What the SIE does and does not do

A qualification is not a license

The Securities Industry Essentials examination tests knowledge of the industry: products, markets, regulators and prohibited conduct. Anyone aged 18 or over may take it, with no sponsoring firm and no job offer, which is exactly what makes it useful to someone deciding whether to enter the industry at all. It consists of 75 scored questions plus 5 unscored pretest questions, runs for 1 hour and 45 minutes, and is passed at 70.

A pass is a qualification and nothing more. It confers no authority to recommend a security, take an order, or receive transaction-based compensation. It stays valid for four years, so a candidate who passes and then takes time to find a role does not have to start again if they register within that window. For someone who has been registered, the four years run from the later of the last SIE pass or the last registration as a representative. The representative exam has a shorter clock: a person last registered as a representative two or more years before a new application must pass that exam again, unless they kept the qualification under the Maintaining Qualifications Program.

Registration is a different thing entirely and has three additional elements. The person must be associated with a FINRA member firm, the firm must file a Form U4 on their behalf, and the person must pass the representative-level examination for the business they will conduct. Only when all of that is complete may they act as a registered representative.

Two further points appear regularly. Before registration is complete a person may perform clerical and administrative work but may not solicit business or take orders, and paying them transaction-based compensation is not permitted. And a statutory disqualification — certain convictions, regulatory bars and similar findings — can prevent association altogether, whatever exams the person has passed. State registration is a separate requirement again.

Registration is a duty, not an option. FINRA Rule 1210 requires each person engaged in the investment banking or securities business of a member to be registered with FINRA in each category appropriate to their functions, unless exempt under Rule 1230, and a person may not act in a registered capacity other than the one they hold. Letting an unregistered person do registered work violates the rules for both the person and the firm. State registration is separate again: state securities administrators license firms and their agents under each state’s own law, so an agent generally needs the state registration as well as the FINRA one. Before registering anyone, the firm must investigate the applicant’s good character, business reputation, qualifications and experience, verify the Form U4 within 30 calendar days, including a search of reasonably available public records, and review a previously registered applicant’s most recent Form U5.

Ineligibility works on both sides. Under FINRA's By-Laws, a person subject to a statutory disqualification may not become or stay associated with a member, and a firm may not stay a member while such a person is associated with it. Felony convictions count for ten years. A firm that wants the person must apply to FINRA, on Form MC-400; until FINRA approves, the person may not work in any role, clerical included. A current associate may keep working meanwhile only in limited cases: a prompt application, and an event that is not a bar or similar sanction.

Exam terms

Securities Industry Essentials

A knowledge examination open to anyone aged 18 or over.

Registration

Permission to do business: firm association, Form U4 and a representative exam.

Form U4

The uniform application a firm files to register an individual.

Representative exam

The top-off examination for the specific business to be conducted.

Permitted activities

Clerical and administrative work an unregistered person may do.

Statutory disqualification

A status that prevents association regardless of qualifications.

Ineligibility

Under the By-Laws, a disqualified person may not be associated, and a firm that keeps one may not stay a member, unless FINRA approves.

BrokerCheck

A free FINRA tool for looking up the background of brokerage firms, investment adviser firms and the professionals who work for them, including job history and disclosures such as customer disputes.

The firm does the checking, and it is on a clock

Registration is not simply a form the candidate fills in. Before a member applies to register anyone, the firm must ascertain by investigation the applicant’s good character, business reputation, qualifications and experience. Where the applicant has been registered before, the firm must review their most recent Form U5, including any amendments, within sixty days of the application being filed, or show that it made reasonable efforts to do so — which is why the reason a previous firm gave for a termination matters to the next one.

There is a second, separate clock. The firm must have written procedures reasonably designed to verify that what the applicant put on the Form U4 is accurate and complete, and that verification is due no later than thirty calendar days after the form is filed. Those procedures must at a minimum include a search of reasonably available public records. So the duty is not discharged by taking the applicant’s word and filing: the firm has to go and look, and it has a deadline for looking.

The checks that run alongside registration

Registration is not the only screen. Every member, broker and dealer must require that its partners, directors, officers and employees be fingerprinted and submit the prints for identification and processing, which reaches operations staff who never speak to a customer as well as registered people.

The result of the registration system is public. BrokerCheck is a free FINRA tool drawing on the Central Registration Depository, and on the Commission’s adviser depository for advisers, and a report on an individual carries ten years of employment history as reported on their last Form U4 together with a disclosure section covering customer disputes, disciplinary events and certain criminal and financial matters.

Worked example

A candidate passes the SIE, spends a year working in an administrative role at a member firm, and is then offered a sales position.

1. During the administrative year the pass gives no authority to do business. Clerical and administrative work is permitted; soliciting customers and taking orders is not.
2. No transaction-based compensation may be paid during that period either, which is the practical test the firm’s supervisors will apply.
3. When the sales role is offered, the four-year validity of the SIE result matters: a year has passed and the result is still usable.
4. The firm files a Form U4 and the candidate sits the representative-level examination for the business the role involves.
5. Only when the registration is effective may the new representative solicit business, and any state requirement is a separate matter to be satisfied as well.

Check yourself

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Related practice

• SIE vs registration and CEPractice this