What is FINRA Rule 1017(a)(7)?

The consequences of disclosures on an advisor’s record have grown significantly more severe as we move into 2026. While the 2016 requirement to provide a prominent hyperlink to BrokerCheck initially stripped away the "insider-only" veil of professional history, today’s landscape is even more transparent.

Beyond public perception, FINRA is aggressively pressuring advisors through their most critical point of leverage: the hiring process.

The New Standard: Rule 1017(a)(7)

As of late 2025 and into 2026, FINRA has fully integrated Rule 1017(a)(7) into its oversight program. Any member firm interested in hiring a registered person whose record reflects certain history within the past five years must navigate a rigorous regulatory checkpoint. This applies if the candidate has:

• One or more “final criminal matters;” or
• Two or more “specified risk events.”

Under Regulatory Notice 21-09, which remains the guiding framework in 2026, firms are no longer permitted to simply "onboard and supervise" these individuals. Instead, they must either file a Continuing Membership Application (CMA) or seek a Materiality Consultation (MC) to ensure the hiring does not constitute a "material change in business operations."

Understanding the difference between these two paths is vital for any advisor looking to transition firms:

• Continuing Membership Application (CMA): Required when a firm makes material changes to operations, asset transfers, or undergoes a change in control. FINRA uses this process to ensure a firm’s supervisory systems can keep pace with its expansion.
• Materiality Consultation (MC): Under Rule 1017(a)(7), firms have the option to seek an MC at no cost before hiring a person with a qualifying history. FINRA will then determine if the firm can proceed freely or if the hire is "material" enough to trigger the full, expensive CMA process.

Note: The "Safe Harbor" provision under FINRA IM-1011-1, which usually allows for certain business expansions without a CMA, is explicitly unavailable to firms when a materiality consultation is required under Rule 1017(a)(7).

In 2026, the thresholds for what triggers these reviews are strictly enforced:

A "final criminal matter" is any event disclosed on Uniform Registration Forms (U4, U5, or BD) that resulted in a conviction, or a plea of guilty or no contest. This includes specific questions regarding felonies and certain investment-related misdemeanors.

These include, but are not limited to:

• Arbitration & Litigation: Investment-related settlements or awards of $15,000 or more where the person was a named party.
• Civil Judicial Actions: Final actions resulting in sanctions of $15,000 or more, or where the person was barred, expelled, or suspended.
• Regulatory Actions: Final actions by a regulator resulting in monetary sanctions of $15,000 or more, or a temporary/permanent bar or suspension.