Well, it looks like senior ops professionals of securities firms might have to dust off their books and sharpen their pencils in the near future. On March 4th, FINRA filed a 134 page request for a new registration category that would require certain back-office professionals of brokerage firms to take a qualification exam. Yes, I said certain operations professionals, so some of you operations people can breathe a sigh of relief (including compliance officers and securities sales supervisors that can just re-register without taking an exam). Under the proposed new “Operations Professional” category, registration, testing and continuing education would be required for those individuals responsible for the “development and approval of valuation models; employees who manage trade confirmations, account statements, trade settlement and margin; or employees who oversee stock loan/securities lending, prime brokerage, receipt and delivery of securities, and/or financial regulatory reporting” (FINRA Press Release, May 26, 2010).
While it’s typically employees of brokerage firms that give advice to customers and affect securities transactions that are required to register, the SEC is in favor of qualifying operations professionals due to the Madoff ponzi scheme incident. Prosecutors of the case have argued that employees with little to no securities experience were used to generate falsified documents. By requiring qualification and testing for certain securities operations professionals, not only will it enhance their understanding of their professional obligations and duties but it will also train them to better recognize red flags that may cause harm to the industry.
Naturally, there has been some push back from brokers sighting that it will be costly to send employees for licensing exams and continuing education credits. While an understandable concern, it will likely be a larger upfront cost and it might actually make firms more profitable and efficient in the long run. By further training and qualifying employees, not only will they be more likely to make better decisions but also better and more swiftly recognize fraudulent activities and other red flag events that can be quite costly in both money and reputation. So, while both operations professionals and their employers might be kicking and screaming all the way to the classroom, there is opportunity to be found in what they might deem as a problem.