Chapter 6 - General Supervision

Question 1

Items to be reviewed and approved

Answer 1

Registered Principals are not required to review confirmations.

Question 2

Member offices

Answer 2

There are three types of offices that a member may open:

• An office of supervisory jurisdiction - conducts OSJ activities
• A branch office - identified to the public as being a place where the member conducts business but does not engage in any activities that would require it to be considered an OSJ.
• A satellite office - usually a smaller office that does not meet the definition of a branch.

Potential test question: Could a Principal be the resident principal for more than one OSJ? Yes, they can if geographically maintain a presence at both locations. FINRA must be notified (not approved).

Question 3

Reps working from home

Answer 3

In the case of a rep from out of state is temporarily working in another state, they have 30 days to report to a branch for supervisory jurisdiction.

Working on a yacht and move marinas, they have 30 days to report to FINRA.

Question 4

Written Supervisory Procedures

Answer 4

Must include an organization chart with names showing supervisory responsibilities.

Question 5

Failure to supervise

Answer 5

A principal can be held responsible for the actions of the agents assigned to the principal.

Only mitigating factor is when a rep takes extraordinary steps to conceal their activity.

Question 6

Executive Representative & Chief Compliance Officer

Answer 6

Both are identified to FINRA.

CCO must be certified by CEO of B/D every year by April 1.

Any changes within the year must be updated to FINRA within 30 days.

Question 7

Review of Supervisor Control System

Answer 7

Annual test and report of supervisory control systems.

Identify the person who will test and evaluate.

The report must be given to senior management and include:

• Compliance issues
• We’re systems are working well
• We are systems can be improved

Question 8

Business continuity plan

Answer 8

The plan must provide:

• Alternative communication between firm and employees
• Alternative communication between clients and firm
• A way for clients to access funds
• Backup plans for each line of business
• Backup of data electronically and hardcopy
• Identity of two firm contacts to FINRA - one must be a principal.
• Regulatory reporting/back up
• Alternative physical office for employees
• Financial and operational assessment back up

Question 9

Business continuity plan disclosures

Answer 9

• Should be provided to clients at time account is open and annually thereafter
• Should be posted on the firm’s website
• Must contain “go out of business” clause
• If single office firm, contact for clearing firm is required

Question 10

Heightened supervisory requirements

Answer 10

• Complex structured products
• Reps who have been sanctioned by FINRA
• Principles who turn blind eye to violations
• Producing managers who January 20% or more of office production - daily supervision of all trades

A red flag for producing managers - cancel in one account and re-bills in another.

Question 11

Tape recording employees

Answer 11

They are required to tape-record all employees.

Question 12

Customer complaints

Answer 12

• Must be properly forwarded to principal
• Maintain in central file (OSJ)
• Report electronically to FINRA quarterly within 15 days
• Theft, forgery - reported immediately to FINRA within 10 business days
• If the firm received a complaint regarding a terminated rep, the complaint still filed with FINRA - need not be sent to the rep.