FINRA eliminates SA experience requirement

Helen Davies

Helen Davies

As of 1 October 2018, FINRA, the US financial regulator, has eliminated the experience prerequisite for the Series 16 supervisory analyst (SA) exam. The full FINRA notice can be seen here. The ruling has the effect of adopting Incorporated NYSE Rule 344 into FINRA Rule 1220(a)(14).

Previously candidates for the exam had to have at least three years’ experience involving securities analysis in the previous six years. Now they only need to be sponsored by a member firm.

In the original filing suggesting the rule change, available here (see page 62), made on 28 March 2017, FINRA determined “that an experience requirement provides no material improvements to the qualification process. FINRA believes that passing the Supervisory Analyst qualification examination and completing the CE requirements adequately demonstrate the level of competence and knowledge required.”

The application of the rule had been opaque in the past. Prospective SAs were often denied permission to take the exam on the grounds of experience despite apparently possessing equivalent experience to others who had been permitted to take the exam previously.

The rule change is likely to result in an increase in people being accepted to take the exam and thus put pressure on compensation. Nevertheless, this effect is likely to be muted in the immediate short term as the backlog of candidate SAs who had been rejected will take time to work through. There is also a difference between being newly qualified and having three or five years’ experience so the downwards effect is likely to be more pronounced at the junior end.

The SA role, as it has evolved in practice, protects the firm and the analyst, as well as the consumer of the research. False and misleading statements in research can open up the firm and the analyst to lawsuits from investors and fines and/or bans by the regulator. In this sense, the SA acts as a valuable brake and filter for potentially problematic content. Heads of research finding it difficult to monitor all research will find the SA to be of invaluable assistance.