90,000 exams administered in 2016, of which approximately 40,000 were for the Series 7.
The regulator has reached out to four-year schools and graduate programs to educate them about the new exam and how it might benefit students.
“A number of schools have said that they see this as an advantage to educating their students about the securities industry because it gives them an opportunity to actually learn about it, then take an exam,” said John Kalohn, vice president of testing and continuing education at FINRA.
Some schools are looking at their programs to make sure they’re covering the material that will be on the exam; that’s not to say these schools are pursuing test prep programs.
FINRA also is considering offering practice tests to students for the general knowledge exam and others.
While the original proposal included a phase-in implementation, this one establishes a single launch date of March 2018.
“Providing an entire year for implementation, I think, is very adequate or likely to be very adequate,” Traxler said. “Of course, in these cases, sometimes when you start implementing it, you realize there are challenges that you hadn’t anticipated.”
