Supervisory Controls Testing – Is Rule 3120 On Your To-Do List?

The beginning of the year is often a time for getting organized; reviewing and updating your firm’s compliance calendar to include FINRA’s required annual supervisory controls testing and reporting should be on your to-do list.  FINRA Rule 3120 requires broker-dealers to have in place a system of policies and procedures that annually test and verify firm supervisory controls procedures.  Firms must also create or amend Written Supervisory Procedures identified as necessary by this testing.

A comprehensive review of your firm’s supervisory procedures, including the testing and verification of those procedures should include:

• Procedures to review and supervise client account activity conducted by your firm’s branch office managers, sales managers, regional or district sales managers, or any person performing a similar supervisory function;
• Transmittals of funds (e.g., wires or checks, etc.) or securities from clients to third-party accounts (i.e., a transmittal that would result in a change of beneficial ownership); from client accounts to outside entities (e.g., banks, investment companies, etc.); from client accounts to locations other than a client’s primary residence (e.g., Post Office Box or “in care of” accounts, alternate addresses, etc.); and between clients and registered representatives, including the hand-delivery of checks;
• Client changes of address and the validation of such changes of address;
• Client changes to investment objectives and the validation of such changes of investment objectives;
• Client confirmation, notification, or follow-up documentation related to transmittals of funds or securities, changes of address, or changes to investment objectives;
• Client complaints and internal investigations made to FINRA during the preceding year; and
• A review of compliance efforts, procedures and education related to:
• Trading and market activities;
• Investment banking;
• Anti-fraud and sales practices;
• Finance and Operations;
• Supervision; and
• Anti-money laundering.

Ensuring your firm’s compliance program is robust and current with ever-evolving regulatory requirements is an important factor when it comes to protecting your firm’s business and reputation. Our consultants minimize surprises and will discuss the initial findings with you before issuing a final report. Should your firm need any improvements, Oyster can help you facilitate those changes through support staffing or by taking on the initiative entirely.