SEC Approves FINRA Proposal to Consolidate Supervision Rules (with Lofchie Comment)

The SEC has approved a series of proposed rule changes to consolidate FINRA's supervision rules in the FINRA Rulebook. The rule changes will adopt FINRA Rules 3110 ("Supervision"), 3120 ("Supervisory Control System"), replacing NASD Rules 3010 ("Supervision"), and 3012 ("Supervisory Control System").

Lofchie Comment: There is more going on here than merely a consolidation and renumbering of rules. Given the number of rule changes, compliance departments will have to deal with a lot as they revisit their procedures and manuals. In some cases, rules have been tightened; in other cases, rules have been either liberalized or are now subject to a "risk-based" compliance standard rather than a formulaic one. Among the areas where the rule changes are most substantial are: (i) supervision of small "offices of supervisory jurisdiction," (ii) required supervisory review of transactions (which is to be "risk-based"), (iii) review of communications, (iv) handling of complaints, (v) self-supervision and supervision by producing managers, (vi) monitoring of funds transfers and changes in account information and (vii) inspection procedures, including procedures to monitor for insider trading. One other statement made, almost in passing is also particularly interesting (at page 8 following footnote 37): "FINRA stated that it will continue to apply FINRA's Rule 2010's standards to non-securities activities [emphasis added] of members and their associated persons consistent with existing case law."

See: SEC Approval of Proposed Rule Change; FINRA Rule Proposal Filed with the SECRelated News: FINRA Seeks to Adopt Consolidated FINRA Supervision Rules (with Lofchie Comment) (June 24, 2013).