Definitions & Clarifications

 

A producing manager is a branch office manager, sales manager, regional or district sales manager, or any person who performs a similar supervisory function AND who services customer accounts in a capacity requiring registration. Rule 3012 requires that producing managers be reviewed by a person who is senior to OR otherwise independent of the producing manager.

 

An otherwise independent person is someone who meets the following four requirements: (1) does not report directly or indirectly to the producing manager under review; (2) is situated in a different office from the producing manager; (3) does not have supervisory responsibility over the activity being reviewed (including not being directly compensated based in whole or in part on the revenues accruing for those activities); and (4) alternates his or her review responsibility with another qualified person every two years or less. An otherwise independent person is not required to be a principal.

 

If there is no person senior to or otherwise independent of a producing manager, your firm may rely on the Rule 3012 limited size and resources exception. Under this exception, a person who is a principal and who is sufficiently knowledgeable of the member's SCPs can conduct the supervision of the customer account activity of its producing managers. This is not an exemption to the rule itself.

 

20 percent producing managers are producing managers who are responsible for generating 20 percent or more of the revenue of the business units supervised by their supervisors over the course of a rolling, 12-month period. This requirement for heightened supervision does not apply where the reviewer is a person who is an otherwise independent person.

 

Heightened supervision is required for all 20-percent producing managers (except as noted in the previous sentence). Your firm must have written heightened supervisory procedures and be able to demonstrate that the procedures are being implemented.

 

Testing and verification of supervisory procedures and SCPs is required at least annually. Risk-based methodologies and sampling may be used to determine the scope of testing.

 

Firms must produce both an Rule 3012 annual report detailing the firm's supervisory control system, summary of test results, deficiencies and corrective actions, and an Rule 3013 report that details the processes the firm has in place to establish, maintain, review, modify and test policies and procedures reasonably designed to achieve compliance with applicable rules.

 

The 3012 report is prepared by the designated principal(s) and submitted to the firm's senior management. The 3013 report must be produced prior to execution of the Rule 3013 certification and must be reviewed by the CEO(s), CCO(s) and any other officer the member deems necessary to make the certification. The two reports may be produced together.

 

Notification of the firm's CCO(s) is required via the FINRA Contact System and on Schedule A to Form BD.