Understanding FINRA Rule 3110
Financial Industry Regulatory Authority (FINRA) Rule 3110 requires every broker-dealer firm to establish, maintain, and enforce a supervisory system for its employees and activities that ensures compliance with federal and state securities laws, rules, and regulations. Rule 3110 contains a number of detailed provisions designed to prevent misconduct or fraud, which FINRA and the Securities and Exchange Commissions strictly enforce. Several of the most critical provisions include:
1) Establishment of Written Procedures
FINRA Rule 3110(a)(1) stipulates that broker-dealer firms must put their supervisory protocols in writing.
2) Designation of Supervising Principals
FINRA Rule 3110(a)(2) requires broker-dealer firms to assign “an appropriately registered principal(s)” to perform supervisory duties for every type of business the firm conducts. Principals are required to ensure the compliance of individual representatives as well as the firm as a whole. Relevant issues including the representatives’ character and qualifications, outside employment, and regulation of business transactions. Representatives may not engage in outside business activities or securities transactions without providing written notice to their supervising principals. Principals who fail to detect “red flags” of undisclosed outside activities may be subject to disciplinary action.
3) Designation of Offices of Supervisory Jurisdiction (OSJ)
FINRA Rule 3110(a)(3) requires member firms to register an office of supervisory jurisdiction (OSJ). OSJs are offices with supervisory responsibilities that have final approval of new accounts, structure new offerings, approve retail communication, review customer orders, and maintain custody of investor funds. OSJs must also retain records of customer complaints, written or otherwise.
4) Designation of OSJ and Non-OSJ Principals
FINRA Rule 3110(a)(4) requires member firms to designate one or more principals in each OSJ and one or more principals in each non-OSJ office. These principals are tasked with the supervision of activities, including the review of all retail transactions and communications, in their respective offices.
5) Annual Compliance Meetings
FINRA Rule 3110(a)(7) requires every registered representative and principal within a member firm to conduct, at least once a year, in a discussion of compliance matters. These meetings may be conducted in person or remotely, but member firms must ensure that each representative participates.
If you have complaints regarding a FINRA member firm that may have failed to properly supervise its representatives, call the securities and investment fraud law firm Fitapelli Kurta at (877) 238-4175 for a free consultation. You may be entitled to recoup lost funds. All cases are taken on a contingency basis: we only receive payment if and when you collect money. Time to file your claim may be limited, so we recommend you avoid delay. Call (877) 238-4175 now to speak to an attorney for free.