FINRA Conduct Rules - Supervision

FINRA Rule 3010 details Supervision requirements. Members are required to maintain a supervisory system for their registered representatives. Written procedures must be created to ensure oversight of the representatives' activities in handling customer accounts. Branch offices must have a registered principal to supervise representatives. Members must conduct internal inspections at least once a year to ensure compliance with securities laws; these inspections must include a review of customer account records to detect irregularities and ensure compliance. Furthermore, each registered representative must participate in a meeting with a designated supervisory person to discuss compliance matters. All transactions and retail communication related to solicitation must be reviewed and given written approval by a registered principal.

Also, member firms must maintain an Office of Supervisory Jurisdiction (OSJ) for any office location where the following activities occur:

  • Approval of new accounts
  • Approval of retail communication
  • Order execution
  • Custody of customer funds or securities
  • Review of customer orders

Each OSJ must also maintain records of customer complaints and what actions were taken to resolve each issue. A complaint is defined as any written statement of a customer or any person acting on behalf of a customer. Complaints allege a grievance involving the activities of those persons under the control of the member in connection with the solicitation or execution of any transaction or the disposition of securities or funds of that customer. Supervision of registered representatives includes the following issues:

  • Qualifications investigated - Members must investigate the good character, business repute, qualifications and experience of any person prior to making such a certification in the application of such person for registration.
     
  • Notice of outside employment - The representative must provide written notice to the member firm and the employing member must approve the outside employment before taking on any outside employment or business activity in order to ensure no conflict of interest arises from such activity.
     
  • Regulation of securities transactions - The member firm must be notified of any account opened for the representative at another securities firm, and may request duplicate account statements. Also, the representative must not participate in any private securities transactions without prior written notice to the employer. An exception to this rule exists for mutual fund accounts and variable contracts registered under the Investment Company Act of 1940.
FINRA Conduct Rule 2830: Investment Company Securities
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