FINRA Rule 9524

The NAC's authority encompasses the complete range of dispositions — granting the application with or without supervisory conditions, or denying it — with the public interest and investor protection as the governing standard. 

The rule also establishes the notice requirements for hearing scheduling, the evidentiary and procedural framework for hearings, the finality provisions for NAC decisions, and the FINRA Board's discretionary call-for-review authority.

FINRA Rule 9524 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-97-28 effective August 7, 1997 and most recently amended by SR-FINRA-2019-009 effective May 8, 2019. Selected notices include 99-16, 00-56, 05-12, 08-57, and 09-19.

The Three-Tier Adjudicative Structure

The three-tier structure of FINRA Rule 9524's eligibility hearing process is architecturally distinctive within the Code of Procedure and reflects the specialized institutional knowledge that statutory disqualification determinations require.

Present at the hearing are two individuals from the Statutory Disqualification Committee, who can be industry or non-industry representatives. A staff attorney from FINRA's Office of General Counsel attends each hearing and serves as the custodian of the record and as advisor to the NAC. At the hearing, Member Supervision will be represented by FINRA's Department of Enforcement. The member and the disqualified person will be afforded the opportunity to be heard in person, to be represented by counsel, and to submit any relevant evidence. 

When the disqualified member, sponsoring firm, or applicant requests a hearing, the NAC or the Review Subcommittee shall appoint a Hearing Panel composed of two or more members who shall be current or former members of the NAC or the Statutory Disqualification Committee or former Directors or Governors. The composition requirement — experienced FINRA governance and adjudicative participants — ensures that the Hearing Panel brings sophisticated institutional knowledge of FINRA's eligibility standards to its assessment of the application. 

On the basis of the record, the Hearing Panel presents a recommended decision in writing to the Statutory Disqualification Committee. After considering the record and recommendation of the Hearing Panel, the Statutory Disqualification Committee presents its recommended decision in writing to the National Adjudicatory Council. After considering all matters presented in the request for relief, the Statutory Disqualification Committee's recommended decision, the public interest, and the protection of investors, the National Adjudicatory Council may grant or deny the request for relief, and if relief is granted, impose conditions on the disqualified member, sponsoring member, and/or disqualified person. 

CRED Processing and the Application Review Foundation

Before the formal hearing phase commences, CRED — FINRA's Central Registration and Disclosure department — plays a foundational processing role. Upon receipt of an application, CRED shall gather all of the information necessary to process the application, including CRD records for the disqualified member, sponsoring member, and disqualified person. This CRED-assembled package of registration history, disciplinary history, and background information forms the factual foundation of the DMR assessment that precedes the formal hearing and becomes part of the evidentiary record when the matter proceeds to hearing. 

The Department of Member Regulation then assesses the application — reviewing the disqualifying event's nature and circumstances, the sponsoring member's proposed supervisory plan, the disqualified person's fitness for continued association, and FINRA's prior treatment of similar disqualifications. DMR's assessment produces one of two outcomes: a recommendation for approval under FINRA Rule 9522(e) or FINRA Rule 9523 if the matter can be resolved administratively, or a recommendation for denial that triggers the FINRA Rule 9524 formal hearing right.

In the event that Member Supervision recommends a denial of an application, the member is entitled to a hearing before a subcommittee of the NAC — the Statutory Disqualification Committee — pursuant to FINRA Rule 9524. FINRA

The Fourteen-Business-Day Hearing Notice Requirement

The disqualified member or sponsoring member, as the case may be, and the Department of Member Regulation shall be notified via mail, facsimile, or overnight courier of the location, time, and date of the hearing not less than fourteen business days before the hearing, unless the parties agree to shorten the time period. 

The fourteen-business-day notice requirement — measured in business days rather than calendar days consistent with the eligibility proceedings framework's standard — provides adequate preparation time for what may be a complex hearing involving extensive documentation, proposed supervisory plan analysis, and examination of the disqualified person's fitness. The parties-may-agree-to-shorten-the-time provision accommodates situations where all parties are prepared and prefer an expedited hearing.

The Governing Standard: Public Interest and Investor Protection

The critical inquiry in every case is the same: whether the admission of the disqualified person or member would be inconsistent with the public interest and the overriding regulatory goal to ensure the protection of investors. 

This public interest and investor protection standard — applied by the Hearing Panel, the SD Committee, and the NAC at each tier of the three-tier review — is an objective, multi-factor analysis rather than a formulaic determination. The factors the NAC considers include the nature and seriousness of the disqualifying event, the time elapsed since the event and the person's conduct during that time, the quality of the sponsoring member's proposed heightened supervision plan, the disqualified person's role and responsibilities at the firm, the nature of the firm's business and customer base, and whether the proposed association would pose meaningful investor protection risks that the supervision plan cannot adequately address.

Published NAC statutory disqualification decisions provide extensive guidance on how the public interest standard is applied in practice. The NAC examines factors including the disqualified person's explanation for the disqualifying conduct, whether there are mitigating circumstances such as health or financial hardship, the nature of the proposed supervisory arrangements, and the extent to which the disqualifying event reflects on the person's fitness to serve clients. The NAC's decisions in this area create a body of precedent that practitioners can consult when assessing the likelihood of success for a specific eligibility application. 

The NAC's Decision and Imposition of Conditions

When the NAC grants an application following FINRA Rule 9524 proceedings, it may do so unconditionally or subject to specific supervisory conditions tailored to the nature of the disqualification and the risks the association presents. These conditions — specified in the NAC's written decision — are binding on the sponsoring member and the disqualified person for the duration of the association. The NAC may grant or deny the request for relief, and if relief is granted, impose conditions on the disqualified member, sponsoring member, and/or disqualified person, as the case may be. 

NAC-imposed conditions typically include requirements such as: the identification of a specific named supervisor; restrictions on the disqualified person's customer interaction or product access; enhanced review procedures for the person's activities; mandatory compliance training; periodic reporting to FINRA; and any other conditions the NAC determines are necessary to protect investors given the specific circumstances of the disqualification.

Finality, FINRA Board Review, and SEC Review

The NAC's decision under FINRA Rule 9524 is final on behalf of FINRA unless the FINRA Board calls the matter for review under FINRA Rule 9526's expedited review provisions or through the Board's general review authority. Notwithstanding FINRA Rules 9524 and 9525, the FINRA Board Executive Committee, upon request of the Statutory Disqualification Committee, may direct an expedited review of a recommended written decision of the Statutory Disqualification Committee if the FINRA Board Executive Committee determines that expedited review is necessary for the protection of investors. 

Following the finality of the NAC's eligibility decision, the disqualified member or sponsoring member may apply to the SEC for review under FINRA Rule 9527 — the eligibility proceedings counterpart to FINRA Rule 9370's disciplinary proceedings SEC review right. The SEC review is governed by Exchange Act Section 19(d)(2) and provides the external appellate check on FINRA's internal eligibility determination process.

Connection to FINRA Rules 9522, 9523, 9525, 9526, and 9527

FINRA Rule 9524 connects to FINRA Rule 9522 as the formal adjudicative tier that activates when DMR's administrative pathways cannot resolve the application. It connects to FINRA Rule 9523 as the alternative that the parties may use to avoid FINRA Rule 9524 proceedings through a consent-based supervisory plan. It connects to FINRA Rule 9525 as the full NAC consideration rule that follows the SD Committee's recommendation. It connects to FINRA Rule 9526 as the expedited review mechanism available in urgent investor protection situations. And it connects to FINRA Rule 9527 as the SEC review pathway available after the NAC's final eligibility determination.

Examination Relevance and Key Takeaways

FINRA Rule 9524 is tested on the Series 24 General Securities Principal examination as the formal hearing rule for eligibility proceedings — the adjudicative tier that applies when the administrative and consent pathways of FINRA Rules 9522 and 9523 are unavailable or unsuccessful.

The key points to retain are these: FINRA Rule 9524 governs the formal hearing process for eligibility proceedings through a three-tier layered structure — CRED processing and DMR assessment, a hearing before a specialized Hearing Panel of the Statutory Disqualification Committee, and the SD Committee's recommendation to the NAC for final determination; the Hearing Panel is composed of two or more current or former NAC or SD Committee members or former Directors or Governors; the hearing notice must be served not less than fourteen business days before the hearing by mail, facsimile, or overnight courier unless the parties agree to a shorter period; at the hearing the member and disqualified person may be heard in person, represented by counsel, and submit evidence; the Department of Enforcement represents DMR at the hearing; the Hearing Panel recommends a decision to the SD Committee; the SD Committee recommends to the NAC; the NAC issues the final decision; the governing standard at every tier is whether the admission of the disqualified person or member would be inconsistent with the public interest and investor protection; the NAC may grant the application with or without supervisory conditions or deny it; the NAC's decision is final unless the FINRA Board calls it for review under FINRA Rule 9526; following finality the member may apply to the SEC for review under FINRA Rule 9527; and the rule was last amended May 8, 2019 through SR-FINRA-2019-009.