Items to be reviewed and approved
Registered Principals are not required to review confirmations.
There are three types of offices that a member may open:
- An office of supervisory jurisdiction - conducts OSJ activities
- A branch office - identified to the public as being a place where the member conducts business but does not engage in any activities that would require it to be considered an OSJ.
- A satellite office - usually a smaller office that does not meet the definition of a branch.
Potential test question: Could a Principal be the resident principal for more than one OSJ? Yes, they can if geographically maintain a presence at both locations. FINRA must be notified (not approved).
Reps working from home
In the case of a rep from out of state is temporarily working in another state, they have 30 days to report to a branch for supervisory jurisdiction.
Working on a yacht and move marinas, they have 30 days to report to FINRA.
Written Supervisory Procedures
Must include an organization chart with names showing supervisory responsibilities.
Failure to supervise
A principal can be held responsible for the actions of the agents assigned to the principal.
Only mitigating factor is when a rep takes extraordinary steps to conceal their activity.
Executive Representative & Chief Compliance Officer
Both are identified to FINRA.
CCO must be certified by CEO of B/D every year by April 1.
Any changes within the year must be updated to FINRA within 30 days.
Review of Supervisor Control System
Annual test and report of supervisory control systems.
Identify the person who will test and evaluate.
The report must be given to senior management and include:
- Compliance issues
- We’re systems are working well
- We are systems can be improved
Business continuity plan
The plan must provide:
- Alternative communication between firm and employees
- Alternative communication between clients and firm
- A way for clients to access funds
- Backup plans for each line of business
- Backup of data electronically and hardcopy
- Identity of two firm contacts to FINRA - one must be a principal.
- Regulatory reporting/back up
- Alternative physical office for employees
- Financial and operational assessment back up
Business continuity plan disclosures
- Should be provided to clients at time account is open and annually thereafter
- Should be posted on the firm’s website
- Must contain “go out of business” clause
- If single office firm, contact for clearing firm is required
Heightened supervisory requirements
- Complex structured products
- Reps who have been sanctioned by FINRA
- Principles who turn blind eye to violations
- Producing managers who January 20% or more of office production - daily supervision of all trades
A red flag for producing managers - cancel in one account and re-bills in another.
Tape recording employees
They are required to tape-record all employees.
- Must be properly forwarded to principal
- Maintain in central file (OSJ)
- Report electronically to FINRA quarterly within 15 days
- Theft, forgery - reported immediately to FINRA within 10 business days
- If the firm received a complaint regarding a terminated rep, the complaint still filed with FINRA - need not be sent to the rep.