Section 4, Supervision Under FINRA Rules

Regulatory Inquiries

Requests from regulators for information and documentation; prohibited actions include altering/falsifying documents, failing to provide info timely, or knowingly giving incomplete information.

Who typically responds to regulatory inquiries at financial institutions?

Compliance or Legal Departments, with input and cooperation from employees.

Business Continuity Plan (FINRA Rule 4370)

A plan that member firms must establish, maintain, and update annually to address data backup/recovery, mission-critical systems, and financial/operational assessments; must be approved by senior management.

How must firms disclose their Business Continuity Plan?

In writing at account opening, posted on the website, and mailed to customers upon request.

Borrowing or Lending to Customers (FINRA Rule 3240)

Prohibited unless member has written procedures and one of the following: customer is immediate family, customer is a financial institution, customer and registered person are registered with same firm, or based on personal/business relationship outside the broker-dealer relationship.

Who is considered “immediate family” under FINRA rules?

Parents, grandparents, in-laws, spouse/domestic partner, siblings, children, grandchildren, cousins, aunts/uncles, nieces/nephews, and any person financially supported or residing in the same household, including step and adoptive relationships.

When is pre-approval required for borrowing/lending transactions?

When the transaction involves two registered persons in the same firm, or personal/business relationships outside the broker-dealer relationship.

Registered Person as Customer Beneficiary or Trustee (FINRA Rule 3241)

A registered person may act as beneficiary, executor, or trustee only if the customer is immediate family, or with written notice to and approval from the member firm; must comply with any conditions set by the firm.

Outside Business Activities (FINRA Rule 3270)

Registered persons must provide prior written notice to their member firm before accepting compensation from business activities outside their employment; passive investment income does not require notice.

Record of Written Complaints

Each member firm must maintain a separate file or clear reference of all written customer complaints and actions taken, preserved at each Office of Supervisory Jurisdiction (OSJ).

Complaint Definition

Any written statement from a customer (or their representative) alleging a grievance related to solicitation, execution of transactions, or disposition of securities/funds under the member’s control.

Who can register complaints against a broker-dealer?

SEC, FINRA, public customers, and other member firms.

Customer Complaint Record Retention

Must be kept for at least 4 years.

Chief Executive Officer Responsibilities

Must annually certify that the firm has processes to establish, maintain, review, test, and modify policies/procedures to ensure compliance with securities laws, regulations, and FINRA rules. #