Alert ID: 167 2/25/2014
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SUPERVISORY CONTROL REPORTS AND ATTESTATIONS



Broker/dealers are reminded that FINRA Rule 3130 requires the CEO or equivalent officer to make a written attestation each year that the broker/dealer has implemented a supervisory control system.  The actual verbiage of the attestation is given in Rule 3130 but the key points of the attestation states that the subject firm has procedures in place to establish, maintain and review policies and procedures reasonably designed to achieve compliance with applicable regulations; to modify such as needed; that the firm has tested the effectiveness of its procedures; that the CEO and CCO have had at least one meeting  during the preceding year regarding the Rule 3130 attestation; that a report (the 3012 Report) has been generated concerning the preceding subject matter and that said report has been given or will be given to the Board of Directors; and that the CEO has consulted with appropriate personnel as necessary in order to make the attestation.

NASD Rule 3012 addresses the Supervisory Control System and it has numerous requirements in addition to testing the Supervisory Control System, modifying procedures as needed, and generating a report for the CEO and Board of Directors. These requirements are: to have procedures in place to review and supervise the customer account activity conducted by the firm's branch office managers, sales managers, regional or district sales managers, or any person performing a similar supervisory function (i.e. the “producing managers”); to adhere to a “Limited Size and Resources Exception” if the reviewers/supervisors of the producing managers are not senior to, or otherwise independent of the producing managers; to review the handling of customer funds and securities, changes of address, and changes of investment objectives; and to have heightened or enhanced review procedures if a producing manager is responsible for generating 20% or more of the revenue of the business units supervised by the producing manager's supervisor.  

The last component of the supervisory control system concerns office inspections and can be found in NASD Rule 3010(c). OSJs must be inspected no less frequently than annually, branch officers no less frequently than triennially, and non-branch offices pursuant to a regular periodic schedule.  The rule also has provisions concerning who can conduct the inspections, what must be reviewed, that the inspection must be memorialized with a written report, and that branches which generate 20% or more of the revenues of the branch manager’s supervisor must be placed on a heightened inspection program.   

The first 3012 reports and 3130 attestations had to be made no later than April 1, 2005 for broker/dealers that were FINRA members at that time. Broker/dealers that became members after that date should have generated their initial reports and attestations within one year of their membership date. Subsequent reports and attestations must be made no later than the anniversary date of the broker/dealer’s most recent attestation.

Firms desiring assistance with the preparation of their 3012 reports and 3130 attestations may contact Janice Campbell at MGL Consulting – 281-367-0380 or at JCampbell2@mglconsulting.com

  MGL Consulting LLC
33300 Egypt Lane, Suite E400
Magnolia, Texas 77354
Phone: 281-367-0380

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