Guidance on MAP Considerations for Member Firms Engaging in Succession Planning or Exiting the Broker-Dealer Securities Business
This Guidance assists member firms with continuing membership applications (CMAs) as part of the implementation of a succession plan or an exit from the broker-dealer securities business (which may or may not be connected to a succession plan).
FINRA reminds firms that Regulatory Notice 22-23 (November 2022) (Notice) provides guidance on succession planning that includes, among other things, an overview of related FINRA rules and administrative processes. Although there are no regulatory requirements to develop or implement a succession plan, having a plan may benefit customers, member firms and registered representatives. A succession plan can assist in a more orderly transition of customer accounts. Member firms can prepare for potential operational challenges and doing so may result in better retention of customer relationships. Registered representatives can plan for anticipated or unexpected life events, receive compensation for their books of business and, where possible, help prepare new registered representatives to support the transitioning customers.
Member firms exiting the broker-dealer securities business or taking other actions related to firm succession, such as selling their book of business or firm assets, may trigger a need for a CMA1. This Guidance provides an overview of the related FINRA rules and processes governing the Membership Application Program (MAP) including FINRA Rule 1017 (Application for Approval of Change in Ownership, Control, or Business Operations), governing CMAs for changes in ownership, control, or business operations, and the process for seeking a materiality consultation2 (MatCon), which a firm may voluntarily request or may be required to request under specified circumstances. This Guidance highlights some key information from that Notice relevant to MAP, and member firms are encouraged to review the Notice for detailed information about succession plans generally and their benefits.3
FINRA Compliance Tool Disclaimer
This optional tool is provided to assist member firms in fulfilling their regulatory obligations. This tool is provided as a starting point, and you must tailor this tool to reflect the size and needs of your firm. Using this tool does not guarantee compliance with or create any safe harbor with respect to FINRA rules, the federal securities laws or state laws, or other applicable federal or state regulatory requirements. This tool does not create any new legal or regulatory obligations for firms or other entities.
Updates
This tool was last reviewed and updated, as needed on September 3, 2024. This tool does not reflect any regulatory changes since that date. FINRA periodically reviews and update these tools. FINRA reminds member firms to stay apprised of new or amended laws, rules and regulations, and update their WSPs and compliance programs on an ongoing basis.
Member firms seeking additional guidance on certain regulatory obligations should review the Broker-Dealer Registration Topic Page and other relevant FINRA Key Topic Pages.
Staff Contact(s)
FINRA's Office of General Counsel (OGC) staff provides broker-dealers, attorneys, registered representatives, investors and other interested parties with interpretative guidance relating to FINRA’s rules. Please see Interpreting the Rules for more information.
OGC staff contacts:
Kosha Dalal and Sarah Kwak
1700 K Street, NW
Washington, DC 20006
(202) 728-8000
MAP staff contacts:
Jante Turner
(202) 728-8317
MAP Intake
MAP Group
(212) 858-4000 (Option 5 – Membership Applications)
1. As FINRA reminded firms in the Notice, a member firm is precluded from effecting changes in ownership, control or business operations, including business expansions, if there is a Covered Pending Arbitration Claim, as defined in FINRA Rule 1011(c)(2), unpaid arbitration award or unpaid settlement related to an arbitration without first seeking a MatCon. See Rule 1017(a)(6) and Regulatory Notice 20-15 (May 2020).
2. FINRA’s MAP compliance resources, including Mapping of Disclosure Categories for FINRA Rule 1017(a)(7), helps firms determine whether they must file a CMA or engage in a MatCon pursuant to FINRA Rule 1017(a)(7).
3. As noted in the Notice, the lack of succession planning can create challenges for customers, member firms and representatives. For example, FINRA has observed a number situations where the lack of a succession plan impacted member firms’ operations, causing them to cease operations or impact their business, such as: founding members or owners unexpectedly dying and leaving remaining staff without sufficient expertise, registrations or access to critical regulatory and other systems to continue operations; CEO being barred from membership without sufficient appropriately registered persons to continue operations; representative having an unexpected medical event without a successor, leading the representatives’ customers to leave the firm.