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Flashcards in Chapter 8.2 Deck (15):
1

FINRA Supervisory regulations for branch office Inspections

-Every firm must establish mandatory inspection cycles and the firm's written supervisory procedures must be independently tested and verified.
-The CEO must certify annually that the senior executive management has processes in place to establish, maintain, and review the compliance policies and procedures of the firm.
-Offices of supervisory jurisdiction and branches supervising non-branch locations must be inspected annually.
-Non-OSJ branch locations not engaged in the supervision of other locations must be inspected at least once every 3 years.
-Non-Branch locations must be inspected on a regular, periodic schedule based on the complexity of securities activities and customer contact.
-Inspection must be conducted by a person independent of the branch and cannot be conducted by the branch office manager, any supervision in the branch, or any employee directly or indirectly supervised by any such person.

2

Written supervisory procedures

Must be set forth for all inspections. The inspection must include a record of the date on which each review and inspection was conducted including testing and verification of the following procedures:
-Safeguarding of customer funds and securities
-Maintaining books and records
-Supervision of customer accounts serviced by branch managers
-Transmittal of funds between customers and registered representatives or third parties
-Validation of customer address changes
-Validation of changes in customer account information
-If an inspection is done by a principal because the firm's size and resources are limited, a written report must document the facts used to make that determination and that they had no other alternatives

3

How long must branch office inspection reports be retained?

3 years

4

FINRA Rule 8110

Requires that B/D's keep and maintain a current copy of the FINRA manual in each branch in a readily accessible place and that it shall be made available to customers upon request. Providing electronic access to the manual is acceptable.

5

Producing Manager

Includes any branch office manager, sales manager, or any person who performs a similar function, who services customer accounts in a manner that requires registration. Customer accounts include institutional accounts, retail customers, and accounts of friends and relatives, but do not include prime brokerage activities. Prime brokerage services offered to the largest customers of brokerage firms such as hedge funds, institutions, and other B/D's. These services include custody, lending, financing and clearing

6

Supervision of producing branch managers

The customer account activity of branch office managers, sales managers, regional or district sales managers must be reviewed and supervised on a day to day basis, no matter how minimal their production.
-The review would also include any transaction cancellations and re-bills for the accounts serviced by the producing branch manager.

7

Reviews of producing managers must be conducted byL

-A person senior to the producing manager, or
-A person independent of the producing manager - Such independent persons MAY NOT:
-Be located in the same office as the producing manager("same office" would not include a person who is in a different department or unit, even if the unit is on the same floor, in the same building)
-Report to the producing manager
-Have their compensation determined by the producing manager
-Be in the same chain of authority as the producing manager(such reviewer must have the authority to direct or correct the activities of the producing manager including termination, and the reviewer must alternate the review responsibilities with another qualified person every 2 years or less).
-A principal who is knowledgeable about the firms supervisory control procedures may perform the review if the firm meets the "limited size and resources exception".

8

Producing branch manager supervision rules apply regardless of the:

-Number of accounts the manager services
-Types of accounts the manager services. For example, retail customers, institutional customers, house accounts or family accounts
-Amounts of revenue or customer activity also the method by which the manager is compensated is NOT a factor

9

Exceptions to Producing branch manager rules

-If a branch office manager who does not service customer accounts occasionally enters orders as an accommodation to another registered person who is out of the office for a short duration, would not be deemed to be a producing branch manager
-If a person supervises prime brokerage accounts, that person would not be deemed to be a producing branch manager

10

Specific review and monitoring of the following activities relating to customer protection is required:

-All transmittal of funds and/or securities
-That results in a change of beneficial ownership
-From customer accounts to outside entities
-From customer accounts to a location other than the customers primary residence including a PO Box or "in care of"
-Between customers and RR's, including hard deliveries
-Customer changes of address and validation of such changes
-Customer changes of investment objectives and validation of such changes

11

Customer Complaints

Each member must have procedures to capture, acknowledge, and respond to all written customer complaints and the action taken by the member, if any.

**Complaints which are emailed to a member by a customer are subject to all of the complaint rules. The rule does not require the capture of oral complaints.

12

Records of complaints

-Each branch office must keep a written record of each complaint and any action taken by the member firm.
-The member must acknowledge to the customer receipt of the complaint within 15 business days.
-Each member shall report to FINRA not later than 30 calendar days after the member knows of the existence of any written complaint involving allegations of thief or misappropriation of funds or securities or of forgery.

**Even if a complaint is found to be based on unfounded grounds, it must still be kept in a separate complaint file by the firm.

13

A record of every written customer complaint, must include:

-Complainant's name, address, and account number
-Date the complaint was received
-Name of the associated person identified in the complaint
-A description of the complaint
-The disposition of the complaint(including texts and tweets)

14

Summary Complaint filing

Each member must file with FINRA a summary of information regarding customer complaints by the 15th day of the month following the calendar quarter in which the complaints are received on the FINRA firm gateway.

**Actual copies of the complaints are not filed with FINRA - only a summary report unless such complaint involves civil or criminal actions. Oral complaints are not included in this requirement since they are difficult to capture and assess.

15

How long must customer complaints be preserved?

At least 4 years in an office of supervisory jurisdiction.