Form U4 and U5 Revisions
Forms U4 and U5
By: Jane Abramczyk
Each registered person is obligated by applicable rules to ensure that his or her Form U4 is accurate and contains up-to-date information. Since most firms do not permit representatives to update their own Form U4, representatives must ensure that the firm is properly notified and then follow-up to make sure amendments have been made as required. Amendments must be filed via the CRD system not later than 30 days after the firm learns of the facts or circumstances giving rise to the amendment. Common events that require filing are:
- Residential Address Changes
- New Outside Business Activities
- Changes in Employment
- Name changes due to marriage or divorce
There are also circumstances in which a prior employee’s Form U5 must be amended. In the event that your firm learns of facts or circumstances causing any information previously reported in Section 7 (Disclosure Questions) on a Form U5 to become inaccurate or incomplete, a U5 amendment must be filed. Firms are under a continuing obligation to amend and update these questions under final disposition – including reportable matters that happen or become known after the initial submission of the U5. The amendment must be filed via CRD within 30 days of discovery and a copy must be provided to the person whose association with the member has been terminated.
Currently, a firm is not required to report on a registered representative’s Form U4 that a customer has alleged a sales practice violation against them unless they are specifically named as a defendant or a respondent in the lawsuit or arbitration claim. Therefore, even though a customer may have alleged a sales practice violation against a registered representative in the body of a lawsuit or arbitration claim, it is not reported on Form U4 or U5 and, consequently, the information is unavailable to prospective employers. The same is true for an arbitration or civil lawsuit for $10,000 or more in which the person responsible for the alleged sales practice violation is not named as a respondent or defendant.
In April, 2008, a working group composed of regulators and industry participants proposed revisions to the Form U4 and U5 to address this issue. They’ve proposed adding “arbitration claim or civil litigation” to “customer complaint” in questions 14I(2) and (3) on Form U4 and questions 7E(2) and (3) on Form U5. These questions require the disclosure of certain investment related customer complaints, consumer-initiated arbitration or civil litigation.
Other proposed revisions include raising the dollar threshold for investment related arbitration or civil litigation involving sales practice violations for question 14I on Form U4 and question 7E on Form U5 from $10,000.00 to $15,000.00. This increase is felt to be necessary to account for changes in costs of litigation and inflation and permitting firms to amend the reason for, or date of, termination of a registered representative via Form U5 Amendment. The proposal also includes a provision for notifying the broker-dealer currently employing the registered representative when a reason for termination or date of termination has been changed.
The proposal did not include any information on whether open arbitrations or complaints currently would need to be added if they remain unsettled once the changes become effective or how regulators will deal with circumstances requiring a Form U5 amendment and the prior firm has not been notified. Regulatory Compliance will continue to monitor the proposed changes and keep you informed about additional proposals or requirements once any changes become effective. For more information about the changes or questions about the current requirements for amending Form U4, U5 or BD; please contact your Compliance Partners Account Manager at 1-603-434-3594 (ext. 124 for Beverly and ext. 122 for Jane).