CTA Exemptions - Securities Brokers and Dealers

There are 23 separate exemptions that relieve exempt companies from the duty to file under the CTA

Previous posts have covered public companies, banks, credit unions and money transmitting businesses. 

CTA Filing Obligations

The Corporate Transparency Act (CTA) obligates most companies in the U.S. to file a beneficial ownership report with FinCEN. FinCEN is the financial crimes enforcement network of the U.S. Treasury Department.

Each beneficial ownership report must identify the company applicant who formed the company and each beneficial owner. For each individual, the report must provide the person's full legal name, data of birth, home address and a unique identifying number. The report must also provide an image of the document that provides the unique identifying number. Acceptable documents and numbers include an unexpired passport or drivers license.

Because personally-identifiable information (PII) is sensitive, many companies will face an immense challenge to collect, store and compile this data. Once filed, a company must amend its report within 30 days after any change in any item of previously-reported information. Such changes might include a change in home address, or a passport or drivers license renewal.

FinCEN hopes to use the CTA, however, to build a database of beneficial ownership. FinCEN would use this database to assist law enforcement in fighting money laundering. As a result, FinCEN's proposed regulations exempt many types of companies whose beneficial ownership is already regulated by the government.

Exemption for Securities Brokers and Dealers.

Subsection 1010.380(c)(2)(vii) of the proposed regulation exempts "any broker or dealer, as those terms are defined in section 3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c), that is registered under section 15 of that Act (15 U.S.C. 78o)." 

While this exemption might superficially appear to cover all securities brokers or dealers, it is more tricky than that.

Section 3 of the Securities Exchange Act of 1934 (the "1934 Act") defines "broker" as a person who is engaged in the business of "effecting transactions in securities" for the account of others.  In contrast, a "dealer" is defined as a person who is "engaged in the business of buying and selling securities" for its own account.

The Dodd-Frank Act adopted in 2010 changed the way in which brokers and dealers were licensed.  Generally, brokers and dealers must register with the SEC and be licensed through a self-regulating organization, like FINRA.

Under the Dodd-Frank Act, however, some brokers and dealers are not required to register with the SEC (and indeed are not permitted to register with the SEC) in various circumstances.  For example, an "intrastate" broker who only works for customers in a single state may be exempt from registration.   Likewise, brokers and dealers in certain exempt securities may be exempt from the SEC registration requirement. 

While most brokers and dealers are required to register with the SEC, some are not. Those who are exempt from SEC registration will not fall within the CTA's exemption for brokers and dealers.  The CTA only exempts those brokers and dealers who are both (a) included in the 1934 Act definition, and (b) registered under Section 15 of the 1934 Act.