Regulatory Element and Firm Element

Two elements, two authors

Continuing education has two parts and they are set by different people. The Regulatory Element is FINRA’s. Its content is prescribed centrally, it covers regulatory developments and conduct standards relevant to the person’s registration, and every registered person must complete it annually, by December 31 of each year.

The consequence of missing it is specific and severe. A registered person who has not completed the Regulatory Element by the deadline has their registration made inactive and must stop all activity as a registered person, including taking business or being paid for new securities purchases or sales. One narrow payment survives: trail or residual commissions from transactions completed before the inactive status may still be paid, unless the firm has a policy against them. It is not a fine or a note on a file; it stops the person working until the requirement is met. A registration that stays inactive for two consecutive years is administratively terminated by FINRA.

The Firm Element is the firm’s own training. Each member firm must maintain a continuing education program for its registered persons, including those registered permissively. At least once a year the firm evaluates and prioritizes its training needs and writes a training plan that considers its size, structure and scope of business, regulatory developments, and how its people performed in the Regulatory Element. The content is therefore different at every firm, because the analysis behind it is different.

The two are often confused because both are annual and both are called continuing education. Keep them apart by asking who wrote the material. If the content is prescribed for the whole industry and the deadline is a date in the calendar, it is the Regulatory Element. If the content depends on what the firm sells and who it sells to, it is the Firm Element.

Leaving the industry does not have to mean starting again. Under the Maintaining Qualifications Program, a person who ends a registration can keep that qualification for up to five years. They must have held the registration for at least one year just before leaving, must elect the program when the Form U5 is filed or within two years after the registration ends, and must complete the prescribed continuing education by December 31 each year.

Exam terms

Regulatory Element

FINRA’s prescribed annual training for every registered person.

Firm Element

The firm’s own annual training plan for its registered persons.

Needs analysis

The firm’s annual evaluation and ranking of its training needs.

Inactive registration

The status of a person who has missed the Regulatory Element deadline.

Administrative termination

What FINRA does to a registration that stays inactive for two consecutive years.

December 31

The annual deadline for completing the Regulatory Element.

Maintaining Qualifications Program

Keeps a terminated registration’s qualification valid for up to five years, with continuing education each year.

Worked example

A registered person completes every course the firm offers during the year but does not complete the Regulatory Element by December 31.

1. The firm’s courses satisfy the Firm Element, which is the training the firm designed from its own needs analysis.
2. They do not satisfy the Regulatory Element, because that content is prescribed by FINRA rather than by the firm.
3. The deadline passes on December 31 with the Regulatory Element outstanding, so the registration becomes inactive.
4. While inactive the person must stop all registered activity and may not be paid for new securities business, which in practice means being taken off the desk; trail commissions on earlier business may continue unless the firm bars them.
5. The status is corrected by completing the outstanding requirement, and the firm’s own diligent training program does nothing to prevent the interruption.

Check yourself

Try a question, then read the explanation to review the rule.

Same rule, new context

Related practice

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