On the surface, a Form U5 seems straightforward. Direct from FINRA's general instructions, it's the uniform termination notice for securities industry registration.
A firm must file a Form U5 anytime one of its registered employees leaves the firm. The date this takes place becomes an important one, because your two-year window of registration begins at that time. If you do not become employed with a registered firm before the two years is up, you lose your registration.
But when it comes to filling out or amending the form, a seemingly simple form becomes dauntingly complex. What happens if the firm that the representative is leaving is inaccurate on the form, or is intentionally negative? What recourse does the representative have to correct inaccuracies, or wording that is damaging to their reputation?
This blog will review the FINRA U5 form at a high level to help you understand what's expected when it comes to this regulatory documentation.
The basics of what is required on the form:
Member firms must submit a Form U5 when a registered employee leaves the member firm for any reason: if the employee is fired, quits, or even if they are no longer working within specific jurisdictions. The date of termination will be required on the form, as well as related information to jurisdictions/self-regulatory organizations ("SROs"), along with careful and accurate responses to the disclosure questions.
The Form U5 is used for any termination: full, partial, or an amendment. A full termination is when the representative no longer works at the firm at all, for whatever reason, good or bad. A partial termination means the representative is being terminated from selected SROs/jurisdictions or specific jobs; it won't include the reason for termination or disclosure questions. The final use for the Form U5 is to amend or update the information on a past Form U5, such as when the residential address updates for an individual.
For full termination, as far as the Form U5 is concerned, there are really only 3 reasons for you to be terminated for leaving a firm, with some minor variations.
Those reasons for termination are:
1: You died (deceased), or may have some extenuating life circumstance (other).
2: You were fired - either explicitly (discharged), or you were encouraged to quit (permitted to resign).
3: You quit voluntarily and on good terms (voluntary).
Which option your previous employer uses can heavily color your ability to get hired moving forward. Even if you quit on good terms, if your previous employer places the reason for termination as "permitted to resign," you'll have a rough time as you look for new employment. You can read more about a hypothetical case study in one of our past legal tips by clicking here.
Why does it matter what a firm puts on your Form U5?
The Form U5 is more than just a document that gets filed for the sake of filing a notification of termination from a member firm. The Form U5 is heavily relied upon within the financial industry, and is heavily utilized by a number of parties.
FINRA, the SEC, and the states use the information for identifying individuals that are violating industry rules, state statutes, or federal regulations. The Form U5 is also taken into account by regulatory and licensing authorities - if you were terminated for improper conduct, that can affect your registration or licensing abilities.
The Form U5 is heavily referenced when member firms hire new representatives, as investors may use the information when they're considering doing business with someone.
For these reasons, it's important to know as far in advance of your termination what the context of that termination will be. Even if you're confident that when you put in your notice to quit and move to another firm, everything is well received and the process will move as smooth as butter, it's still good to be proactive. You'll still want to request (in writing!) that your former firm's compliance department provides you with the chance to review your Form U5 before it's finalized; (but they do not have to). It's still good to request this even though they are only obligated to give you a copy of the final, filed document.
When should you be reviewing the language used on your Form U5?
The requirement for firms filing U5's is that it is truthful. Therefore, the firm is legally bound by what they say as a reason for termination. In fact, in many states the filer of a U5 has absolute immunity from a defamation claim, precisely because of the requirement of truthfulness.
Therefore, you may not be able to convince the firm to change the language if it's not flattering for you, but it'll give you warning if you need to engage counsel. It's easier (and, usually, less costly) to have counsel sit down and discuss the specifics before the form is filed than to attempt to amend or change the language later on through expungement. Most firms are unlikely to voluntarily amend a Form U5, due to the guaranteed scrutiny from regulators, as it can imply that there was a reporting error when the form was first filed. Furthermore, an amendment doesn't remove the previous entry; the Form U5 will show the old and the new amended entry.
When Expungements become necessary:
There are several courses of action should the Form U5 that's filed after your termination be less than satisfactory in your eyes. These include filing a Broker Comment form or requesting a retraction of specific statements, and while a Broker Comment may work, it's rare that a retraction demand does.
Expungement is seen as an extraordinary solution and recommended only under extremely specific circumstances. Experienced and knowledgeable legal counsel will advise you on whether it is appropriate in your case.
The rules and requirements for expungement related to intra-industry vs customer disputes vary, and again, are reasons to consult with legal counsel before moving forward.
If you're looking around for additional help or information related to Form U5 expungements or expert witness services, talk to the team here at Jacko Law Group, PC. Our attorneys have decades of experience helping brokers and firms navigate their FINRA forms. Click here to schedule time with a member of our team.
- Managing Partner and CEO
Michelle L. Jacko, Esq. is the Managing Partner and CEO of Jacko Law Group, PC, which offers corporate and securities legal services to broker-dealers, investment advisers, investment companies, hedge/private funds and ...
Add a comment
- SEC Charges Morgan Stanley Smith Barney with Providing Misleading Information to Retail Clients
- FINRA’s Senior Help Line: Celebrating 5 Years of Providing Protection
- How To Start: Are You Evaluating Your Firm’s Whistleblower Policies?
- Three Firms’ Failure to Disclose Conflicts of Interest Lead to Almost $1 Million in Disgorgement, Interest
- OCIE Risk Alert—Examinations Focused on Initial Compliance With Regulation Best Interest
- Lone Star Value Management Firm and Founder Pay to Settle SEC Disclosure Charges
- SEC Grants Regulatory Relief for Firms Affected by COVID-19
- SEC Updates its Public Alert Website, Adding Entities and Enhancing Capabilities
- SEC Examination Focus: Four Considerations for Vendor Relationships Within Your Business Continuity Plans (BCP)
- Old, Familiar Fraud Found in New, Innovative Investments
- Securities and Exchange Commission (SEC)
- Investment Advisers
- Policies and Procedures
- Dodd-Frank Act
- Due Diligence
- Advisers Act
- Securities Law
- Office of Compliance Inspections and Examinations (OCIE)
- Ponzi Scheme
- Aging Clients
- Form U5
- California Consumer Privacy Act (CCPA)
- Virtual Currency
- Private Equity
- Private Funds
- Regulation Best Interest
- Hedge Funds
- Regulatory Examinations
- Transition Services
- Personally Identifiable Information (PII)
- Government Shutdown
- Risk Alert
- Social Media Marketing
- Broker Protocol
- Exchange-Traded Funds (ETFs)
- Investment Company Act
- Rule 6c
- Wells Fargo