what is finra rule 3110 requirements

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. 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. Did your firm follow its incident response plan for addressing such breaches? 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. (3) For each inspection conducted pursuant to paragraph (c), a member must: (A) have procedures reasonably designed to prevent the effectiveness of the inspections required pursuant to paragraph (c)(1) of this Rule from being compromised due to the conflicts of interest that may be present with respect to the location being inspected, including but not limited to, economic, commercial, or financial interests in the associated persons and businesses being inspected; and. A member must be especially diligent in establishing procedures and conducting reasonable reviews with respect to a non-branch location where a registered representative engages in securities activities. Please see Interpreting the Rules for more information. 2210. Communications with the Public | FINRA.org What factors does your firm consider when conducting due diligence on potential Vendors? The testing ensures that a firm's supervisory procedures are reviewed and amended regularly in light of changing business and regulatory environments. FINRA Rule 3110 (e) - Background Check Requirements FINRA Rule 3110 | How to Follow the FINRA 3110 Rule and Be Within FINRA Does your firm take a risk-based approach to vendor due diligence? FINRA's New Background Investigation Rule Will Likely Increase Firms (A) incoming and outgoing written (including electronic) correspondence to properly identify and handle in accordance with firm procedures, customer complaints, instructions, funds and securities, and communications that are of a subject matter that require review under FINRA rules and federal securities laws. Training staff to address and escalate red flags at your firm that a Vendor may not be performing an activity or function adequately, such as not receiving confirmation that a Vendor task was completed. New FINRA Rule 3110(b)(4) retains requirements under existing NASD Rule 3010 that members have supervisory procedures for the review of incoming and outgoing written and electronic correspondence relating to the member's investment banking or securities business. Effective Date of FINRA Rule 3110 (e): July 1, 2015; Effective Date of FINRA Rule 3110.15: April 24, 2014, to December 1, 2015 Notice Comments Subscribe to Updates Related Notices Notice Attachment Forms U4 and U5 Interpretive Questions and Answers Notice Type Regulatory Notice Notice Suggested Routing Compliance Human Resources Legal Operations FINRA is sharing this information for firms consideration only. FINRA will monitor this proposed guidance and consider comparable action, where appropriate. Books and Records Exchange Act Rules 17a-3 and 17a-4, FINRA Rule 3110 (b) (4) and FINRA Rule Series 4510 FINRA Rule4370(Business Continuity Plans and Emergency Contact Information) requires member firms to create and maintain a written BCP with procedures that are reasonably designed to enable member firms to meet their existing obligations to customers, counterparties and other broker-dealers during an emergency or significant business disruption. 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. They need to meet specific criteria: Does the scope and depth of your firms due diligence reflect the degree of risk associated with the activities or functions that will be outsourced? In conducting its review of a Form 8-T, the member shall take such action as may be deemed appropriate. FINRA expects member firms to develop reasonably designed cybersecurity programs and controls that are consistent with their risk profile, business model and scale of operations. FINRA Rules Related to Order Entry & Execution Practices Firms failed to perform adequate due diligence to verify Vendors ability to maintain books and records on behalf of member firms in compliance with Exchange Act Rules 17a-3 and 17a-4, as well as FINRA Rule3110(b)(4)(Review of Correspondence and Internal Communications) and FINRA Rule Series. FINRA Rule3110(Supervision) requires member firms to establish and maintain a system to supervise the activities of their associated persons that is reasonably designed to achieve compliance with federal securities laws and regulations, as well as FINRA rules, including maintaining written procedures to supervise the types of business in which it engages and the activities of its associated persons. Has your firm considered implementing multi-factor authentication for Vendors and, if warranted, their sub-contractors? Vendors data purges after termination of their relationship with firms; Vendors failing to correctly configure default retention periods resulting in inadvertent deletions of firm electronic communication for certain time periods; Vendors system configurations making deleted emails unrecoverable after 30 days; Vendors failing to provide non-rewriteable, non-erasable storage; and. Limited Testing of System Changes and Capacity Firms did not adequately test changes to, or system capacity of, order management, account access and trading algorithm systems, and thus failed to detect underlying malfunctions or capacity constraints. Rule 3210 (Accounts at Other Broker-Dealers and Financial Institutions) was approved by the Securities and Exchange Commission (SEC) in April 2016. WSPs should describe: 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. (G) responsibility for supervising the activities of persons associated with the member at one or more other branch offices of the member. (1) "Office of Supervisory Jurisdiction" means any office of a member at which any one or more of the following functions take place: (B) structuring of public offerings or private placements; (C) maintaining custody of customers' funds or securities; (D) final acceptance (approval) of new accounts on behalf of the member; (E) review and endorsement of customer orders, pursuant to paragraph (b)(2) above; (F) final approval of retail communications for use by persons associated with the member, pursuant to. In 2020, FINRA conducted a routine examination of Monmouth, at the conclusion of . (B) The term "investment banking services" shall include, without limitation, acting as an underwriter, participating in a selling group in an offering for the issuer, or otherwise acting in furtherance of a public offering of the issuer; acting as a financial adviser in a merger or acquisition; providing venture capital or equity lines of credit or serving as placement agent for the issuer or otherwise acting in furtherance of a private offering of the issuer. (B) The policies and procedures required by paragraph (c)(2)(A)(iv) must include a means or method of customer confirmation, notification, or follow-up that can be documented. (a) whether the on-site principal is qualified by virtue of experience and training to supervise the activities and associated persons in each location; (b) whether the on-site principal has the capacity and time to supervise the activities and associated persons in each location; (c) whether the on-site principal is a producing registered representative; (d) whether the OSJ locations are in sufficiently close proximity to ensure that the on-site principal is physically present at each location on a regular and routine basis; and. (vii) A temporary location established in response to the implementation of a business continuity plan. Brokerage firms come prepared for FINRA arbitration with their own legal team. (3) Institutional Communications Each member shall establish written procedures that are appropriate to its business, size, structure, and customers for the review by an appropriately qualified registered principal of institutional . How does your firm handle instances where your firm does not have the expertise or experience in-house? 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. Website Archiving to Meet SEC & FINRA Regulations - Pagefreezer Interpretive Letter to Evan Charkes, Citigroup Global Markets, Inc. NASD Office of General Counsel, Regulatory Policy and Oversight, Interpretive Letter to Lena M. Stinson, Stanford Group Company, Interpretive Letter to Franklin I. Ogele, Esq., Singer Zamansky LLP, Interpretive Letter to Laura Moret, American Express Financial Corporation, FINRA Orders Record Financial Penalties Against Robinhood Financial LLC, FINRA Orders Worden Capital Management LLC to Pay More than $1.2 Million in Restitution to Customers Whose Accounts Were Excessively Traded, FINRA Announces Interim Progress of Voluntary 529 Plan Share Class Initiative, FINRA Sanctions Transamerica Financial Advisors, Inc. $8.8 Million for Supervisory Violations Related to Variable Annuities, Mutual Funds and 529 Plans, FINRA Sanctions Wells Fargo Clearing Services, LLC and Wells Fargo Advisors Financial Network, LLC More Than $2 Million for Supervisory Violations Related to Variable Annuity Switches, FINRA, Cboe, Nasdaq, NYSE and Affiliated Exchanges Fine Credit Suisse Securities $6.5 Million for Supervision and Market Access Rule Violations, FINRA, NASDAQ, BX, PHLX, ISE, NYSE, NYSE Arca, NYSE American, Cboe, BZX, BYX, EDGA, and EDGX Permanently Bar Samuel Lek and Fine Lek Securities Corporation for Supervisory and Market Access Rule Violations, FINRA Fines BNP Paribas Securities Corp. and BNP Paribas Prime Brokerage, Inc. $15 Million for AML Program and Supervisory Failures, FINRA Orders Summit Brokerage Services, Inc. to Pay More Than $550,000 in Restitution to Customers Whose Accounts Were Excessively Traded, FINRA Launches New Initiative for Member Firms to Self-Report 529 Savings Plan Violations, FINRA Fines Morgan Stanley $10 Million for AML Program and Supervisory Failures, FINRA Fines Interactive Brokers $5.5 Million for Regulation SHO Violations and Supervisory Failures, FINRA Fines Aegis Capital Corp. $550,000 for Anti-Money Laundering and Supervision Rule Violations, FINRA Sanctions Morgan Stanley $13 Million in Fines and Restitution for Failing to Supervise Sales of UITs, FINRA Fines Merrill Lynch $2.8 Million for Systemic Reporting, Books and Records, and Related Supervisory Violations, FINRA Fines Ameriprise Financial Services, Inc. $850,000 for Failing to Supervise the Transmittal of Funds From Customer Brokerage Accounts, FINRA Sanctions Oppenheimer & Co. $2.9 Million for Unsuitable Sales of Non-Traditional ETFs and Related Supervisory Failures, FINRA Fines E*Trade Securities LLC $900,000 for Supervisory Violations Related to Best Execution and Protection of Customer Order Information, FINRA Fines Stephens Inc. $900,000 for Inadequate Supervision of Research Department "Flash" Emails, FINRA Sanctions Barclays Capital, Inc. $13.75 Million for Unsuitable Mutual Fund Transactions and Related Supervisory Failures, FINRA Sanctions Cantor Fitzgerald & Co. $7.3 Million for Selling Billions of Unregistered Microcap Shares, and for Related Supervisory and AML Violations, FINRA Sanctions Fidelity Brokerage Services LLC $1 Million for Supervisory Failures, FINRA Sanctions 12 Firms a Total of $6.7 Million for Failing to Apply Sales Charge Discounts to Customers' Purchases of UITs, FINRA Sanctions UBS Puerto Rico $18.5 Million for Supervisory Failures Regarding Sales of Puerto Rican Closed-End Funds and Related Loans, FINRA Fines Morgan Stanley Smith Barney and Scottrade a Total of $950,000 for Failing to Supervise the Transmittal of Customer Funds to Third-Party Accounts, FINRA Sanctions LPL Financial LLC $11.7 Million for Widespread Supervisory Failures Related to Complex Products Sales, Trade Surveillance and Trade Confirmations Delivery, FINRA Orders RBC to Pay Fine and Restitution Totaling More Than $1.4 Million for Unsuitable Sales of Reverse Convertibles, FINRA Sanctions Three Firms for Inadequate Supervision of Consolidated Reports, FINRA Sanctions Oppenheimer & Co. $3.75 Million for Supervisory Failures, FINRA Charges Wedbush Securities for Systemic Market Access Violations, Anti-Money Laundering and Supervisory Deficiencies, FINRA Fines COR Clearing LLC $1 Million for Extensive Regulatory Failures, FINRA Fines Banc One for Unsuitable Variable Annuity Sales, Inadequate Supervision of Fixed-to-Variable Annuity Exchanges. FINRA is establishing a temporary program that will issue a refund to members of Late Disclosure Fees assessed for the late filing of responses to Form U4 Question 14M (unsatisfied judgments or liens) if the Form U4 amendment is filed between April 24, 2014 and December 1, 2015 and one of the following conditions is met: (1) the judgment or lien has been satisfied, and at the time it was unsatisfied, it was under $5,000 and the date the judgment or lien was filed with a court (as reported on Form U4 Judgment/Lien DRP, Question 4.A.) FIRST is for informational purposes only and does not provide regulatory or compliance advice. Does your firm have a process for its decision-making on outsourcing, including the selection of Vendors? The Books and Records section of the 2023 Report on FINRAs Examination and Risk Monitoring Program (the Report) informs member firms compliance programs by providing annual insights from FINRAs ongoing regulatory operations, including (1) regulatory obligations and related considerations, (2) findings and effective practices, and (3) additional resources. Does your firms business continuity planning and testing include Vendors, NASD Office of General Counsel, Regulatory Policy and Oversight Interpretive Guidance, 2021 Report on FINRAs Examination and Risk Monitoring Program, 2019 Report on FINRA Examination Findings and Observations, 2018 Report on FINRA Examination Findings, 2017 Report on FINRA Examination Findings, Core Cybersecurity Controls for Small Firms, Ursula Clay, Senior Vice President and Chief of Staff, Member Supervision, at 646-315-7375 or by, Sarah Kwak, Associate General Counsel, Office of General Counsel, at 202-728-8471 or by, Michael MacPherson, Senior Advisor, Member Supervision, at 646-315-8449 or by. Firms may wish to evaluate the questions presented below in the context of a risk-based approach to Vendor management in which the breadth and depth of their due diligence and oversight may vary based on the activity or function outsourced to a Vendor. Based on the factors outlined above, members may need to impose reasonably designed supervisory procedures for certain locations or may need to provide for more frequent reviews of certain locations. I. If a member establishes a longer periodic inspection schedule, the member must document in its written supervisory and inspection procedures the factors used in determining that a longer periodic inspection cycle is appropriate. Access Management Firms failed to implement effective Vendor access controls, including: limiting and tracking Vendors with administrator access to firm systems; instituting controls, such as a policy of least privilege, to grant system and data access to Vendors only when required and removing access when no longer needed; or implementing multi-factor authentication for Vendors and contractors. Specifically, FINRA temporarily suspended the requirement for member firms to submit branch office applications on Form BR for . A member's main office location is required to be registered and designated as a branch office or OSJ if it meets the definitions of a "branch office" or "office of supervisory jurisdiction" as set forth in Rule 3110(f). Rule 3110.17, as amended, becomes operative on July 1, 2022 and does not extend to a member's inspection requirements beyond December 31, 2022. (3) The registration and designation as a branch office or an office of supervisory jurisdiction (OSJ) of each location, including the main office, that meets the definitions contained in paragraph (f) of this Rule. In fulfilling its obligations pursuant to Rule 3010 (c), each member must conduct a review, at least annually, of the businesses in which it engages, which review must be reasonably designed to assist in detecting and preventing violations of and achieving compliance with applicable securities laws and regulations and with NASD Rules. The supervisory procedures required by this paragraph (b) shall include procedures to capture, acknowledge, and respond to all written (including electronic) customer complaints. (2) Each member must conduct promptly an internal investigation into any such trade to determine whether a violation of those laws or rules has occurred. (B) within five business days of completion of an internal investigation pursuant to paragraph (d)(2) in which it was determined that a violation of the provisions of the Exchange Act, the rules thereunder, or FINRA rules prohibiting insider trading and manipulative and deceptive devices had occurred, a written report detailing the completion of the investigation, including the results of the investigation, any internal disciplinary action taken, and any referral of the matter to FINRA, another self-regulatory organization, the SEC, or any other federal, state, or international regulatory authority. Fixed Income Mark-up Disclosure Firms failed to test whether Vendors identified the correct prevailing market price (PMP) from which to calculate mark-ups and mark-downs (for example, instead of using the prices of a member firms own contemporaneous trades, which were available to be considered, a Vendors program incorrectly identified PMPs using lower levels of the waterfall as described in FINRA Rule2121.02(Additional Mark-Up Policy For Transactions in Debt Securities, Except Municipal Securities) orMSRB Rule G-30.06 (Mark-Up Policy). Confirm the accuracy and completeness of information provided by Vendors to regulators, including FINRA, both in response to specific requests and as part of regular trade and other reporting obligations, causing inaccurate responses and misreported transactions, order reports, route reports and reportable order events. Supervisory Control System Versions Jan 01, 2023 onwards Subscribe to Updates 42 Id. The Books and Records section of the 2021 Report on FINRAs Risk Monitoring and Examination Activities (the Report) informs member firms compliance programs by providing annual insights from FINRAs ongoing regulatory operations, including (1) relevant regulatory obligations and related considerations, (2) exam findings and effective practices, and (3) additional resources. IM-3010-1. Standards for Reasonable Review | FINRA.org (B) a record, preserved by the member for a period of not less than three years, the first two years in an easily accessible place, of the names of all persons who are designated as supervisory personnel and the dates for which such designation is or was effective. (B) Each member shall inspect at least every three years every branch office that does not supervise one or more non-branch locations. Supervision The Rule Notices Guidance News Releases FAQs Related Links Firms must review: (1) Incoming and outgoing written correspondence to identify and handle customer complaints, instructions, funds and securities and communications whose subject matter requires review under FINRA rules and federal securities laws; and According to the Security and Exchange Commission (SEC) Rule 17a-4, broker-dealers in the financial services industry are required to retain and index electronic correspondences, including email, with immediate accessibility for a period of two years and with non-immediate access for at least six years. The Books and Records section of the 2022 Report on FINRAs Risk Monitoring and Examination Activities (the Report) informs member firms compliance programs by providing annual insights from FINRAs ongoing regulatory operations, including (1) relevant regulatory obligations and related considerations, (2) exam findings and effective practices, and (3) additional resources. In establishing such schedule, the member shall consider the nature and complexity of the securities activities for which the location is responsible and the nature and extent of contact with customers. The SEC approved FINRA's new consolidated rules governing supervision.1 The new Rules 3110, 3120, 3150 and 3170 replace NASD Rules 3010, 3012 and 3110(i) and other corresponding NYSE rule provisions.2 The new rules becomeeffective on December 1, 2014. 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. Each member shall develop and implement a written anti-money laundering program reasonably designed to achieve and monitor the member's compliance with the requirements of the Bank Secrecy Act (31 U.S.C. The text of the new rules is available at www.finra.org/notices/14-10. 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). (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. Usage or reliance on this tool is not a defense to a failure to comply with the FINRA rules. Does your firm consider obtaining evaluations of prospective Vendors SSAE 18, Type II, SOC 2 (System and Organization Control) reports (if available)? (D) If a member does not engage in all of the activities enumerated in paragraphs (c)(2)(A)(i) through (c)(2)(A)(v) at the location being inspected, the member must identify those activities in the member's written supervisory procedures or the location's written inspection report and document in the member's written supervisory procedures or the location's written inspection report that supervisory policies and procedures for such activities must be in place at that location before the member can engage in them. inspection requirements. The member shall also review an applicant's employment experience to determine if the applicant has been recently employed by a Futures Commission Merchant or an Introducing Broker that is notice-registered with the SEC pursuant to Section 15(b)(11) of the Exchange Act. Members will not be able to use the program after December 1, 2015. timely notification to your firm of application or system changes that will materially affect your firm. Does your firm assess the Vendors ability to protect sensitive firm and customer non-public information and data? (v) Any location that is used primarily to engage in non-securities activities and from which the associated person(s) effects no more than 25 securities transactions in any one calendar year; provided that any retail communication identifying such location also sets forth the address and telephone number of the location from which the associated person(s) conducting business at the non-branch locations are directly supervised; (vi) The Floor of a registered national securities exchange where a member conducts a direct access business with public customers; or. What would be the extent of the potential damage if there is a security breach (. (A) Each member shall inspect at least annually (on a calendar-year basis) every OSJ and any branch office that supervises one or more non-branch locations. If there is a disaster recovery event, has your firm assessed whether the Vendor will have sufficient staff dedicated to your firm? Each member shall review the activities of each office, which shall include the periodic examination of customer accounts to detect and prevent irregularities or abuses. Such procedures shall, at a minimum, provide for a search of reasonably available public records to be conducted by the member, or a third-party service provider, to verify the accuracy and completeness of the information contained in the applicant's initial or transfer Form U4. If the applicant previously has been registered with FINRA or another self-regulatory organization, the member shall review a copy of the applicant's most recent Form U5, including any amendments thereto, within 60 days of the filing date of an application for registration, or demonstrate to FINRA that it has made reasonable efforts to do so. A copy of a member's written supervisory procedures, or the relevant portions thereof, shall be kept and maintained in each OSJ and at each location where supervisory activities are conducted on behalf of the member. Note that following these WSP Checklist templates do not guarantee compliance with FINRA Supervisory Procedure Rules or provide a safe harbor from regulatory responsibility. SR-FINRA-2021-023 A member is not required to conduct in-person meetings with each registered person or group of registered persons to comply with the annual compliance meeting (or interview) required by Rule 3110(a)(7). PDF SECURITIES AND EXCHANGE COMMISSION and Rule filed with the Securities Merely opening a communication is not sufficient review. .01 Registration of Main Office. The names of the persons who prepared outgoing correspondence and who reviewed the correspondence shall be ascertainable from the retained records, and the retained records shall be readily available to FINRA, upon request.
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