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← Series 63: Regulation of Broker-Dealers & Agents
Series 63 practice questionhardAdministrator’s Authority over FINRA Members

A broker-dealer headquartered in State U with active FINRA membership is found by the State U Administrator to have violated net capital rules. The broker-dealer claims compliance with both FINRA and SEC net capital standards. Which of the following actions may the Administrator take?

  1. ARevoke the broker-dealer’s registration solely for violating State U’s higher net capital requirements.
  2. BRefer the matter to the SEC but take no further action, as federal law preempts state rules.
  3. CSuspend the broker-dealer’s registration only if there is evidence of fraud or insolvency, not just technical net capital violations.✓ Correct answer
  4. DImpose additional reporting requirements as a condition of continued registration.
Explanation

Why C — Suspend the broker-dealer’s registration only if there is evidence of fraud or insolvency, not just technical net capital violations.

The USA (Section 402(d)) preempts states from requiring higher net capital than the SEC. The Administrator may only act if there is fraud, insolvency, or other cause beyond technical violations. (A) is preempted; (B) is incomplete; (D) is limited to SEC-level requirements.

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