Member Regulation has recommended a supervisory plan to which the parties have consented. What may the Chairman of the Statutory Disqualification Committee do with it?

Accept it only, a rejection being reserved to the full Council on the Chairman's recommendation

Accept it, reject it, or refer it to the full Council for acceptance or rejection

Accept it or reject it, a referral upward requiring the agreement of the parties themselves

Refer it to the full Council in every case, the Chairman having no power of disposal alone

A consent supervisory plan under FINRA Rule 9523(a) is rejected and the eligibility application proceeds to a formal hearing. What does the body hearing it know about the rejected plan?

Its terms, which the Hearing Panel weighs as evidence of what the sponsoring member thought adequate

Its terms, but only once the Panel has reached its own view of the application's merits

Nothing of its terms; the application is considered on its merits

Its terms, but only where the disqualified person elects to put the negotiations in issue at the hearing

What does agreement on a supervisory plan under FINRA Rule 9523 save an applicant, in practical terms?

The formal hearing, with the Council's review reduced and the matter resolved far more quickly

The interim plan of heightened supervision, which a consented permanent plan replaces from the outset

The application fee, which is refunded where a matter is resolved by consent before any hearing

The requirement to disclose the disqualifying event, the consented plan standing in its place

How does the approval step under FINRA Rule 9523(b) differ from the one under FINRA Rule 9523(a)?

The department's approval takes effect only once the Commission has issued its acknowledgment

The department approves directly, without any recommendation going to the Chairman or the Council

The department approves subject to the Chairman's power to call the matter up within seven days

The department recommends to the full Council rather than to the Committee Chairman

Which disqualifications take the streamlined approval pathway rather than the standard consent pathway?

Those where the person's proposed functions at the sponsoring firm are purely clerical or ministerial in character

Those another self-regulatory organisation has already approved on materially the same terms

Those arising solely under Sections 15(b)(4)(D), (E) or (H) of the Exchange Act, or under Section 3(a)(39)(E)

Those where the disqualifying event occurred more than ten years before the application

FINRA Rule 9522(f) requires an interim plan of heightened supervision and FINRA Rule 9523 centres on a supervisory plan. What separates them?

The interim plan is drafted by the firm and the supervisory plan by the Department of Member Regulation

The interim plan is filed with the application and the supervisory plan only if a hearing is held

The interim plan binds the person and the supervisory plan binds the sponsoring member

The interim plan covers the review period and the supervisory plan the association once approved

A sponsoring member's approved supervisory plan is found deficient during a FINRA examination three years into the association. What is at stake beyond the compliance finding?

The eligibility approval itself, which may be reconsidered where the plan is found deficient

A fine calculated by reference to the period during which the plan was inadequately operated

Nothing further; the approval is final once granted and the finding is dealt with as a deficiency

The supervisor's registration, which is withdrawn where a plan they signed is found deficient

The disqualified person and the sponsoring member execute a letter consenting to the supervisory plan Member Regulation has recommended under FINRA Rule 9523(a). From when do the plan's terms bind them?

From the filing of the eligibility application, the letter's agreement to the terms relating back to the filing

From the reviewing body's acceptance of the plan, the letter's agreement to its terms being conditional on it

From the designated supervisor's signed acknowledgment of the plan, which is filed with the department with the letter

From the letter's execution, the terms binding them at once while the reviewing body has yet to decide

Member Regulation recommends, with the parties' consent, a supervisory plan for a disqualified person whose application raises a policy question reaching well beyond the individual case. Which course open to the Chairman of the Statutory Disqualification Committee suits such an application?

Rejecting the plan, so that the policy question is settled at a formal hearing instead

Accepting the plan himself, the Council considering the policy question afterwards on review

Referring the recommendation and plan to the full Council, which then accepts or rejects them

Returning the plan to Member Regulation to remove the policy element before he decides

A disqualification falls within the streamlined pathway of FINRA Rule 9523(b). How are the waivers that attach to a consent under paragraph (a) treated there?

They fall away altogether, there being no reviewing body under paragraph (b) before which a waived claim could arise

They apply only if the department rejects the plan and the matter then goes on to a formal hearing

Only the waiver of a hearing applies, the ex parte and separation-of-functions waivers having no work to do on this pathway

They apply here as well, save that the bias waiver names only Member Regulation and the General Counsel

Which of these is among the matters a well-crafted supervisory plan under FINRA Rule 9523 typically specifies?

The reporting obligations owed to the Department of Member Regulation under the plan

A holdback of the person's commissions pending FINRA's first examination of the plan

A performance bond posted by the disqualified person to cover any customer losses

Written consent from each customer the disqualified person is expected to serve

How does FINRA organise its ongoing examination of the disqualified individuals and members operating under approved supervisory plans?

It examines them all on a single annual cycle, whatever the disqualification involved

It classifies them into three tiers, each with its own examination requirements

It examines them by random selection, as it does members generally, with no separate track

It classifies them into two tiers, only the higher of which is examined at all

Before any eligibility application has been filed, a firm and Member Regulation staff reach an informal understanding on the supervisory terms for a disqualified representative. How does FINRA Rule 9523 treat that understanding?

As a streamlined approval under paragraph (b), the department's agreement to the proposed terms being enough by itself

As a consent under paragraph (a), binding the parties from the date on which the understanding was reached

As falling outside the rule, whose consent route does not open until an application has been filed

As a substitute for the application itself, the agreed terms standing in place of any formal filing with FINRA

FINRA staff serve a notice under FINRA Rule 9522(a) concerning one of a firm's registered representatives. Rather than file an application within the period the notice states, the firm spends that period discussing possible supervisory terms with Member Regulation, and the period expires. What follows?

The representative's registration is suspended until the discussions end in an agreed plan or a refusal

The period is suspended while the discussions continue, and resumes running only if they break down

The firm's membership is cancelled, a notice about an associated person being treated as one about the firm

The representative's registration is revoked unless Member Regulation extends the period for good cause

A member firm itself becomes subject to a statutory disqualification and applies to continue as a FINRA member. May it resolve its application by consenting to a supervisory plan under FINRA Rule 9523(a)?

Yes; paragraph (a) covers a disqualified member's continued membership, the firm itself giving consent

No; the consent pathway serves firms that sponsor a disqualified individual, not a disqualified firm itself

No; a disqualified member must proceed to a hearing, having no sponsoring member to consent for it

Yes, but only once another member agrees to act as its sponsoring member and co-signs the consent

How does what the parties agree to in a FINRA Rule 9523 consent letter differ from what a respondent agrees to in a letter of acceptance, waiver and consent under FINRA Rule 9216?

They accept the sanction the disqualification carries, though the letter makes no finding of violation

They consent to a recommendation and a supervisory plan, the letter containing no finding of violation or sanction

They accept a finding of violation, but consent to a supervisory plan in place of any monetary sanction

They accept findings about the disqualifying conduct, the supervisory plan's conditions standing as the sanction

Once the parties have executed a letter consenting to a supervisory plan under FINRA Rule 9523(a), by what route does the matter reach the Chairman of the Statutory Disqualification Committee?

Member Regulation submits it directly to the Chairman, sending the Office of General Counsel a copy

The sponsoring member files it with the Office of General Counsel, which forwards the plan to the Chairman

Member Regulation submits it to the Office of General Counsel, which forwards the plan to the Chairman

The sponsoring member files it with CRED, which passes it to Member Regulation to forward to the Chairman

The Chairman of the Statutory Disqualification Committee himself accepts a consent recommendation and supervisory plan. When does the plan become final?

When the full Council ratifies the Chairman's acceptance, which it considers at its next meeting

When the parties countersign the accepted plan, confirming the terms as the Chairman accepted them

When a period passes within which any Council member may call the acceptance up for review

On the Chairman's acceptance, which does not wait for any decision by the full Council

A consent supervisory plan under FINRA Rule 9523 requires a Notice under SEA Rule 19h-1, and the plan is accepted. Who files the Notice?

FINRA, which files the Notice once the plan has been accepted

The sponsoring member, which files the Notice with the SEC once the plan has been accepted

The disqualified person, as the individual whose association the Notice concerns

The sponsoring member and FINRA jointly, each signing the Notice before it is filed

The parties have executed a letter consenting to a supervisory plan for a disqualified representative, and several weeks will pass before the plan is accepted or rejected. What governs the representative's supervision in the meantime?

The firm's ordinary supervisory procedures, the interim plan lapsing once the parties execute a consent letter

The interim plan of heightened supervision filed with the application, which executing the letter does not displace

Interim terms Member Regulation attaches to its recommendation, replacing the plan filed with the application

Interim terms the Chairman of the Statutory Disqualification Committee sets on receiving the plan, pending his decision

A year after the Chairman accepts a consent plan restricting a representative to supervised sales activity, she applies to the SEC for review of the restriction. What is the effect of her having consented to the plan?

None after a year; the waiver lapses after the plan's first year, when its restrictions become open to challenge

None on SEC review; her consent waived an appeal to the Council but left the Commission and the courts open

She waived review by the SEC and the courts of the plan's validity when she consented to it

None on restrictions of activity, which remain open to challenge whatever the parties agreed to in the letter

The Chairman of the Statutory Disqualification Committee rejects a recommendation and supervisory plan to which a sponsoring member and a disqualified person had consented. Where does that leave the eligibility question?

Resolved against the parties, the association having to end once the rejection is served on them

Suspended until Member Regulation submits a revised plan, FINRA taking no other step meanwhile

Resolved against the parties unless they request a hearing within a period the rejection states

Unresolved, with FINRA free to take any other appropriate action regarding the parties

After the Chairman rejects a consent plan, Enforcement files a disciplinary complaint alleging that the sponsoring member supervised the same person inadequately, and offers the executed consent letter as evidence that the firm had accepted the need for heightened supervision. May it?

No; a letter executed for a rejected plan may not be introduced in any proceeding, disciplinary ones included

Yes; the evidentiary bar protects the letter in the eligibility hearing that follows the rejection, not elsewhere

Yes, with the Hearing Officer's leave, the complaint concerning conduct outside the eligibility proceeding

Yes, but to show the firm knew of the disqualification rather than to prove a failure to supervise

How do the two paragraphs of FINRA Rule 9523 state the parties' next step after their recommendation and supervisory plan are rejected?

Both name the hearing route, a rejected plan closing off any further consent resolution under either paragraph

Paragraph (a) keeps a further consent resolution open as well as a hearing; paragraph (b) names the hearing route

Both keep a further consent resolution open as well as a hearing, the two paragraphs using identical words

Paragraph (a) names the hearing route; paragraph (b) keeps a further consent resolution open as well as a hearing

The Chairman of the Statutory Disqualification Committee rejects Ashby Capital's consent plan for a representative, and Ashby decides it would rather not keep him than face a hearing. Before any hearing begins, where does the rejection leave that choice?

Ashby may withdraw only once a Hearing Panel has heard the matter, the application being fixed until then

Ashby must go on to a hearing under FINRA Rule 9524, the rejection having turned the application into a request for one

Ashby may withdraw its application by a written notice, the rejection not forcing the matter on to a hearing

Ashby may withdraw only after it has submitted a revised plan, an application with a rejected plan being incapable of withdrawal

A representative's disqualification arises solely from a finding of the kind FINRA Rule 9523(b) covers, and the SD Regulatory Notice does not call for an application. The firm wants the certainty of a department-approved supervisory plan. Can it obtain a streamlined consent approval?

Yes; the member may file voluntarily, the restriction removing its duty to file but not its right to do so

No; such a disqualification must go through paragraph (a), with a consent plan recommended to the Chairman

Yes, by asking Member Regulation to approve a plan by letter, no application being needed for streamlined-category matters

No; for such a disqualification the member may not file an application unless the SD Regulatory Notice instructs it to

A representative's disqualification arises from two sources: a finding of a kind FINRA Rule 9523(b) names, and a separate felony conviction. How would a consent plan for him be approved?

Through Member Regulation's recommendation to the Chairman, the disqualification not resting on the named finding by itself

By Member Regulation directly, the named finding being enough to bring the whole disqualification within paragraph (b)

By Member Regulation for the finding and by the Chairman for the conviction, in two separate supervisory plans

Not by consent at all, a disqualification with two sources having to be decided after a hearing instead

The supervisor named in a disqualified person's accepted supervisory plan is leaving the sponsoring member. How may the firm have a replacement approved?

By appointing a replacement at once and reporting the change at the next Statutory Disqualification examination

By a written request for relief to Member Regulation, without filing a new application

By asking the Chairman to accept an amended plan, his original acceptance covering the named supervisor

By filing a new eligibility application, the named supervisor being a term of the accepted plan

A sponsoring member and Member Regulation staff have settled the terms of a supervisory plan for a disqualified representative the firm wants to keep. The department then finds the firm's application substantially incomplete, because it lacks the firm's written representation that the representative is already under an interim plan of heightened supervision, and serves a notice of delinquency. What must the firm do for a consent resolution under FINRA Rule 9523 to go ahead?

Proceed with the consent letter and supply the representation afterwards, the notice affecting only when the Chairman may decide

Execute the consent letter at once, the agreed supervisory terms in it supplying the representation that the application lacks

Remedy the application within 10 business days after service of the notice, or another period the department prescribes

Request a hearing under FINRA Rule 9524 instead, the consent route closing for good once a notice of delinquency has been served

Mr. Hale has been a registered representative at Ashby Capital for six years when he becomes subject to a disqualification, and Ashby's application seeks his continuing association. How may Ashby's application be resolved by consent?

Not by consent at all, since a person already associated has no application to be considered until his association has ended

Only by a formal hearing under FINRA Rule 9524, the consent route being open only to persons not yet associated with a firm

By consent, but only after Ashby ends his association and the plan is accepted for a fresh hire of the same person

By consent under paragraph (a), which reaches an existing employee's continuing association just as it does a new hire's

FINRA Rule 9523 | Financial Regulation Courses

SERIES 24 | FINANCIAL REGULATION COURSES

FINRA Rule 9523 governs the consent-based resolution pathway for eligibility proceedings — the accelerated mechanism through which a disqualified member, sponsoring member, and disqualified person may resolve an eligibility proceeding by consenting to a Department of Member Regulation recommendation and supervisory plan rather than proceeding to a formal hearing before a Hearing Panel, whose recommendation goes to the Statutory Disqualification Committee, under FINRA Rule 9524.

The rule operates through two parallel provisions corresponding to two categories of disqualification: a standard consent pathway under paragraph (a) for all disqualifications except those arising from specific Exchange Act provision findings, and a streamlined DMR approval pathway under paragraph (b) for the less serious disqualifications arising from Exchange Act Sections 15(b)(4)(D), (E), or (H) and Section 3(a)(39)(E). Paragraph (a) features a non-prejudice protection for rejected plans — executing a consent letter under that paragraph does not prejudice the applicant if the plan is ultimately rejected — and both pathways are substantially more efficient than the formal hearing process, enabling FINRA and members to resolve many eligibility matters through a negotiated supervisory framework without the time, expense, and uncertainty of formal adjudication.

FINRA Rule 9523 sits within the 9520 Eligibility Proceedings series of the 9500 Other Proceedings section of the 9000 Code of Procedure. It was adopted by SR-NASD-99-76 effective September 11, 2000 and has been amended by SR-FINRA-2008-021 effective December 15, 2008, by SR-FINRA-2008-045 effective June 15, 2009, and most recently by SR-FINRA-2010-056. Selected notices include 00-56, 08-57 and 09-19.

FINRA Rule 9523(a) establishes the primary consent-based resolution mechanism for the broad universe of disqualification applications — all cases except those arising solely from Exchange Act Sections 15(b)(4)(D), (E), or (H) or Section 3(a)(39)(E). After an application is filed, the Department of Member Regulation may recommend the continued membership of a disqualified member or the association or continued association of a disqualified person pursuant to a supervisory plan, where the relevant parties consent to both the recommendation and the plan.

The consent is memorialized by executing a letter consenting to the imposition of the supervisory plan. This consent letter is the operative document through which the parties — the disqualified member, sponsoring member, and disqualified person as applicable — accept the supervisory conditions that DMR has determined are appropriate. The consent letter creates a binding agreement to the supervisory plan's terms if the plan is accepted by the reviewing body, while preserving the non-prejudice protection if the plan is rejected.

The Chairman of the Statutory Disqualification Committee, acting on behalf of the NAC, may accept or reject Member Regulation's recommendation and supervisory plan or refer them to the NAC for acceptance or rejection. This three-option authority — accept, reject, or refer to full NAC — gives the SD Committee Chairman the flexibility to resolve routine consent applications efficiently through acceptance, to reject plans that do not adequately protect investors, or to escalate complex or policy-significant applications to full NAC consideration under FINRA Rule 9523(a)(3), which is distinct from the FINRA Board's discretionary review under FINRA Rule 9525. FINRA

The eligibility proceedings process may be accelerated in certain appropriate cases when Member Supervision and the applicant member agree to the terms and conditions that would govern a disqualified person's or member's association. In these cases a hearing would not be conducted and the scope of the NAC's review could be significantly reduced. This acceleration is the core practical benefit of FINRA Rule 9523 — by eliminating the formal hearing process and substituting a negotiated supervisory plan, the consent pathway can resolve eligibility matters in weeks rather than the months or years that formal FINRA Rule 9524 hearing proceedings may take. FINRA

The waivers that attach to executing a consent letter under FINRA Rule 9523(a) parallel the waivers in FINRA Rule 9216's AWC framework. By submitting an executed letter consenting to a supervisory plan, a disqualified member, sponsoring member, and disqualified person waive the right to a hearing and any right of appeal to challenge the validity of the supervisory plan, if the plan is accepted; the right to claim bias or prejudgment by Member Regulation, the General Counsel, the NAC or any NAC member regarding the supervisory plan; and the right to claim violations of FINRA Rule 9143's ex parte prohibitions or FINRA Rule 9144's separation of functions provisions in connection with participation in the supervisory plan.

These waivers are necessary because the consent process necessarily involves communications between DMR and the parties about supervisory plan terms that would otherwise implicate ex parte and separation of functions concerns. Federal Register

The non-prejudice protection for rejected plans is the critical safeguard that makes the consent pathway viable. If the recommendation and supervisory plan are rejected, the disqualified member, sponsoring member, and/or disqualified person shall not be prejudiced by the execution of the letter consenting to the supervisory plan and the letter may not be introduced into evidence in any proceeding. This non-prejudice provision — directly parallel to FINRA Rule 9270(j)'s protection for rejected settlement offers in disciplinary proceedings — ensures that the parties can engage in good-faith supervisory plan negotiations without risk that failed negotiations will be used against them in subsequent formal proceedings. If a consent plan is rejected and the matter proceeds to a FINRA Rule 9524 formal hearing, the SD Committee and Hearing Panel consider the application on its merits without any knowledge of what supervisory terms were proposed and rejected in the FINRA Rule 9523 process. FINRA

FINRA Rule 9523(b): The Streamlined DMR Approval Pathway

FINRA Rule 9523(b) establishes a streamlined pathway for the specific category of less serious disqualifications arising from Exchange Act Sections 15(b)(4)(D), (E), or (H) or Section 3(a)(39)(E). After an application is filed for these specific disqualification types, in approving it under FINRA Rule 9522(e)(2)(F) DMR is authorized to directly approve the continued membership or association pursuant to a supervisory plan — without submitting a recommendation to the SD Committee Chairman or the full NAC.

This fully administrative approval pathway for the less serious disqualification categories reflects FINRA's determination that these matters are sufficiently routine and low-risk that DMR's institutional expertise is adequate to assess the appropriate supervisory conditions without requiring NAC-level review. The parties' consent to the supervisory plan is required, and the waivers applicable in paragraph (a) apply here as well, except that the waiver of bias or prejudgment claims names only the Department of Member Regulation and the General Counsel. If DMR rejects the supervisory plan under paragraph (b), the parties retain their right to proceed to a formal hearing under FINRA Rule 9524.

The Supervisory Plan: The Heart of FINRA Rule 9523

The supervisory plan that FINRA Rule 9523 centers on is the permanent counterpart to the interim plan of heightened supervision required by FINRA Rule 9522(f). Where the FINRA Rule 9522(f) interim plan governs the disqualified person's activities during the application review process, the FINRA Rule 9523 supervisory plan governs the person's activities if and when the application is approved — for the duration of their association with the sponsoring member.

A well-crafted supervisory plan under FINRA Rule 9523 typically specifies: the identified supervisor or supervisory principal responsible for overseeing the disqualified person; the frequency and nature of supervisory reviews; the specific activities the disqualified person may and may not engage in; the accounts and customer relationships subject to enhanced review; the reporting obligations to DMR; and any other conditions tailored to the specific nature of the disqualification and the risks it presents. FINRA classifies individuals and members subject to disqualification into three tiers with corresponding examination requirements, and FINRA examiners conduct periodic Statutory Disqualification examinations to ensure compliance with supervisory conditions set forth in the agreed heightened plan of supervision. FINRA

The tiered examination program that FINRA conducts for approved supervisory plans creates ongoing compliance accountability — the supervisory plan is not a one-time approval document but a living compliance framework subject to periodic FINRA review. A sponsoring member whose disqualified person's supervisory plan is found deficient in a FINRA examination faces not only a compliance violation but potential reconsideration of the underlying eligibility approval.

Connection to FINRA Rules 9143, 9144, 9216, 9270, 9522, 9524, and 9525

FINRA Rule 9523 connects to FINRA Rule 9143 — whose ex parte prohibition is specifically waived by consent letter execution. It connects to FINRA Rule 9144 — whose separation of functions requirement is similarly waived. It connects to FINRA Rule 9216 — whose AWC consent mechanism is the disciplinary proceedings analog to FINRA Rule 9523's eligibility proceeding consent mechanism. It connects to FINRA Rule 9270 — whose non-prejudice protection for rejected settlement offers is the disciplinary proceedings parallel to FINRA Rule 9523's non-prejudice protection for rejected supervisory plans. It connects to FINRA Rule 9522 — which initiates the proceeding and establishes the interim supervision framework that FINRA Rule 9523 builds upon. It connects to FINRA Rule 9524 — which governs the formal hearing process that parties fall back on if FINRA Rule 9523's consent pathway is unsuccessful. And it connects to FINRA Rule 9525 — which governs the FINRA Board's discretionary review of eligibility proceedings, the NAC's consideration of matters referred from the SD Committee Chairman under paragraph (a) being governed by FINRA Rule 9523(a)(3) itself.

Both paragraphs of FINRA Rule 9523 begin with the same words: "after an application is filed". A consent resolution is therefore something that happens inside an eligibility proceeding in which an application is already on file. A firm that reaches an informal understanding with Member Regulation staff about supervisory terms before it has filed an application has not yet reached the point at which FINRA Rule 9523 operates. The route opens once the application is filed.

The time limits that lead up to the application still run while a firm hopes to negotiate. Suppose FINRA staff serve Ridgeline Securities with a notice under FINRA Rule 9522(a) regarding one of its registered representatives. The notice states that Ridgeline may file an application within ten business days after service. Ridgeline instead telephones Member Regulation to discuss what supervision might satisfy FINRA and lets the ten business days pass without filing. Under FINRA Rule 9522(a)(3), the representative's registration is revoked unless the Department of Member Regulation grants an extension for good cause shown. Hoping for a consent plan does not stop that period from running, because the consent route depends on an application having been filed.

An application can also be filed and then treated as though it had not been. Where an application seeking a disqualified person's continued association is substantially incomplete, for example because it lacks the sponsoring member's written representation that the person is already under an interim plan of heightened supervision, the Department of Member Regulation may reject it and deem it not to have been filed. The sponsoring member then has 10 business days after service of the notice of delinquency to remedy it, or another period the department prescribes. An application deemed not to have been filed does not supply the filed application that FINRA Rule 9523 presupposes, so the practical course is to remedy it within the cure period. If it is not remedied, the department serves a notice of rejection and the sponsoring member must promptly terminate the association.

The consent route also remains open after Member Regulation declines to use its own approval authority. FINRA Rule 9522(e)(2) lets the department approve certain applications itself, for instance where the terms of the proposed admission are the same in all material respects as those already imposed or not disapproved by another self-regulatory organisation. If the department does not approve an application under that paragraph, FINRA Rule 9522(e)(3)(B) gives the disqualified member or sponsoring member the right to proceed under FINRA Rule 9523 or FINRA Rule 9524, as applicable. A refusal at that stage therefore leaves both a consent resolution and a hearing available.

Who Consents and What the Letter Says

Paragraph (a) reaches three kinds of party. It covers the continued membership of a disqualified member, where the firm itself is subject to the disqualification. It also covers the association, or continuing association, of a disqualified person with a sponsoring member. The consent is given by "the disqualified member, sponsoring member, and/or disqualified person, as the case may be". A member firm that has itself become disqualified can therefore resolve its own continued membership by consenting to a supervisory plan. The pathway is not limited to firms hiring or retaining a disqualified individual.

The words "association or continuing association" mean the pathway serves a new hire and an existing employee alike. Consider Mr. Hale, a registered representative who has worked at Ashby Capital for six years and becomes subject to a disqualification. Ashby's application seeks his continuing association, and that can be resolved by consent just as an application to hire a person already disqualified can. FINRA Rule 9521 defines a disqualified person as an associated person, or a person seeking to become one, who "is or becomes" subject to a disqualification.

The sponsoring member need not yet be a FINRA member. FINRA Rule 9521 defines "sponsoring member" as the member or applicant for membership under FINRA Rule 1013 that is sponsoring the disqualified person's association. A firm whose own membership application is still pending can therefore be the sponsoring member that consents to a supervisory plan for a disqualified person it proposes to associate.

Consent under FINRA Rule 9523 is given in writing. The rule requires the parties to "execute a letter consenting to the imposition of the supervisory plan". A compliance officer's oral agreement with Member Regulation staff over the telephone, however clear, is not that letter. Until an executed letter exists there is nothing for Member Regulation to submit for acceptance.

What the parties consent to is the recommendation and the imposition of the supervisory plan. That differs from the letter of acceptance, waiver and consent in a disciplinary matter under FINRA Rule 9216, in which the member or associated person accepts a finding of violation and consents to the imposition of sanctions. A consent letter under FINRA Rule 9523 contains no finding of violation and no sanction. Its subject is the supervisory plan under which the membership or association is to continue.

Once the parties have executed the consent letter, it does not go from the firm to the decision-maker. The Department of Member Regulation submits it to the Office of General Counsel, together with a proposed Notice under SEA Rule 19h-1 where one is required. The Office of General Counsel forwards the supervisory plan and any proposed Notice to the Chairman of the Statutory Disqualification Committee, who acts on behalf of the National Adjudicatory Council. The order is: the parties execute, Member Regulation submits, the Office of General Counsel forwards, and the Chairman decides.

An acceptance by the Chairman does not wait for the full Council. Paragraph (a)(4) provides that if the recommendation and supervisory plan are accepted "by the National Adjudicatory Council or the Chairman of the Statutory Disqualification Committee", the plan is deemed final. Where the Chairman accepts, the plan is final on that acceptance. The full Council decides only a matter the Chairman has referred to it.

Where a Notice under SEA Rule 19h-1 is required, FINRA files it. The sponsoring member does not. Under paragraph (a) the proposed Notice travels with the plan and "will be filed by FINRA" once the plan is accepted. Under paragraph (b) the Department of Member Regulation prepares the proposed Notice and "FINRA shall file such Notice". A firm that believes it must make that filing with the SEC itself has misread the rule.

The person's interim supervision does not end when the consent letter is signed. FINRA Rule 9522(f) requires an application seeking a disqualified person's continued association to include an interim plan of heightened supervision. That plan remains in effect throughout the application review process, which is concluded only upon the final resolution of the eligibility proceeding. In the weeks between the execution of the consent letter and the Chairman's acceptance, and throughout any referral to the full Council, the interim plan continues to govern the person. A consent plan becomes final only when it is accepted.

What the Parties Give Up, and When

The waiver of a hearing is conditional. Submitting the executed letter waives the right to a hearing before a Hearing Panel and any right of appeal "if the supervisory plan is accepted". Until acceptance, the right to a hearing is not lost. A sponsoring member whose consent plan is rejected is therefore not shut out of a hearing by having signed the letter.

Once the plan is accepted, the waiver of appeal is broad. It reaches any right of appeal to the National Adjudicatory Council, the SEC and the courts, and any other challenge to the validity of the supervisory plan. Suppose that, a year after the Chairman accepts a plan restricting Ms. Varga to supervised sales activity, she seeks SEC review of the restriction. She consented to the plan, and by that consent she waived review by the SEC and the courts of the plan's validity.

The waiver of bias and prejudgment claims under paragraph (a) reaches the department that negotiated the plan. It covers claims against the Department of Member Regulation, the General Counsel, the National Adjudicatory Council and any member of the Council, in connection with their part in discussing the plan's terms or otherwise considering it, including accepting or rejecting it. A firm that later argues that Member Regulation staff prejudged its application because they had negotiated the plan's terms is making a claim it waived by submitting the letter. The disciplinary acceptance, waiver and consent letter under FINRA Rule 9216 names the General Counsel, the Council and its members, but not the department that brings the case.

Submitting the letter also waives claims under FINRA Rules 9143 and 9144. In an eligibility proceeding the ex parte prohibitions of FINRA Rule 9143 take effect once FINRA staff has initiated the proceeding and knows the member intends to apply, so they can already apply while a plan is being negotiated. Suppose Member Regulation staff and the Office of General Counsel discuss the proposed plan's terms while it is being considered. A party who has submitted an executed letter cannot later claim that this discussion breached the ex parte prohibitions or the separation of functions provisions.

The bias, ex parte and separation-of-functions waivers do not disappear when a plan is rejected. If the recommendation or plan is rejected, the parties remain bound by those waivers for conduct occurring between the date the plan was submitted and its rejection. Consider a sponsoring member whose plan the Chairman rejects. At the later hearing it argues that the Chairman was biased by what was said while the plan was under consideration. It remains bound by the waiver for that period, even though the plan it consented to never took effect.

When a Plan Is Rejected

A rejection does not close the matter in the parties' favour. If the Chairman or the Council rejects the recommendation and supervisory plan, FINRA "may take any other appropriate action" with respect to the disqualified member, sponsoring member or disqualified person. The rejection leaves the eligibility question unresolved, and FINRA may still act on it.

The executed letter cannot follow the parties into another forum. If the recommendation and plan are rejected, the parties are not prejudiced by having executed the letter, and it "may not be introduced into evidence in any proceeding". The words "any proceeding" are not confined to the eligibility hearing. Suppose that, after a plan is rejected, the Department of Enforcement brings a disciplinary complaint against the sponsoring member over its supervision of the same person. It cannot put the executed consent letter in evidence to show that the firm accepted that heightened supervision was needed.

The two paragraphs describe the next step after rejection in different words. After a rejection under paragraph (a), the parties have "the right to proceed under this rule and Rule 9524, as applicable", so a further consent resolution under FINRA Rule 9523 is not foreclosed alongside a hearing. After a rejection under paragraph (b), the parties have "the right to proceed under Rule 9524", which is the hearing route.

A hearing after a failed consent plan is not held before the Statutory Disqualification Committee itself. Under FINRA Rule 9524, when a hearing is requested, the National Adjudicatory Council or the Review Subcommittee appoints a Hearing Panel of two or more members, drawn from current or former members of the Council or the Statutory Disqualification Committee or former Directors or Governors. That panel conducts the hearing and presents a written recommended decision to the Statutory Disqualification Committee. The Committee then presents its own recommended decision to the Council.

A rejected plan also leaves the sponsoring member free to stop. Suppose the Chairman rejects Ashby Capital's consent plan and Ashby decides not to keep Mr. Hale rather than go to a hearing. Before any hearing, it may withdraw its application by filing a written notice with CRED. A withdrawal after a hearing has started, but before the Council's decision, must be filed with both CRED and the Office of General Counsel.

The Streamlined Pathway in Practice

The streamlined pathway applies only to disqualifications arising "solely" from the findings or orders it names. Consider Mr. Osei, whose disqualification arises from two sources: a finding of the kind the streamlined pathway covers, and a separate felony conviction. His disqualification does not arise solely from the named findings, so paragraph (a) governs his application and not paragraph (b). Any consent plan for him goes through Member Regulation's recommendation to the Chairman. It is not approved by the department alone.

For those disqualifications, the member's own filing is also restricted. FINRA Rule 9522(b)(2) provides that for a disqualification arising solely from those findings or orders, a member "shall not file an application unless instructed to do so by the SD Regulatory Notice". FINRA staff likewise do not issue a notice of disqualification for them unless the SD Regulatory Notice requires an application. Paragraph (b) of FINRA Rule 9523 operates "after an application is filed". A streamlined consent approval therefore arises only where the SD Regulatory Notice has called for an application.

Under the streamlined pathway the department's direct approval still rests on the parties' written consent. Paragraph (b) authorises the Department of Member Regulation to accept the membership or association under a supervisory plan "where the disqualified member, sponsoring member, and/or disqualified persons ... consent to the imposition of the supervisory plan", and the parties "shall execute a letter consenting" to it. The absence of a Chairman's review does not remove the need for an executed consent letter.

The bias and prejudgment waiver under paragraph (b) names fewer bodies than paragraph (a)'s. Under paragraph (b), submitting the letter waives claims of bias or prejudgment by the Department of Member Regulation or the General Counsel. The Council and its members are not named, because the Council takes no part in a paragraph (b) approval. The waivers of a hearing and appeal and of ex parte and separation-of-functions claims appear in paragraph (b) as well, and the parties stay bound by the paragraph (b) waivers for conduct between submission and rejection if the plan is rejected.

Living With an Accepted Plan

An accepted plan identifies the person's supervisor, and supervisors change. FINRA Rule 9522(e)(1)(B) authorises the Department of Member Regulation to approve a written request for relief without the filing of an application where "a sponsoring member makes a request to change the supervisor of a disqualified person". A sponsoring member whose accepted plan names a supervisor who is leaving the firm may therefore seek the change by written request for relief under that provision. A new application is not required for that change.

Examination Relevance and Key Takeaways

FINRA Rule 9523 is tested on the Series 24 General Securities Principal examination as the consent-based resolution mechanism for eligibility proceedings — the accelerated pathway that resolves most eligibility matters without formal hearing.

The key points to retain are these: FINRA Rule 9523 establishes two consent-based resolution pathways for eligibility proceedings — a standard consent pathway under paragraph (a) for all disqualifications except those arising from Exchange Act Sections 15(b)(4)(D), (E), or (H) and 3(a)(39)(E), and a streamlined DMR approval pathway under paragraph (b) for those less serious disqualification categories; the standard consent pathway requires execution of a letter consenting to DMR's recommended supervisory plan, which is then reviewed by the SD Committee Chairman who may accept, reject, or refer to the full NAC; by executing the consent letter parties waive hearing rights, appeal rights, bias and prejudgment claims, and ex parte and separation of functions claims with respect to the supervisory plan process; if the plan is rejected the parties are not prejudiced — the consent letter may not be introduced into evidence in any subsequent proceeding and parties retain the right to proceed to a formal hearing under FINRA Rule 9524; the streamlined pathway under paragraph (b) allows DMR to directly approve without NAC involvement for Exchange Act Sections 15(b)(4)(D), (E), or (H) and Section 3(a)(39)(E) disqualifications; FINRA conducts periodic examinations to ensure ongoing compliance with approved supervisory plans through a three-tier classification system; and the rule was last amended through SR-FINRA-2010-056.