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Supervision

Three FINRA rules form a regulatory scheme addressing the supervision of firms and their associated persons.

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. WSPs should describe:

  • the specific individual(s) responsible for each review,
  • the supervisory activities such persons will perform,
  • the frequency of the review, and
  • the manner of documentation.

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.

Firms must also adopt procedures that include a means of customer confirmation for certain transactions such as transmittal of customer funds, changes in address, and changes in investment objectives.


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.


Written Supervisory Procedures Review Checklists

FINRA is providing two Written Supervisory Procedures Checklists -- one for Capital Acquisition Brokers and one for Broker Dealers -- as optional guides to firms to assist them in fulfilling their obligations under the FINRA Rules. The checklists are outlines of selected key topics representative of the business activities typically engaged in by FINRA members and permissible under FINRA’s Rules. Note that following these WSP Checklist templates do not guarantee compliance with FINRA Supervisory Procedure Rules or provide a safe harbor from regulatory responsibility.

Download


Learn More

Please visit our e-learning courses page to register for one or more of the following courses.

  • AML – Supervisors: Understanding Your Role
  • AML – Supervisors: Understanding Your Role – Vol. 2
  • Annual Compliance Reminders for Supervisors – Vol. 1
  • Customer Information Protection for Supervisors
  • Cybersecurity – Supervisors: Understanding Your Role
  • Electronic Communications: What Supervisors Need to Know
  • Ethical Considerations for Supervisors
  • Gifts: Understanding Supervisory Responsibilities
  • Retail Branch Office Supervision: Compliance with Regulations
  • Retail Branch Office Supervision: Understanding Supervisory Responsibilities
  • Retail Supervision: Sales to Senior Investors
  • Supervision: FINRA Rules 3110, 3120, 3150 and 3170
  • Supervision: Obligations for Firms With Institutional Clients
  • Supervision: Obligations When Monitoring Sales and Trading

Contact OGC

FINRA's Office of General Counsel (OGC) staff provides broker-dealers, attorneys, registered representatives, investors and other interested parties with interpretative guidance relating to FINRA’s rules. Please see Interpreting the Rules for more information.

OGC staff contacts:
Kosha Dalal and Sarah Kwak
FINRA, OGC
1735 K Street, NW
Washington, DC 20006
(202) 728-8000
 

  • FINRA Reminds Firms of their Supervisory Obligations Related to Outsourcing to Third-Party Vendors
  • FINRA Seeks Comment on Lessons From the COVID-19 Pandemic
  • FINRA Shares Practices Implemented by Firms to Transition to, and Supervise in, a Remote Work Environment During the COVID-19 Pandemic
  • Guidance on Implementing Effective Heightened Supervisory Procedures for Associated Persons With a History of Past Misconduct
  • FINRA Requests Comment on a Proposal to Amend Rule 3110 (Supervision) to Provide Firms the Option to Conduct Remote Inspections of Offices and Locations That Meet Specified Criteria Comment Period Expires: January 12, 2018
  • Guidance on Social Networking Websites and Business Communications
  • FINRA Filing Requirements and Review of Regulation A Offerings
  • SEC Approves New Supervision Rules
  • FINRA and the SEC Issue Joint Guidance on Effective Policies and Procedures for Broker-Dealer Branch Inspections
  • FINRA Reminds Firms of Their Obligations Regarding the Supervision of Registered Persons Using Senior Designations
  • Guidance on Social Networking Websites and Business Communications
  • FINRA Requests Comment on Proposed New FINRA Rule 3190 to Clarify the Scope of a Firm's Obligations and Supervisory Responsibilities for Functions or Activities Outsourced to a Third-Party Service Provider
  • FINRA Reminds Firms of Responsibilities When Providing Customers with Consolidated Financial Account Reports
  • Guidance on Blogs and Social Networking Web Sites
  • FINRA Requests Comments on Proposed New Rules Governing Communications with the Public
  • SEC Approval and Effective Date for New Consolidated FINRA Rules
  • FINRA Requests Comment on Proposed Consolidated FINRA Rule Governing Investment Company Securities
  • SEC Approves Rule Relating to Supervision of Market Letters
  • The Obligation of Firms When Supervising their Registered Representatives' Use of Marketing Materials to Establish Expertise
  • Proposed Consolidated FINRA Rules Governing Supervision and Supervisory Controls
  • Sound Practices for Preventing and Detecting Unauthorized Proprietary Trading
  • NASD Amends Rule 3013 and Interpretive Material 3013 to Permit Members to Designate Co-Chief Executive Officers and Multiple Chief Compliance Officers
  • NASD and NYSE Request Comment on Proposed Joint Guidance Regarding the Review and Supervision of Electronic Communications
  • NASD Requests Comment on Proposed Amendments to Rules 3010(g) and 2711 in Connection with the Rule Harmonization Project with the NYSE
  • Special Considerations When Supervising Recommendations of Newly Associated Registered Representatives to Replace Mutual Funds and Variable Products
  • SEC Approves Amendment to NASD Interpretive Material 3013 Regarding Timing of Submission of Report that Evidences Processes to a Member's Board of Directors and Audit Committee
  • SEC Approves Amendments to NASD Rule 3012 to Require Members Relying on Rule 3012's "Limited Size and Resources" Exception to Notify NASD of their Reliance
  • Supervisory Controls and Annual CEO Certification
  • SEC Approves Uniform Branch Office Definition and Related Interpretive Material
  • Member Responsibilities for Supervising Sales of Unregistered Equity-Indexed Annuities
  • Members' Responsibilities When Outsourcing Activities to Third-Party Service Providers
  • Guidance Regarding Rule 3012(a)(1) Requirement to Test and Verify a Member's Supervisory Policies and Procedures
  • NASD Issues Guidance on Section 1031 Tax-Deferred Exchanges of Real Property for Certain Tenants-in-Common Interests in Real Property Offerings
  • Guidance Regarding the Application of the Supervisory Control Amendments to Members' Securities Activities, Including Members' Institutional Securities Activities
  • SEC Approves New Chief Executive Officer Compliance Certification and Chief Compliance Officer Designation Requirements
  • SEC Approves New Rules and Rule Amendments Concerning Supervision and Supervisory Controls
  • NASD Seeks Comment on Proposed Rule to Impose Specific Sales Practice Standards and Supervisory Requirements on Members for Transactions in Deferred Variable Annuities
  • Amendments to Rule 3010 to Require Heightened Supervision Plans for Associated Persons with a Specified Threshold of Industry/Regulatory-Related Events (Note: The comment period has been extended to October 31, 2003)
  • Clarification for Members Regarding Supervisory Obligations and Recordkeeping Requirements for Instant Messaging
  • NASD Requests Comment on Proposal to Amend Rule 3010 and Adopt Interpretive Material 3010-1
  • NASD Reminds Members Of Their Responsibilities Regarding Private Securities Transactions Involving Notes And Other Securities And Outside Business Activities
  • NASD Regulation Reminds Firms Of CRD Continuing Education Notification Method And Informs Firms To Review Written Supervisory Procedures
  • NASD Provides Guidance On Supervisory Responsibilities
  • NASD Elaborates On Member Firms' Supervision Responsibilities For Trade Reporting And Market-Making Activities
  • SEC Approves Taping Rule
  • NASD Reminds Members Of Supervisory And Inspection Obligations
  • SEC Approves Rules Regarding Supervision, Review, And Record Retention Of Correspondence
  • NASD Regulation And New York Stock Exchange Memorandum Discusses Sweep Report And Provides Guidance On Heightened Supervision Recommendations
  • NASD Regulation Solicits Comment On Proposed Rules Governing Supervision, Review, And Record Retention Of Correspondence
  • Clarification Of Members' Suitability Responsibilities Under NASD Rules With Special Emphasis On Member Activities In Speculative And Low-Priced Securities
  • FAQ

    Due to the coronavirus pandemic (COVID-19), FINRA is providing temporary relief for member firms from rules and requirements in the Frequently Asked Questions below. The relief provided does not extend beyond the identified rules and requirements. FINRA will continue to monitor the situation to determine whether additional guidance and relief may be appropriate. As coronavirus-related risks decrease, member firms should expect to return to meeting any regulatory obligations for which relief has been provided.

    March 24, 2020
  • 2019 Exam Findings Report
    The Supervision section of the 2019 Report on Exam Findings informs member firms’ compliance programs by describing recent findings and observations from FINRA’s examinations, and, in certain cases, also providing a summary of effective practices.
    October 16, 2019
  • 2019 Exam Findings Report
    The Suitability section of the 2019 Report on Exam Findings informs member firms’ compliance programs by describing recent findings and observations from FINRA’s examinations, and, in certain cases, also providing a summary of effective practices.
    October 16, 2019
  • A Few Minutes With FINRA
    In a follow up to a recent episode of A Few Minutes With FINRA, FINRA Executive Vice President of Enforcement Susan Schroeder answers questions FINRA has received from firms in response to its 529 Plan Share Class Initiative. (11 min. 58 sec.)
    February 27, 2019
  • A Few Minutes With FINRA
    Chip Jones and Susan Schroeder discuss the 529 Plan Share Class Initiative. Under the program, firms can self-report to FINRA by April 1, 2019, supervisory violations related to 529 plan share-class recommendations and include a plan to remediate the issue; and in response, FINRA Enforcement will recommend that FINRA accept a settlement that includes restitution for the impact on affected customers and a censure, but no fine. (7 min. 33 sec.)
    January 28, 2019
  • 2018 Exam Findings Report
    The DBAs and Communications with the Public section of the 2018 Report on Exam Findings informs member firms’ compliance programs by describing recent findings and observations from FINRA’s examinations, and, in certain cases, also providing a summary of effective practices.
    December 07, 2018
  • Targeted Examination Letter
    FINRA’s Member Regulation department is conducting a review with respect to products linked to the CBOE’s Volatility Index (VIX). The review will focus on the supervisory processes followed by firms to identify and mitigate sales practice risks associated with recommendations to non-institutional purchasers of VIX-linked products.
    April 09, 2018
  • 2017 Exam Findings Report
    The Outside Business Activities and Private Securities Transactions section of the 2017 Report on Exam Findings informs member firms’ compliance programs by describing recent findings and observations from FINRA’s examinations, and, in certain cases, also providing a summary of effective practices.
    December 06, 2017
  • Interpretive Letter

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

    February 05, 2013
  • Interpretive Letter

    NASD Rule 3010 - Supervision

    November 30, 2006
  • Interpretive Letter
    A Member's Responsibilities Regarding the Outsourcing of Certain Activities
    August 15, 2006
  • Interpretive Letter

    Applicability of NASD rules to a member's use of a translator for group retirement plan enrollment presentations.

    November 26, 2001
  • Interpretive Letter

    The limited supervisory functions that can be properly delegated to registered representatives also may be assigned to persons registered as Foreign Associates under NASD Rule 1100. Foreign Associates, however, may not perform the functions that require a principal registration.

    June 04, 2001
  • Interpretive Letter

    A broker/dealer is not required to register as branch offices under Rule 3010(g) non-public office locations where existing customers can use computer terminals to access their accounts and enter orders.

    March 16, 1998
  • Interpretive Letter

    Staff interpretation on the use of electronic signatures under NASD Rules 3110(c)(1)(C) and 3010(d).

    November 26, 1997
  • Compliance Tools
    The Cross-Market Equities Supervision Manipulation Reports provide firms feedback on exceptions that were generated based on firms' order entries and trading activities in a given surveillance period.
  • FAQ
    Supervision Frequently Asked Questions (FAQ)