Broker-Dealer Consolidated Report Enforcement Actions

Are Your Internal Controls, Written Procedures and Supervisory Reviews Enough?Reports

If you have reviewed the enforcement actions filed by FINRA related to the use of consolidated reports by broker-dealers, you are probably wondering if you are doing enough to protect your firm.  Here is what you need to know to help make that determination.

Consolidated reports are deemed to be communications with clients and are governed by FINRA Rule 2210, Communications with the Public.

FINRA Regulatory Notice 10-19 cautioned that inadequately supervised consolidated reports can produce inaccurate, confusing or misleading information, and that firms that cannot supervise the creation and dissemination of these reports must prohibit the use of these reports. Other regulatory considerations for consolidated reports include internal controls, record retention, privacy and safeguarding client information.

Is Your Consolidated Reporting Compliant?  

Firms that permit the use of consolidated reports must:

  • Provide training to RRs and staff and develop written procedures to govern this activity, including the use of third-party vendor programs and templates
  • For those firms that do not utilize third-party vendors, templates must be created and populated electronically and/or by a partial manual means. Reports utilizing this method must be reviewed and approved by a supervisor/compliance prior to use by the RR.
  • Ensure consolidated reports are clear concise and do not contain inaccurate or misleading information
  • Undertake “reasonable” efforts to verify the value of assets held away from the broker-dealer. Should an accurate valuation not be available, the broker-dealer must indicate the valuation is unable to be verified.
  • Ensure consolidated reports cannot be utilized as a substitute for client statements that must be provided to the client.
  • All reports provided to clients are maintained pursuant to the books and records provisions of SEC Rule 17a-4.
  • Construct a program providing supervisory review of approved consolidated reports and unapproved/unauthorized use of consolidated reports at both the home office. Consolidated reports should also be reviewed as part of an effective branch office examination program.

Consolidated reports can be an effective means for providing clients with information in one document on multiple accounts held at a broker-dealer and held away. However, broker-dealers should ensure their procedures for developing and delivering these reports meet regulatory requirements.

Oyster Consulting offers our broker-dealer clients a wide array of services. Our team is made up of experienced industry practitioners, not career consultants who have faced the same obstacles you do. From enhancing and testing your Written Supervisory Procedures to training, we can help.

Don’t jeopardize your business by not understanding the latest regulatory news.  Click here to learn our current views on this topic, or for a consultation.

About the Author:
Bill Reilly leverages his examination expertise and relationships with state and federal regulators and self-regulatory organizations to guide broker-dealers and investment advisers through both proactive and reactive regulatory processes and compliance issues. Among others Bill conducts FINRA Rule 3120, Supervisory Control Reviews, Annual Compliance Reviews for federally and state-covered investment advisers, creates and/or updates policies and procedures for opening and monitoring senior and vulnerable adult client accounts, has been retained as an expert witness by law firms representing industry participants in arbitrations and regulatory matters, updates policies and procedures for both broker dealer and investment advisers, and acts as an independent third party in reviewing firm activity prior to and as a result of regulatory actions and settlements.

 

LinkedIn
RSS
Facebook
Twitter
Google+

LEAVE A COMMENT