Form U4, Form U5 and reportable events

A living document, not a one-off form

Form U4 is the application a member firm files to register an individual. It records identity, employment history, examinations and a long list of disclosure questions covering criminal charges, regulatory actions, customer complaints, civil judicial matters, liens, bankruptcies and terminations. It is filed at the start of the relationship, and the common error is to treat that as the end of the obligation.

The form must be kept accurate for as long as the registration lasts. When a reportable event happens — a customer complaint alleging certain conduct, a criminal charge, an unsatisfied judgment or lien, a bankruptcy — the record must be amended. A Form U4 amendment is due no later than 30 days after learning of the facts, or no later than 10 days after a statutory disqualification occurs. Separately, under FINRA Rule 4530, firms report specified events within 30 calendar days of learning of them. A stale form is a violation in its own right, separate from whatever the underlying event was.

Disclosure is not admission. Reporting a complaint does not concede that it is justified, and reporting a charge does not concede guilt. The purpose is that regulators, firms and, through public disclosure, investors can see the record and judge it for themselves. Candidates who imagine that reporting harms them are exactly the people who fail to report and turn a disclosure into a disciplinary matter.

A customer complaint is any grievance by a customer about how the firm or a representative handled a transaction or the customer’s securities or funds. The firm keeps a file of written complaints for each supervisory office for at least four years and reports summary statistics to FINRA each quarter. A written complaint alleging theft, misappropriation or forgery is also reported on its own within 30 calendar days. Form U4 has its own test: a written sales practice complaint from the past 24 months goes on it if it claims $5,000 or more. A sales practice complaint settled for $15,000 or more is also disclosed.

Form U5 is filed when the association ends. It states the date and the reason for termination, and it must be accurate too: describing a termination as voluntary when the person was discharged for cause is itself a violation. A U5 follows the individual, so an inaccurate one damages a firm’s credibility and the person’s record at the same time.

Three of the financial disclosure questions on Form U4 are worth knowing by content. Question 14B asks about misdemeanors involving investments or an investment-related business, or fraud, false statements or omissions, wrongful taking of property, bribery, perjury, forgery, counterfeiting or extortion, whether convicted, pleaded or only charged. Question 14K asks whether, within the past ten years, the person has made a compromise with creditors, filed a bankruptcy petition or been the subject of an involuntary one. Question 14M asks whether the person has any unsatisfied judgments or liens. A yes to any of them is disclosed, and a change in the facts is an amendment.

Firms supervise for conduct red flags: signs that misconduct may be occurring. FINRA reminds firms that supervision includes identifying and responding to red flags. In signature forgery cases, firms found red flags such as a customer’s digital signature coming from an email address linked to the representative, a signer located far from the customer’s residence, or the representative and the customer signing from the same IP address. A red flag is a reason to look further, not proof of misconduct.

Exam terms

Form U4

The uniform application by which a firm registers an individual.

Form U5

The uniform termination notice filed when an association ends.

Reportable event

A matter that must be disclosed and reported within the prescribed period.

Amendment

The update that keeps a filed form accurate as circumstances change.

Customer complaint

A written grievance that may be reportable depending on what it alleges.

Form U4 complaint test

A written sales practice complaint within 24 months claiming $5,000 or more, or alleging forgery or theft.

Discharge for cause

A termination reason that must be stated accurately on the U5.

Worked example

A representative is charged with a felony three years into a registration and assumes the matter is private until it is resolved.

1. The charge is a reportable event, and the obligation is triggered by the charge rather than by any conviction.
2. Waiting for the outcome is the error. The record must be amended and the firm must report within the prescribed period of learning of it, which is 30 calendar days for specified events.
3. Reporting concedes nothing. The disclosure records that a charge exists, and the record can be amended again when the matter is resolved.
4. Failing to report creates a second problem entirely, one that exists even if the charge is later dismissed and would not otherwise have affected the registration.
5. Whether the person may continue to be associated at all is a separate question, and one that only certain outcomes — those amounting to statutory disqualification — actually decide.

Check yourself

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

Same rule, new context

Related practice

• U4 updates and reportable eventsPractice this