Latest / VoraPrep Audio — Professional Licensure & Certification Exam Prep / [Series 24] S24F1: Ensuring Compliance: Fingerprinting and Background Checks for Associated Persons
Transcript
- Hey, welcome to VoraPrep Audio. Glad you could tune in. So let’s picture a scenario you’re definitely going to see on the exam, and probably in your real job. You're the Chief Compliance Officer at a broker-dealer. A new research analyst joins the team. They’re not going to be handling any money or securities, just reviewing reports. Your colleague, who’s new to the industry, asks you, "Do they need to get fingerprinted?" It seems like a simple question, right? But getting this wrong is a major compliance failure. So, we need to know the rules cold. Let’s break down the two key identity checks you'll be dealing with: fingerprinting and background checks. The best way to think about them is like two different levels of security at an airport. Everyone… and I mean everyone… who wants to work at the airport has to go through a basic background check. That’s the first security gate. But only certain people—the ones who need access to secure areas like the tarmac or the cockpit—have to go through a second, more intensive screening, like a biometric scan. In our world, the background check is that first gate everyone passes through. Fingerprinting is that second, more intensive scan for people with access to sensitive areas. Let’s start with fingerprinting. This is governed by SEC. Rule 17f-2. The whole point of it is to protect investors. The SEC and the Financial Industry Regulatory Authority, or FINRA, use these fingerprints. They run a check with the FBI. This check looks for any criminal history that would automatically disqualify someone from working in the securities industry. It's a pretty serious gatekeeper. So who needs to get fingerprinted? It’s a pretty wide net. It covers all the partners, directors, and officers of the firm. It also includes anyone whose job involves handling cash or securities. Simple enough. But here’s the part that trips people up: it also applies to anyone who has access to the books and records of original entry. Think about that. Not just the people physically touching stock certificates. It's also the people with access to the core accounting records where transactions are first recorded. And, of course, anyone involved in sales, trading, or supervising those functions is included. Basically, most registered persons are going to fall into this bucket. Now, the exam loves to test the exceptions. Who gets to skip the fingerprinting line? The rules are very specific, and the exemptions are narrow. You might be exempt if your job is exclusively clerical or ministerial. And—this is a big "and"—you also can't handle cash or securities, and you can't have access to those books and records of original entry. So, think of a corporate officer whose only job is to approve employee expense reports. They don't touch securities, they don't have access to the general ledger... they could be exempt. Or a receptionist who just schedules meetings and opens the mail. As long as they aren't handling client checks or statements, they’d likely be exempt from fingerprinting, too. But notice what I just said. Exempt from fingerprinting. This is so important. No one is exempt from the background check. Remember our airport analogy? This is the first security gate that absolutely everyone who is an "associated person" of a broker-dealer must go through. This requirement comes from FINRA. Rule 3110 and the Form U4 process. The Form U4 is the registration form where you disclose your background. This includes your employment history, education, and any disciplinary or criminal events. The firm then has a duty to verify the information on that form. They have to do a thorough background check. This means making a reasonable effort to verify the accuracy of the applicant's employment history, education, and any disclosed incidents. If they find any red flags or things that don’t line up, they have to investigate. It's a fundamental part of a firm's supervisory responsibility. So, let's put it all together with that scenario from the beginning. You’re the CCO. You have a new research analyst. First step: What’s their role? Okay, they review reports. They don't handle funds or securities. Second step: Do they need to be fingerprinted? Well, what about access to books and records of original entry? A research analyst probably doesn't need that. Their job isn't purely clerical, but if they truly don't have that access, they might be exempt. You have to look at the specifics of the role. When in doubt, especially on the exam, you should lean towards requiring it. The exemptions, remember, are very narrow. But now, third step: Do they need a background check? Yes. One hundred percent. No question. Every single associated person needs a background check to verify their Form U4. So the rule is simple: Background check for ALL. Fingerprinting for ACCESS. Access to money, securities, or the original records. Let's try another one you might see. What about a new Chief Financial Officer, a CFO.? They oversee the firm’s finances and have access to the general ledger, but they don't directly handle customer funds or sell securities. Do they need to be fingerprinted? Yes. They absolutely do. Why? Because they have access to the books and records of original entry. The CFO's job is far from being "purely clerical." So, they need both the background check and the fingerprinting. The exam loves this kind of question because it forces you to look past the title and focus on the function. It's not about being "back-office," it's about what you can access. An operations manager who processes wire transfers is absolutely getting fingerprinted. This all falls under the firm's supervisory duties. A principal, maybe the manager at the Office of Supervisory Jurisdiction, is responsible for making sure the firm has clear Written Supervisory Procedures, or WSP.s, that detail exactly how these checks are done. You can't just wing it. It has to be a documented, repeatable process. So, the big takeaway here is the distinction. Don't confuse the two. Background checks are universal for all associated persons, tied to the Form U4. Fingerprinting is a specific requirement under SEC. Rule 17f-2 for people in positions of trust or access, with only very narrow clerical exemptions. Alright, that's our time for today. Just remember that two-level security model. Background check for everyone. Fingerprinting for access. You'll nail these questions every time. Keep up the great work. VoraPrep is a full exam-prep app — lessons, practice questions, and an AI tutor in one place. Get started at Vora Prep dot com.