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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.

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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
 

  • 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