SIFMA Responds to FINRA’s Supervision Rule Proposal
SIFMA's Compliance and Regulatory Policy Committee submitted comments on FINRA's proposal to adopt new FINRA Rules 3110 and 3120, which would replace NASD Rule 3010 ("Supervision") and Rule 3012 ("Supervisory Control System"), respectively. Comments by SIFMA included:
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That the requirements in proposed FIRNA Rule 3110(b)(6)(D) and proposed FINRA Rule 3110(c)(3)(A) that members establish procedures to prevent "standards of supervision" and "inspection standards," respectively, from being "reduced in any manner due to conflicts of interest that may be present" be modified to make it clear that such requirements do not replace a risk-based standard of supervision and the requirement that supervisory systems be reasonably designed with a standard that requires firms to prevent all conflicts of interest.
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That the expansion by Rule 3110(d)(3)(A)(i) of the "covered accounts" that members must monitor or supervise in connection with employee personal trading should not be uncoupled from the existing condition that the employee have either beneficial interest in or control or authority over the account.
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That FINRA clarify that proposed FINRA Rule 3110(b)(4) does not mandate that members review all electronic communications, and that members that use electronic review systems do not have to keep a record of the identity of the reviewer where the electronic review did not generate an alert.
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That proposed FINRA Rule 3110(b)(7) be modified to require the distribution of supervisory procedures to such persons who have responsibilities under such procedures rather than to persons to whom they are "relevant."
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That FINRA clarify that proposed FINRA Rule 3110(b)(2) does not require that a principal review all transactions relating to the member's investment banking or securities business; rather that the risk-based review system must take into account all such transactions but only a sample of transactions may in fact be reviewed by a principal.
See: SIFMA Letter.See generally: Supervision Chapter of Lofchie's Guide to Broker-Dealer Regulation.