Effective December 1, 2014, three FINRA rules form a general overarching regulatory scheme for the supervision of firms and their associated persons.
- FINRA Rule 3110 (Supervision)
- FINRA Rule 3120 (Supervisory Control System)
- FINRA Rule 3130 (Annual Certification of Compliance and Supervisory Processes)
FINRA Rule 3110 (Supervision)
FINRA Rule 3110 requires a firm to establish and maintain a system to supervise the activities of its associated persons that is reasonably designed to achieve compliance with the applicable securities laws and regulations and FINRA rules. The rule details requirements for a firm to have reasonably designed written supervisory procedures (WSPs) to supervise the activities of its associated persons and the types of businesses in which it engages. Among other things, a firm's WSPs must address supervision of supervisory personnel and provide for the review of a firm's investment banking and securities business, correspondence and internal communications, and customer complaints. The rule further sets forth requirements to designate and register branch offices and offices of supervisory jurisdiction (OSJs), conduct internal inspections and review transactions for insider trading.
FINRA Rule 3120 (Supervisory Control System)
FINRA Rule 3120 requires a firm to have a system of supervisory control policies and procedures (SCPs) that tests and verifies a firm's supervisory procedures. It is essential for a firm to recognize that FINRA Rule 3120's requirement to have specific SCPs differs from the requirement for WSPs. A firm not only needs to maintain WSPs, but the firm also must have SCPs to test and verify, at least annually, that its WSPs are reasonably designed with respect to the firm's and its associated persons' activities to achieve compliance with applicable securities laws and regulations and FINRA rules, and to create additional or amend WSPs as identified by such testing and verification. Risk-based methodologies and sampling may be used to determine the scope of testing. The testing ensures that a firm's supervisory procedures are reviewed and amended regularly in light of changing business and regulatory environments.
Pursuant to Rule 3120, a firm must designate principal(s) to be responsible for establishing, maintaining and enforcing a firm's SCPs. The designated principal(s) also must prepare, at least annually, a report detailing the firm's supervisory control system and submit it to senior management (Rule 3120 Report). The Rule 3120 Report must include a summary of the test results and significant identified exceptions, and any additional or amended supervisory procedures created in response to the test results.
If a firm has reported $200 million or more in gross revenue on its FOCUS report in the prior calendar year, FINRA Rule 3120 requires that the firm's annual report include specified additional content, to the extent applicable to the firm's business.
FINRA Rule 3130 (Annual Certification of Compliance and Supervisory Processes)
FINRA Rule 3130 requires a firm to designate and identify to FINRA on Schedule A of Form BD one or more principals to serve as a chief compliance officer (CCO). The rule also requires the firm's chief executive officer(s) (CEO(s)) to certify annually that the firm has in place processes to establish, maintain, review, test and modify policies and procedures reasonably designed to achieve compliance with applicable securities laws and regulations and FINRA rules. A firm's processes must be evidenced in a report that must be submitted to the firm's board of directors and audit committee (or equivalent bodies). The CEO(s) must further certify to having met with the CCO(s) in the preceding 12 months to discuss the firm's processes and other specified matters.
The intent of Rule 3130 is to increase attention to firms' compliance programs by requiring substantial and purposeful interaction between business managers and compliance officers throughout the firm.
Please visit our e-learning courses page to register for one or more of the following courses.
- Ethical Considerations for Supervisors
- Retail Branch Office Supervision: Compliance with Regulations
- Retail Branch Office Supervision: Understanding Supervisory Responsibilities
- Retail Supervision: Sales to Senior Investors
- Supervision: Obligations for Firms with Institutional Clients
Find below more information on Rules 3110, 3120 and 3130, including rulemaking activities, notices, guidance and educational resources.
|FINRA Sanctions Barclays Capital, Inc. $13.75 Million for Unsuitable Mutual Fund Transactions and Related Supervisory Failures|
FINRA announced today that it has ordered Barclays Capital, Inc. to pay more than $10 million in restitution, including interest, to affected customers for mutual fund-related suitability violations. These suitability violations relate to an array of mutual fund transactions including mutual fund switches. Additionally, the firm failed to provide applicable breakpoint discounts to certain customers. Barclays was also censured and fined $3.75 million.
|FINRA Sanctions Cantor Fitzgerald & Co. $7.3 Million for Selling Billions of Unregistered Microcap Shares, and for Related Supervisory and AML Violations|
Monday, December 21, 2015 Michelle Ong (202) 728-8464 Nancy Condon (202) 728-8379 Trader and Supervisor Suspended and Fined WASHINGTON — The Financial Industry Regulatory Authority (FINRA) announced today that it has fined Cantor Fitzgerald & Co. $6 million and ordered disgorgement of nearly $1
|FINRA Sanctions Fidelity Brokerage Services LLC $1 Million for Supervisory Failures|
Friday, December 18, 2015 Michelle Ong (202) 728-8464 Firm Failed to Follow Up on Red Flags to Detect or Prevent Theft of Funds From Senior Investors by Fraudster Posing as Fidelity Broker WASHINGTON — The Financial Industry Regulatory Authority (FINRA) announced today that it fined Fidelity
|FINRA’s 2015 Regulatory and Examination Priorities, Part 3|
Part three of this six-part series highlights sales practice priorities like supervision, IRA rollovers, and private placements.
|FINRA Fines Morgan Stanley Smith Barney and Scottrade a Total of $950,000 for Failing to Supervise the Transmittal of Customer Funds to Third-Party Accounts|
Monday, June 22, 2015 Michelle Ong (202) 728-8464 Nancy Condon (202) 728-8379 WASHINGTON — The Financial Industry Regulatory Authority (FINRA) announced today that it has fined Morgan Stanley Smith Barney, LLC (Morgan Stanley) $650,000 and Scottrade, Inc. $300,000 for failing to implement
|FINRA Sanctions LPL Financial LLC $11.7 Million for Widespread Supervisory Failures Related to Complex Products Sales, Trade Surveillance and Trade Confirmations Delivery|
Wednesday, May 6, 2015 Michelle Ong (202) 728-8464 Nancy Condon (202) 728-8379 LPL Ordered to Pay Approximately $1.7 Million in Restitution to Customers WASHINGTON — The Financial Industry Regulatory Authority (FINRA) announced today that it has censured LPL Financial LLC and fined it $10 million
|FINRA Orders RBC to Pay Fine and Restitution Totaling More Than $1.4 Million for Unsuitable Sales of Reverse Convertibles|
FINRA found that RBC failed to have supervisory systems reasonably designed to identify transactions for supervisory review when reverse convertibles were sold to customers, in violation of FINRA's rules as well as the firm's own suitability guidelines.
|FINRA Sanctions Three Firms for Inadequate Supervision of Consolidated Reports|
Monday, March 30, 2015 Michelle Ong (202) 728-8464 Nancy Condon (202) 728-8379 WASHINGTON — The Financial Industry Regulatory Authority (FINRA) announced today that it has sanctioned three firms – H. Beck, Inc., LaSalle St. Securities, LLC, and J.P. Turner & Company, LLC – with fines of $425
|FINRA Sanctions Oppenheimer & Co. $3.75 Million for Supervisory Failures|
Thursday, March 26, 2015 Michelle Ong (202) 728-8464 Nancy Condon (202) 728-8379 Firm Fined $2.5 Million and Ordered to Pay Restitution of $1.25 Million for Failing to Supervise Former Oppenheimer Broker Mark Hotton WASHINGTON — The Financial Industry Regulatory Authority (FINRA) announced today
|FINRA Rule 3120 (Supervisory Control System)|
Supervisory Control System
|Rule 3150 (Holding of Customer Mail)||Rule||01-28-2015|
|FINRA Rule 3110 (Supervision)|
|Rule 3170 (Tape Recording of Registered Persons by Certain Firms)||Rule||12-01-2014|
|Supervision Frequently Asked Questions (FAQ)|
Frequently asked questions regarding FINRA Rules 3110, 3120, and 3130
|FINRA Charges Wedbush Securities for Systemic Market Access Violations, Anti-Money Laundering and Supervisory Deficiencies|
Monday, August 18, 2014 Michelle Ong (202) 728-8464 Nancy Condon (202) 728-8379 WASHINGTON — The Financial Industry Regulatory Authority (FINRA) announced today that it has filed a complaint against Los Angeles-based Wedbush Securities Inc. for systemic supervisory and anti-money laundering (AML)
|Regulatory Notice 14-10|
SEC Approves New Supervision Rules
|FINRA Fines COR Clearing LLC $1 Million for Extensive Regulatory Failures|
WASHINGTON — The Financial Industry Regulatory Authority (FINRA) announced today that it has fined COR Clearing LLC (formerly Legent Clearing LLC), of Omaha, Nebraska, $1 million for numerous failures to comply with anti-money laundering (AML), financial reporting and supervisory obligations.
Proposed Rule Change to Adopt the Consolidated FINRA Supervision Rules
|Regulatory Notice 11-54|
FINRA and the SEC Issue Joint Guidance on Effective Policies and Procedures for Broker-Dealer Branch Inspections
|Regulatory Notice 11-52|
FINRA Reminds Firms of Their Obligations Regarding the Supervision of Registered Persons Using Senior Designations
|Regulatory Notice 11-39|
Guidance on Social Networking Websites and Business Communications
|Regulatory Notice 10-19|
FINRA Reminds Firms of Responsibilities When Providing Customers with Consolidated Financial Account Reports
|Regulatory Notice 10-06|
Guidance on Blogs and Social Networking Web Sites
|Regulatory Notice 09-10|
SEC Approves Rule Relating to Supervision of Market Letters
|FINRA Rule 3130|
Annual Certification of Compliance and Supervisory Processes