As of October 1st, 2018, all Firms must have a designated Principal Financial Officer (“PFO”) and a designated Principal Operations Officer (“POO”). All designees must have the S27 (“Financial and Operations Principal” or “FINOP”) registration to act as a PFO or a POO. This new rule also includes Firms currently exempt from the requirement of having a FINOP or an Introducing Broker-Dealer Financial and Operations Principal. The new rule replaces the existing rule that dual members of FINRA and the NYSE must designate a CFO and a COO. If the designee has the S27, they will not be required to take the S99, as they will be able to opt in to the S99. If a Firm neither self clears nor provides clearing services, then there may be one person appointed to fulfill the PFO, POO and FINOP roles. If a Firm clears and is self-clearing, then separate individuals will have to be appointed as PFO and POO, although, either of these individuals may act as the FINOP as well. In the case of a self-clearing or clearing services Firm that is limited in size and resources, the Firm may request a waiver to request that the same individual be appointed as both PFO and POO.

PFO Responsibilities

A Principal Financial Officer has the primary responsibility for financial filings and the related books and records.

POO Responsibilities

A Principal Operations Officer has the primary responsibility for the day-to-day operations of the business, including overseeing the receipt and delivery of securities and funds, safeguarding customer and firm assets, calculation and collection of margin from customers and processing dividend receivables and payables and reorganization redemptions and those books and records related to such activities.

Exempt Firms

Those Firms that are currently exempt from designating a FINOP can appoint a PFO or POO regardless of whether the designee holds a S27. The designees at these exempt firms are not required to take the S27 exam.

Changes to the Form BD

If your Firm is planning to designate individuals already named on the Schedule A of the Form BD, you are NOT required to amend the “Title or Status” column of the Schedule A. It is recommended to maintain an internal record naming those who have been designated as the PFO and POO.

If designees are not already named on the Schedule A of the Form BD, then you are required to amend the Schedule A of the Form BD to include the newly designated individuals.

POO and PFO Delegation of Tasks

According to the new rule, a PFO or POO may delegate tasks that fall under their day-to-day responsibilities to other principals. It is important to note that while delegation of tasks is permitted, the PFO and POO must understand that the ultimate responsibility of the task rests with the PFO or POO.

Criteria and Procedures for Requesting a Waiver

If a Firm is self-clearing or provides clearing services but is limited in size and resources, they may request a waiver to be exempt from the rule that requires designating two separate individuals to act as the PFO and POO. The criteria to request this waiver should include:

  • Type, size and complexity of business
  • Type of clearance, settlement and custody activities
  • Technology used to operate the firm
  • Regulatory history
  • Size of financial and operations units and whether the person assuming the dual roles will have sufficient capacity to carry out both roles.

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Please contact an ARG Analyst with any questions regarding the matters discussed.