Frequently Asked Questions


Limited Size and Resources


Q: When can a member use the limited size and resources exception?

A: A firm may rely on the limited size and resources exception if it is either so limited in size and resources, or the producing manager is at such a senior level that there is no qualified person who is either senior OR otherwise independent of the producing manager to conduct the supervisory reviews required by Rule 3012.

 

Q: Is the limited size and resources exception only available to small firms with little income?

A. No. A member may have the size and resources to conduct most of the supervisory reviews, but may need to use the exception for certain producing managers because there is no one who is either senior to or otherwise independent of these persons who can conduct their reviews.

 

Example
If a CEO services customer accounts, it is unlikely that there will be someone who is either senior or otherwise independent to supervise the CEO. Therefore, the limited size and resources exception would be necessary for that person's supervision. The firm should still adhere to the general requirements for its other producing managers.

 

Q: Does a firm that qualifies for the limited size and resources exception have to comply with the requirements of Rules 3012 and 3013?

A. Yes. A firm must comply with all requirements of Rules 3012 and 3013 even if it qualifies for the limited size and resources exception. The limited size and resources exception only provides an alternative method for who may perform a producing manager's review under Rule 3012(a)(2)(A)(i). Any supervisory reviews conducted using the limited size and resources exception must still comply, to the extent possible, with the general reviews required of someone who is either senior to or otherwise independent.

 

Q: Does my firm need to notify FINRA if it relies on the limited size and resources exception?

A. Yes. Firms should notify FINRA of their reliance on the limited size and resources exception via the Firm Gateway.

 

Q: Does my firm need to notify FINRA of our continued reliance of the limited size and resources exception?

A. Yes. Once your firm has provided its initial notification of reliance on Rule 3012's limited size and resources exception, your firm must notify FINRA via the Firm Gateway of your continued reliance on the exception on an annual basis, no later than on the anniversary date of the previous year's notification.

 

Q: Do we need to notify FINRA if we stop relying on the limited size and resources exception?

A. Yes. If your firm determines that it no longer needs to rely on the limited size and resources exception to Rule 3012 to conduct any of your producing managers' supervisory reviews, your firm must notify FINRA via the Firm Gateway within 30 days of ceasing to rely on the exception.

 

Q: Does the person conducting reviews under the limited size and resources exception have to be a principal?

A. Yes. Firms relying on the limited size and resources exception must have a principal who is sufficiently knowledgeable of the firm's SCPs conduct the required supervisory reviews.

 

Q: Is a FINOP a qualified principal for purposes of Rule 3012's limited size and resources exception?

A. No, unless the FINOP holds another principal license.

 

Q: Does the limited size and resources exception provide relief from the heightened supervision requirements applicable to 20-percent producing managers?

A. No. Rule 3012 does not provide an exception to the heightened supervision requirements.

 

Q: Rule 3010 also has a limited size and resources exception. Is this exception the same as Rule 3012's limited size and resources exception? Also, should a firm notify FINRA electronically if the firm is relying on Rule 3010's exception?

A. The limited size and resources exceptions for Rules 3010 and 3012 are not the same. Rule 3010's limited size and resources exception addresses who may conduct an office inspection if a firm cannot meet the general inspection requirement that someone other than a branch office manager, any person within that office who has supervisory responsibilities or any individual who is directly or indirectly supervised by such persons conduct the office inspection.

 

As noted earlier, Rule 3012's exception addresses who may conduct a producing manager's supervisory reviews if the firm cannot meet the general supervisory requirement that someone who is either senior to or otherwise independent of the producing manager conduct the producing manager's day-to-day supervisory reviews.

 

Rule 3012's limited size and resources exception has a notification requirement, whereas Rule 3010 does not. However, Rule 3010 does require that a firm relying on the limited size and resources exception document in its office inspection reports the factors it has used to determine that the firm has no other alternative than to comply in this manner.