NASD Rule 3010(a)(7) - Annual Compliance Meeting

Members may use on-demand course without voice narration to satisfy annual compliance meeting requirement, subject to certain safeguards and conditions.

 


 

February 5, 2013

 

Mr. S. Kendrick Dunn
Assistant Vice President
Pacific Select Distributors, Inc.
700 Newport Center Drive, 5SJP-100
Newport Beach, CA 92660

 

Re: NASD Rule 3010(a)(7) - Annual Compliance Meeting

 

Dear Mr. Dunn:

 

This is in response to your letter dated September 10, 2012, in which you request interpretive guidance on behalf of Pacific Select Distributors, Inc. ("Pacific Select"), a FINRA member, regarding the use of on-demand technology to satisfy Pacific Select's annual compliance meeting requirement.

 

Background

 

Based upon your letter and our subsequent conversation, we understand the facts to be as follows. Pacific Select currently satisfies the annual compliance meeting required under NASD Rule 3010(a)(7) through one of the following methods: (1) registered persons attend an in-person meeting where a presenter discusses compliance matters with them; or (2) registered persons complete an on-demand course that uses slides and recorded voice narration to deliver compliance-related content to them.

 

The on-demand course is offered through a learning management system that uses several controls to ensure that registered persons complete the entire course. Each registered person must enter a unique log-in ID and password to access the learning management system. The system ensures that the required individual is taking the course, tracks attendance and maintains an attendance roster for Pacific Select. Once a slide is opened, the user cannot advance to the next slide until a specified amount of time has lapsed, which restricts the ability of the user to advance through the slides without reading the content. The user must review all of the slides to complete the course. Pacific Select maintains an internal website devoted to receiving questions from registered persons regarding the course material, and ensures that those questions are answered by compliance personnel in a timely manner.

 

Pacific Select believes that it can provide the on-demand course in a more effective format without the use of voice narration. You seek guidance on whether the use of the on-demand course without voice narration would be consistent with the requirements of NASD Rule 3010(a)(7).

 

Response

 

NASD Rule 3010(a)(7) requires that each registered person (representative and principal) participate, at least once each year, in a meeting (or an interview) at which compliance matters relevant to the activities of the particular registered person are discussed. The primary purpose of this rule is to give registered persons the opportunity to regularly discuss compliance issues relevant to their activities and to keep them current on changing compliance requirements and changes in the firm. These meetings can be held individually or with a group and can be held at a central or regional location or at the registered person's place of business. Firms also must ensure that registered persons attend the entire meeting.

 

As discussed in Notice to Members (NTM) 99-45 (June 1999), members are provided with substantial flexibility in implementing the annual compliance meeting required under NASD Rule 3010(a)(7). Firms are not required to conduct in-person meetings with each registered person or with a group of registered persons. For instance, among other delivery methods, firms may conduct the meeting by webcast,1 provided that specified safeguards are in place.

 

In NTM 99-45, the staff stated that firms that choose to conduct compliance meetings other than in-person must ensure that, among other safeguards, attendees are able to hear presenters live and are able to ask questions and engage in dialogue with the presenters. The purpose of this requirement is to ensure that each registered person is provided an opportunity to discuss compliance matters that relate to the types of activities that the registered person conducts.

 

More recently, the staff stated that the use of an on-demand recorded webcast, though not a live presentation, would be consistent with the requirements of NASD Rule 3010(a)(7) insofar as it provides each registered person an opportunity to e-mail or telephone his or her questions to the webcast presenter and receive answers from the presenter in a timely fashion.2

 

Moreover, the staff does not believe that it is imperative that a member deliver the required compliance material through a live or recorded audio presentation so long as the member ensures that each registered person is provided an opportunity to discuss the compliance material with a subject matter expert at the firm and receive answers from that person in a timely fashion. In this regard, the staff expects Pacific Select to adequately notify its registered persons of the opportunity to ask questions and receive answers regarding the on-demand course material from the firm's compliance personnel as well as inform its registered persons of the availability of any questions and answers posted on the firm's internal website. In addition, you have represented that Pacific Select has safeguards in place to ensure that registered persons attend and complete the entire course. Based on the foregoing and subject to the terms and conditions discussed above, the staff believes that Pacific Select's use of the on-demand course without voice narration would be consistent with NASD Rule 3010(a)(7).

 

We trust that this letter is responsive to your request. Please note that the opinions expressed herein are staff opinions only and have not been reviewed or endorsed by the FINRA Board of Governors. This letter responds only to the issues you have raised based on the facts as you have described them, and does not address any other rule or interpretation of FINRA, or all the possible regulatory and legal issues involved. In addition, you should be aware that any changes in the facts as you have described them will require further consideration and may cause us to reach a different conclusion.

 

Very truly yours,

 

 

Afshin Atabaki

 

cc: David A. Greene,
Director – Los Angeles District Office

 


 

1 See NTM 05-44 (June 2005).

 

2 See letter from Afshin Atabaki, FINRA, to Evan Charkes, Citigroup Global Markets, Inc., dated November 30, 2006 (stating that members may use on-demand webcast technology to satisfy the annual compliance meeting requirement, subject to specified safeguards and conditions).