what is finra rule 3110 requirements

.17 Temporary Relief to Allow Remote Inspections for Calendar Year 2020 and Calendar Year 2021. Does your firm consider obtaining evaluations of prospective Vendors SSAE 18, Type II, SOC 2 (System and Organization Control) reports (if available)? (C) If a member determines that compliance with paragraph (c)(3)(B) is not possible either because of a member's size or its business model, the member must document in the inspection report both the factors the member used to make its determination and how the inspection otherwise complies with paragraph (c)(1). . Oversee, monitor and evaluate changes and upgrades to automated rebalancing and fee allocation functions outsourced to a Vendor for wealth management accounts custodied at the firm, causing errors and imposing additional fees to customer accounts; Review, test or verify the accuracy and completeness of data feeds from Vendors that failed to identify the firms prior role in transactions for issuers covered by firm research reports, resulting in violations of then NASD Rule 2711(h) and 2241(c) when the firm failed to make required disclosures in its equity research reports regarding its status as a manager or a co-manager of a public offering of the issuers equity securities; and. Violations of FINRA Rule 3110, as well as Exchange Act Rule 15l-1, also constitute a violation of FINRA Rule 2010. Do your firms WSPs address roles and responsibilities for firm staff who supervise Vendor activities? Is the Vendor performing a business-critical role or fulfilling a regulatory requirement for the firm? FINRA published its 2022 Annual Financial Report, which describes how FINRA managed its finances in 2022.Read the report to learn more about the key drivers of FINRA's 2022 financial performance. The 2021 Report on FINRAs Exam and Risk Monitoring Program, as well as our 2019, 2018 and 2017 Reports on FINRA Examination Findings, addressed compliance deficiencies (discussed below) arising from firms Vendor relationships. SR-FINRA-2021-023 .13 General Presumption of Three-Year Limit for Periodic Inspection Schedules. 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. ), Chip Jones and Susan Schroeder discuss the 529 Plan Share Class Initiative. 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. deciding to outsource an activity or function. FINRA disciplined firms for violations of Books and Records rules and related supervisory obligations involving Vendors, including, but not limited to, failing to preserve and produce business-related electronic communications (including emails, social media, texts, instant messages, app-based messages and video content) due to: The following questions may help firms evaluate whether their supervisory control system, including WSPs, adequately addresses issues and risks relating to Vendor management. (D) procedures reasonably designed to prevent the supervisory system required pursuant to paragraph (a) of this Rule from being compromised due to the conflicts of interest that may be present with respect to the associated person being supervised, including the position of such person, the revenue such person generates for the firm, or any compensation that the associated person conducting the supervision may derive from the associated person being supervised. PDF SECURITIES AND EXCHANGE COMMISSION and Rule filed with the Securities Supervisory Control System Versions Jan 01, 2023 onwards Subscribe to Updates Brokerage firms come prepared for FINRA arbitration with their own legal team. Posted on December 17, 2021 FINRA Rule 3110 (a) (7) requires all registered representatives and registered principals to participate, at least once each year, in an interview or meeting at which compliance matters relevant to their particular activities are discussed. Rule 3210 (Accounts at Other Broker-Dealers and Financial Institutions) was approved by the Securities and Exchange Commission (SEC) in April 2016. the supervisory activities such persons will perform, AML Supervisors: Understanding Your Role, AML Supervisors: Understanding Your Role Vol. timely notification to your firm of application or system changes that will materially affect your firm. FINRA's Office of General Counsel (OGC) staff provides broker-dealers, attorneys, registered representatives, investors and other interested parties with interpretative guidance relating to FINRAs rules. (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. Annual Compliance Meeting (ACM) - MasterCompliance FINRA expects member firms to develop reasonably designed supervisory systems appropriate to their business model and scale of operations that address technology governance-related risks, such as those inherent in firms change and problem-management practices. Risk-based methodologies and sampling may be used to determine the scope of testing. Failure to do so can expose firms to operational failures that may compromise their ability to serve their customers or comply with a range of rules and regulations, including FINRA Rules4370(Business Continuity Plans and Emergency Contact Information),3110(Supervision) andbooks and records requirements under 4511(General Requirements), as well as SecuritiesExchange Act of 1934 (Exchange Act) Rules 17a-3 and 17a-4. 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. FINRA also notes that the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency recently published and requested comment on proposed guidance designed to help banking organizations manage risks associated with third-party relationships. Does your firm take a risk-based approach to vendor due diligence? 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 (7) The participation of each registered representative and registered principal, either individually or collectively, no less than annually, in an interview or meeting conducted by persons designated by the member at which compliance matters relevant to the activities of the representative(s) and principal(s) are discussed. 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. Office Registration Form) and FINRA Rule 3110(c) inspection requirements. Merely opening a communication is not sufficient review. Nov. 6, 2020. 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 firm identify risks that may arise from outsourcing a particular activity or function and consider the impact of such outsourcing on its ability to comply with federal securities laws and regulations, and FINRA rules? The procedures established and reviews conducted must provide that the quality of supervision at remote locations is sufficient to ensure compliance with applicable securities laws and regulations and with FINRA rules. A member's determination that it is not possible to comply with paragraphs (b)(6)(C)(i) or (b)(6)(C)(ii) of Rule 3110 prohibiting supervisory personnel from supervising their own activities and from reporting to, or otherwise having compensation or continued employment determined by, a person or persons they are supervising generally will arise in instances where: .11 Use of Electronic Media to Communicate Written Supervisory Procedures. (a) whether registered persons at the location engage in retail sales or other activities involving regular contact with public customers; (b) whether a substantial number of registered persons conduct securities activities at, or are otherwise supervised from, such location; (c) whether the location is geographically distant from another OSJ of the firm; (d) whether the member's registered persons are geographically dispersed; and. Location) under FINRA Rule 3110 (Supervision) that would align FINRA's definition of an office of supervisory jurisdiction ("OSJ") and the classification of a location that supervises . 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? A member that chooses to conduct compliance meetings using other methods (e.g., on-demand webcast or course, video conference, interactive classroom setting, telephone, or other electronic means) must ensure, at a minimum, that each registered person attends the entire meeting (e.g., an on-demand annual compliance webcast would require each registered person to use a unique user ID and password to gain access and use a technology platform to track the time spent on the webcast, provide click-as-you go confirmation, and have an attestation of completion at the end of a webcast) and is able to ask questions regarding the presentation and receive answers in a timely fashion (e.g., an on-demand annual compliance webcast that allows registered persons to ask questions via an email to a presenter or a centralized address or via a telephone hotline and receive timely responses directly or view such responses on the member's intranet site). 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. The supervisory procedures must be appropriate for the member's business, size, structure, and customers. The questionswhich address both regulatory requirements and effective practices FINRA has observed firms implementfocus on four phases of a firms outsourcing activities: As noted above, firms should not infer any new obligations from the questions for consideration. .10 Supervision of Supervisory Personnel. All correspondence is subject to the supervision and review requirements of Rules 3110(b) and 3110.06 through .09. This supervisory obligation extends to member firms outsourcing of certain covered activitiesactivities or functions that, if performed directly by a member firm, would be required to be the subject of a supervisory system and WSPs pursuant to FINRA Rule 3110.2, Notice 05-48 reminds member firms that outsourcing an activity or function to [a Vendor] does not relieve members of their ultimate responsibility for compliance with all applicable federal securities laws and regulations and [FINRA] and MSRB rules regarding the outsourced activity or function. Further, Notice 05-48 states that if a member outsources certain activities, the member's supervisory system and [WSPs] must include procedures regarding its outsourcing practices to ensure compliance with applicable securities laws and regulations and [FINRA] rules.". 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. While the manner and frequency by which these activities or functions are overseen is determined by the member firm, and is dependent on a number of factors, the information in this Notice is intended to provide firms with ideas and questions they can use to build and evaluate the sufficiency of their Vendor management protocols. The Best Execution, Outside Business Activities and Private Securities Transactions, Private Placements, and Reg BI and Form CRS sections 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 firm assess the BCPs of prospective Vendors that would perform critical business, operational, risk management or regulatory activities or functions? Rule 3110 Rule 3120 Rule 3130 Rule 3170 Rule 3210 . conducting due diligence on prospective Vendors. Regulatory Notice 21-29 | FINRA.org The Suitability section of the 2019 Report on Exam Findings informs member firms compliance programs by describing recent findings and observations from FINRAs examinations, and, in certain cases, also providing a summary of effective practices. (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. and administration functions (e.g., human resources, internal audits, etc. (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. Home Office: Finra Sends Rule Proposal on Remote Work - AdvisorHub interested persons. Here are some of the priorities pertaining to communications compliance in 2021: Books and Records Communications with the Public Cybersecurity and Technology Governance Outside Business Activities (OBA) Regulation Best Interest and Form CRS 1. Disclaimer: The summary and detailed topics are only available for, FINRA operates the largest securities dispute resolution forum in the United States, To report on abuse or fraud in the industry. (C) The policies and procedures required by paragraph (c)(2)(A)(v) must include, for each change processed, a means or method of customer confirmation, notification, or follow-up that can be documented and that complies with SEA Rules 17a-3(a)(17)(i)(B)(2) and 17a-3(a)(17)(i)(B)(3). FINRA disciplined certain firms that violated FINRA Rules 2010 and 3110, among other rules, when they failed to establish and maintain supervisory procedures for their Vendor arrangements reasonably designed to: As noted throughout this Notice, the requirement that a member firm maintain a reasonably designed supervisory system and associated WSPs extends to activities or functions it may outsource to a Vendor. (3) surveillance and follow-up to ensure that such procedures are implemented and followed. Each member shall retain the internal communications and correspondence of associated persons relating to the member's investment banking or securities business for the period of time and accessibility specified in SEA Rule 17a-4(b). Registered representatives can fulfill Continuing Education requirements, view their industry CRD record and perform other compliance tasks. (C) Each member shall inspect on a regular periodic schedule every non-branch location. Rules & Guidance | FINRA.org Disciplinary Actions FINRA publishes disciplinary actions to remind registered representatives and firms of specific conduct that violates FINRA rules and may result in disciplinary action. Final responsibility for proper supervision shall rest with the member. The rule also requires the firm's chief executive officer(s) (CEO(s)) to certify annually that the firm has in place processes to establish, maintain, review, test and modify policies and procedures reasonably designed to achieve compliance with applicable securities laws and regulations and FINRA rules. I. Does your firms supervisory control system address your firms outsourcing practices, including your firms approach to Vendor due diligence? (2) An inspection and review by a member pursuant to paragraph (c)(1) must be reduced to a written report and kept on file by the member for a minimum of three years, unless the inspection is being conducted pursuant to paragraph (c)(1)(C) and the regular periodic schedule is longer than a three-year cycle, in which case the report must be kept on file at least until the next inspection report has been written. a. .02 Designation of Additional OSJs. PDF FINANCIAL INDUSTRY REGULATORY AUTHORITY LETTER OF - FINRA.org The Outside Business Activities and Private Securities Transactions 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. FINRA, OGC Many of the reports, tools or methods described herein reflect information firms have told FINRA they find useful in their vendor management practices. Each member shall also retain a written record of the date upon which each review and inspection is conducted. FINRA RULE 3110 (SUPERVISION) - The White Law Group Rules Enforcement In its enforcement capacity, FINRA has the power to take disciplinary actions against registered individuals or firms that violate its rules. In the course of the supervision and review of correspondence and internal communications required by Rule 3110(b)(4), a supervisor/principal may delegate certain functions to persons who need not be registered. Firms failed to confirm that service contracts and agreements comply with requirements to provide notification to FINRA under Exchange Act Rule 17a-4(f)(2)(i), including a representation that the selected electronic storage media (ESM) used to maintain firms books and records meets the conditions of Exchange Act Rule 17a-4(f)(2) and a third-party attestation as set forth in Exchange Act Rule 17a-4(f)(3)(vii) (collectively, ESM Notification Requirements). SEC Regulation S-P Rule 30 requires broker-dealers to have written policies and procedures that address administrative, technical and physical safeguards for the protection of customer records and information that are reasonably designed to: (1) ensure the security and confidentiality of customer records and information; (2) protect against any anticipated threats or hazards to the security or integrity of customer records and information; and (3) protect against unauthorized access to or use of customer records or information that could result in substantial harm or inconvenience to any customer. 2, Annual Compliance Reminders for Supervisors Vol. 10 3110.19, and that the member should consider evidencing steps taken to address those red flags ). Since that time, including during the COVID-19 pandemic, member firms have continued to expand the scope and depth of their use of technology and have increasingly leveraged Vendors to perform risk management functions and to assist in supervising sales and trading activity and customer communications.1. 58 sec. If a member determines it is necessary to designate and assign one appropriately registered principal to be the on-site principal pursuant to Rule 3110(a)(4) to supervise two or more OSJs, the member must take into consideration, among others, the following factors: The member must establish, maintain, and enforce written supervisory procedures regarding the supervision of all OSJs. 1735 K Street, NW This follow-up to the September 2021 targeted exam (sweep) of firms practices related to their acquisition of customers through social media channels and their sharing of customers usage information with affiliates and non-affiliated third parties summarizes selected practices FINRA has observed firms implement to this point in the sweep. In 2020, it initiated 808. It was rolled out in. Arbitration and mediation case participants and FINRA neutrals can view case information and submit documents through this Dispute Resolution Portal. Please visit our e-learning courses page to register for one or more of the following courses. By employing risk-based principles, a member must decide the extent to which additional policies and procedures for the review of: .07 Evidence of Review of Correspondence and Internal Communications. This Noticeincluding the Questions for Consideration belowdoes not create new legal or regulatory requirements or new interpretations of existing requirements. Does your firm document its due diligence findings? Does your firm review, and as appropriate adjust, Vendor tool default features and settings, such as to limit use of communication tools to specific firm-approved features (. Does your firm implement access controls through the lifecycle of its engagement with Vendors, including developing a policy of least privilege to grant Vendors system and data access only when required and revoke it when no longer needed and upon termination? The Outside Business Activities and Private Securities Transactions 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. PDF SECURITIES AND EXCHANGE COMMISSION Supervisory Location) under FINRA (1) Each member shall conduct a review, at least annually (on a calendar-year basis), of the businesses in which it engages. Did your firm follow its incident response plan for addressing such breaches? In making a determination as to whether to designate a location as an OSJ, the member should consider the following factors: .03 Supervision of Multiple OSJs by a Single Principal. FINRA is publishing this Notice to remind member firms of their obligation to establish and maintain a supervisory system, including written supervisory procedures (WSPs), for any activities or functions performed by third-party vendors, including any sub-vendors (collectively, Vendors) that are reasonably designed to achieve compliance with applicable securities laws and regulations and with applicable FINRA rules. FINRA establishes. 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. Arbitration and mediation case participants and FINRA neutrals can view case information and submit documents through this Dispute Resolution Portal. The Outside Business Activities and Private Securities Transactions section of the 2017 Report on Exam Findings informs member firms compliance programs by describing recent findings and observations from FINRAs examinations, and, in certain cases, also providing a summary of effective practices. Such interview or meeting may occur in conjunction with the discussion of other matters and may be conducted at a central or regional location or at the representative's(') or principal's(') place of business. (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. NASD Rule 3010(a)(7) - Annual Compliance Meeting. The Supervision section of the 2019 Report on Exam Findings informs member firms compliance programs by describing recent findings and observations from FINRAs examinations, and, in certain cases, also providing a summary of effective practices. In conducting its review of a Form 8-T, the member shall take such action as may be deemed appropriate. Three FINRA rules form a regulatory scheme addressing the supervision of firms and their associated persons. (3) A member engaging in investment banking services must file with FINRA, written reports, signed by a senior officer of the member, at such times and, without limitation, including such content, as follows: (A) within ten business days of the end of each calendar quarter, a written report describing each internal investigation initiated in the previous calendar quarter pursuant to paragraph (d)(2), including the identity of the member, the date each internal investigation commenced, the status of each open internal investigation, the resolution of any internal investigation reached during the previous calendar quarter, and, with respect to each internal investigation, the identity of the security, trades, accounts, associated persons of the member, or associated person of the member's family members holding a covered account, under review, and that includes a copy of the member's policies and procedures required by paragraph (d)(1). Obtaining representations from the Vendor in a contractual agreement that they are conducting self-assessments and undertaking the specific responsibilities identified; Requiring Vendors to provide attestations or certifications that they have fulfilled certain reviews or obligations; Going onsite to Vendors to conduct testing or observation, depending on the firms familiarity with the vendor or other risk-based factors; Monitoring and assessing the accuracy and quality of the Vendors work product; Remaining aware of news of Vendor deficiencies and investigating whether they are indicative of a problem with an activity or function the Vendor is performing for your firm; Investigating customer complaints that may be indicative of issues with a Vendor and exploring whether there are further-reaching impacts; and. non-disclosure and confidentiality of information; protection of non-public, confidential and sensitive firm and customer information; ownership and disposition of firm and customer data at the end of the Vendor relationship; notification to your firm of cybersecurity events and the Vendors efforts to remediate those events, as well as notification of data integrity and service failure issues; Vendor BCP practices and participation in your firms BCP testing, including frequency and availability of test results; disclosure of relevant pending or ongoing litigation; relationships between Vendors, sub-contractors and other third-parties; firm and regulator access to books and records; and.

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