What is FINRA’s Failure to Supervise Rule?

The Financial Industry Regulatory Authority (“FINRA”) is responsible for regulating financial professionals and brokerage firms. FINRA’s rules guide the conduct of its members, and these rules include requirements that firms supervise their brokers and financial advisers. The rule addressing supervision is FINRA Rule 3110, which requires each member firm to establish and maintain a system of supervision that is reasonably designed to achieve compliance with applicable securities laws.

FINRA Rule 3110 Requirements

Specifically, FINRA Rule 3110 requires each firm to have written supervisory procedures (WSPs) that direct the supervision of the activities of its financial professionals and the types of businesses in which it engages. Among other things, WSPs must guide the supervision of supervisory personnel and the review of each firm’s correspondence, internal communications, investment banking business, securities business, and customer complaints. In addition, WSPs should identify:

• The person responsible for each review

• The supervisory responsibilities of the person conducting each review

• The frequency of reviews

• Documentation guidelines

Following a firm’s establishment of its supervisory system, it must ensure that the system works properly. To do this, FINRA requires each firm to assign a qualified principal to each registered individual at the firm. The assigned principal must supervise the registered individual’s actions.
In addition, the firm must conduct a meeting at least once every year with all of the supervisory principals to discuss compliance-related issues and ensure that their supervisory responsibilities are being properly performed. Finally, each firm is required to conduct an annual review of its business that is designed to detect and prevent the violation of securities laws and FINRA rules.

Penalties

Violations of FINRA Rule 3110 can lead to penalties, including fines, suspension, or even a ban from the financial industry. In addition, violations of the supervisory rule can provide a basis for an investor to initiate legal action if he or she has lost money due to a firm’s inappropriate actions. For example, claims for failure to supervise the sale of proprietary or alternative investments and securities arbitration claims for failure to supervise are common in the financial industry.

Fort Lauderdale Financial Advisor Representation

At Simms Law, P.A., we have a reputation in the industry for honesty, integrity, and aggressiveness, and one of our primary areas of practice is the representation of financial advisors who’ve been accused of failing to abide by securities laws, rules, and regulations. Our representation of financial advisors covers a wide range of issues, including the expungement of disclosures through FINRA expungement proceedings, compensation issues, raiding-related claims, and matters pertaining to the successful transition from one firm to another. If you are a financial advisor and need aggressive and experienced legal representation in Fort Lauderdale or elsewhere in the state of Florida, please contact us by phone or through one of the contact forms on our website to schedule a free consultation.