FINRA 3110 & 3120 — Supervision & Supervisory Control System

New FINRA compliance rules 3110, 3120, 3150 and 3170 replace NASD Rules 3010, 3012 and 3110(i) and other corresponding NYSE rule provisions. The new rules became effective on December 1, 2014.

FINRA compliance rule 3110 requires firms to maintain a system to supervise transactions and correspondence with their users. Companies should establish and maintain a supervisory system with written procedures, reviewing business-related incoming and outgoing electronic correspondence, including customer complaints, and internal communications on a regular basis. The supervisory procedures must be appropriate for the member’s business, size, structure, and customers.

The rule indicates that the supervisory system should meet the following minimum requirements:

(1) The establishment and maintenance of written procedures

(2) The designation of an appropriately registered principal(s) with authority to carry out the supervisory responsibilities

(3) The registration and designation as a branch office or an office of supervisory jurisdiction (OSJ) of each location, including the main office

(4) The designation of one or more appropriately registered principals in each OSJ and one or more appropriately registered representatives or principals in each non-OSJ branch office with authority to carry out the supervisory responsibilities assigned to that office by the member.

(5) The assignment of each registered person to an appropriately registered representative(s) or principal(s) who shall be responsible for supervising that person’s activities.

(6) The use of reasonable efforts to determine that all supervisory personnel are qualified to carry out their assigned responsibilities.

(7) Each member shall conduct a review, at least annually (on a calendar-year basis), of the businesses in which it engages. The review shall be reasonably designed to assist the member in detecting and preventing violations of, and achieving compliance with, applicable securities laws and regulations, and with applicable FINRA rules and should result in a written report that is kept on file for a minimum of three years.

The written inspection report must include, without limitation, the testing and verification of the member’s policies and procedures, including supervisory policies and procedures in the following areas:
(i) safeguarding of customer funds and securities;
(ii) maintaining books and records;
(iii) supervision of supervisory personnel;
(iv) transmittals of funds
(v) changes of customer account information

8) Each member shall include in its supervisory procedures a process for the review of securities transactions that are reasonably designed to identify trades that may violate the provisions of the Exchange Act, the rules thereunder, or FINRA rules prohibiting insider trading and manipulative and deceptive device

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