Regulatory Events Reporting

Regulatory Obligations and Related Considerations

Regulatory Obligations

FINRA Rule 4530 (Reporting Requirements) requires member firms to promptly report to FINRA, and associated persons to promptly report to firms, specified events, including, for example, violations of securities laws and FINRA rules, certain written customer complaints, certain disciplinary actions the firm takes and certain internal conclusions of violations. Member firms must also report quarterly to FINRA statistical and summary information regarding certain written customer complaints. In addition, Rule 4530 requires member firms to file with FINRA copies of specified criminal actions, civil complaints and arbitration claims.

Related Considerations

  • Does your firm provide periodic reminders or training on such requirements, and what consequences does your firm impose on those persons who do not comply?
  • How does your firm monitor for red flags of unreported written customer complaints and other reportable events?
  • How does your firm confirm that it accurately and timely reports to FINRA written customer complaints, including ones that associated persons reported to your firm’s compliance department?
  • How does your firm determine the problem and product codes it uses for its statistical reporting of written customer complaints to FINRA?
  • Does your firm look for trends in events and written customer complaints required to be reported pursuant to Rule 4530? How is information on trends raised to relevant business and compliance management?
  • Do your firm’s procedures for reporting internal conclusions of violations:
    • identify the person(s)—or, if applicable, the members of a committee—responsible for determining whether violations have occurred and, if so, whether they must be reported under FINRA Rule 4530(b), as well as the level of seniority of such person(s);
    • provide protocols for escalating both violations and potential violations to such person(s), as well as for reporting internal conclusions of violations to FINRA (within 30 calendar days after your firm has concluded, or reasonably should have concluded, that a violation has occurred)?

Findings and Effective Practices

Findings

  • No Reporting to the Firm: Associated persons not reporting written customer complaints, judgments concerning securities-, commodities- or financial-related insurance civil litigation and other events to the firms’ compliance departments because they were not aware of firm requirements.
  • Inadequate Surveillance: Firms not conducting regular email and other surveillance for unreported events and written customer complaints.
  • No Reporting to FINRA: Failing to report to FINRA written customer complaints that associated persons reported to the firms’ compliance departments.
  • Incorrect Rule 4530 Product/Problem Codes: As part of the statistical reporting to FINRA, failing to use codes that correlated to the most prominent product or the most egregious problem alleged in the written customer complaints, but instead reporting less prominent or severe codes or other codes based on the firms’ investigations or other information.

Effective Practices

  • Compliance Questionnaires: Developing detailed annual compliance questionnaires to verify the accuracy of associated persons’ disclosures, including follow-up questions (such as whether they are the subject of any pending lawsuits or arbitration claims or have received any written customer complaints).
  • Email Surveillance: Conducting email surveillance targeted to identify unreported written customer complaints (by, for example, including complaint-related words in their keyword lexicons, reviewing for unknown email addresses and conducting random email checks).
  • Review of Registered Representatives’ Financial Condition: Identifying expenses, settlements and other payments that may indicate unreported events by conducting periodic reviews of their associated persons’ financial condition, including background checks and credit reports.
  • Review of Publicly Available Information: Conducting periodic searches of associated persons’ names on web forums, court filings and other publicly available databases, including reviewing for any judgments concerning securities, commodities- or financial-related insurance civil litigation and other reportable events.

Additional Resources

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