FINRA Rule 3110: Supervision

Effective supervision is essential to maintaining investor confidence and upholding the integrity of financial markets. FINRA Rule 3110, titled “Supervision,” establishes the minimum standards for supervisory systems used by broker-dealers and other FINRA member firms. It requires firms to develop and enforce written procedures to supervise business activities, monitor communications, and ensure compliance with regulatory requirements. Understanding this rule is critical for firms looking to minimize risk, prevent misconduct, and demonstrate a strong culture of compliance. Below is everything you need to understand FINRA Rule 3110.

What is FINRA Rule 3110?

FINRA Rule 3110 outlines the supervisory obligations for FINRA member firms. The rule requires each firm to establish and maintain a supervisory system that ensures compliance with federal securities laws and FINRA rules. It serves as a cornerstone of regulatory oversight, promoting accountability, risk management, and investor protection.

Who does FINRA 3110 apply to?

FINRA 3110 applies to all FINRA member firms, including broker-dealers and their associated persons. This includes firms of all sizes — from large investment banks to small retail brokerages — engaged in securities trading, investment advising, or any activity governed by FINRA regulations.

Key provisions of FINRA 3110

To comply with Rule 3110, firms must develop and implement a supervisory system that includes:

Written supervisory procedures (WSPs) (3110(b)(7)): Comprehensive written policies and procedures that guide how supervisory responsibilities are carried out.
Designated supervisors: Assignment of qualified personnel to supervise activities and individuals.
Internal inspections: Regular internal inspections of branch offices and business operations to detect and prevent regulatory violations.
Review of correspondence and communications (3110(b)(4)): Oversight of incoming and outgoing written and electronic communications to ensure they meet compliance standards.
Monitoring customer account activity: Supervision of customer transactions to identify potentially suspicious or unauthorized activity.

Penalties for violating FINRA 3110

Failure to comply with FINRA 3110 can result in serious consequences, including:

Fines and monetary sanctions
Suspension or expulsion of firms or individuals
Increased regulatory scrutiny and audits
Reputational harm

Enforcement actions frequently involve firms that fail to implement adequate supervision over electronic communications or to conduct timely inspections and reviews.

Best practices for FINRA 3110 compliance

To stay compliant, RIAs should:

Implement a comprehensive communications retention policy covering digital channels permitted for use by employees for business purposes
Conduct regular audits of their recordkeeping practices and potential use of unapproved communications tools
Provide ongoing compliance training for employees and advisers
Ensure stored records are complete and accurate
Monitor electronic communications across email, mobile messaging, social media, and collaboration platforms for regulatory, legal and internal policy infractions

Subsections of FINRA Rule 3110

How Smarsh helps firms comply with FINRA 3110

Smarsh offers powerful tools and solutions to help your firm meet the requirements of Rule 3110 and maintain a robust supervisory program:

Archiving and retention: Automatically capture, archive, and retain email, instant messages, social media, and other digital communications across multiple channels.
Supervision and review tools: Efficiently review and monitor communications for compliance with WSPs using customizable workflows and advanced search capabilities.
AI-powered surveillance: Use machine learning to detect potentially risky or non-compliant behavior in communications before it becomes a problem.
Audit-ready reports: Maintain comprehensive audit trails and generate reports to demonstrate supervisory activity and regulatory readiness.
Cloud-scalable infrastructure: Whether your firm is growing or adapting to hybrid work, Smarsh solutions scale securely and cost-effectively.

FINRA Rule 3110: Supervision