A polished procedures manual can still fail an examination. Regulators ask three questions: did you write the procedures, carry them out and test whether they work?
Your firm must supervise every associated person. Supervision (FINRA Rule 3110) requires every member of the Financial Industry Regulatory Authority (FINRA) to maintain a supervisory system. That system must be reasonably designed to achieve compliance with securities laws, regulations and FINRA rules. Final responsibility rests with your member firm, not any single manager.
Risk concentrates where orders are executed, customer assets are held and new accounts are approved. Those offices need an on-site principal, registration and the tightest inspection cycle, so the system is organized by location:
- Office of supervisory jurisdiction (OSJ): An office performing key functions such as order execution, custody of customer assets, final acceptance of new accounts or supervision of other branches.
- Branch office: Any location where associated persons regularly conduct securities business, or that is held out as one.
- Non-branch location: A place excluded from the branch definition, such as a qualifying home office.
Common mistakes
- Inspecting every branch annually. Only OSJs and branches supervising non-branch locations are annual; other branches need inspection at least every three years, or more often if risk warrants.
- Letting a manager inspect his own office. Independence is required unless a Rule 3110.14 situation, such as a one-office firm, exists and the report documents why.
- Picking the later board deadline. Rule 3130 delivery uses the earlier of the next scheduled meetings or 45 days after signing, not "whichever is later."
Bottom line
- Under Rule 3110, the member firm bears final responsibility for supervision and must promptly amend and communicate its WSP after any change.
- OSJs and branches supervising non-branch locations are inspected every calendar year; non-supervising branches at least every three years; non-branch locations on a periodic schedule presumed at least every three years.
- Each inspection report is kept at least three years and tests safeguarding, books and records, supervision of supervisors, transmittals and account changes.
- The inspector must be independent of the location unless Rule 3110.14 applies and the report documents why.
Exam shortcut
Classify the location first: does it supervise anyone, is it held out, does it meet customers or handle funds? That sets inspection frequency and RSL status. Prefer "calendar year" over "every 12 months" for OSJs. For deadlines, count days month by month and take the earlier Rule 3130 date.
The full lesson (about 4,111 words, 27 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- B3
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