As a broker-dealer, you play a crucial role in facilitating the smooth functioning of the securities markets, working on behalf of clients to execute trades.
Your job duties are subject to regulatory oversight to ensure integrity, transparency and investor protection. The Financial Industry Regulatory Authority (FINRA) provides that oversight, establishing guidelines and rules to keep firms like yours compliant.
Related: Click here to download the free infographic, “Regulation Rundown: FINRA”
One important aspect of FINRA’s regulatory compliance for broker-dealers is the development and implementation of Written Supervisory Procedures (WSPs), which must be completed when you seek initial FINRA registration or apply to expand your services. WSPs form the foundation of your compliance program’s framework, serving to mitigate risks associated with firm operations and ensure that all activities are conducted in compliance with relevant laws and regulations.
In this guide, we’ll explore what’s required of written supervisory procedures, how you can use FINRA’s checklist to develop your own WSPs and other key information for compliance success.
What is FINRA’s Written Supervisory Procedures Checklist?
FINRA provides a WSP Checklist that outlines several topics on which the agency will likely need information before approving your registration. The checklist is updated regularly by FINRA and aims to help broker-dealers comply with Rule 3110(b) (also known as the “Written Procedures” rule) that requires WSPs.
Related: Broker-Dealer Registration and Licensing: What to Do and How We Can Help
Your WSP isn’t necessarily a one-time document, either. FINRA writes:
“The WSPs are a “living” document and should provide a road map for the supervisory personnel to follow when they conduct each review. WSPs should not be updated only to reflect changes to rules and regulations, but also when changes are made to the supervisory process.”
Note that FINRA says the list is by no means exhaustive, but all applicants will need to fill out the checklist and submit it alongside their own written supervisory procedures document.
Click here to download the FINRA Written Supervisory Procedures Checklist.
What Does the Broker-Dealer Written Supervisory Procedures Checklist Include?
The checklist is divided into 15 main categories. Each section is broken down into subsections and then divided by topics, items that need to be addressed, and reference information. The main categories and subsections include:
- General Administration: Form filings, designation of contacts, designation of supervisors, regulatory fees and business continuity plan
- Personnel: Hiring practices, qualification and registration, associated persons records and continuing education
- Firm Supervision and Oversight: Designation of supervisors, general supervisory obligations, employee supervision, furnishing exception reports, correspondence review, taping rule, branch supervision and inspections, monitoring for insider trading and anti-money laundering policies and procedures
- Sales Practices: Communications with the public, customer information and disclosures, general supervisory obligations, customer information controls, suitability and Reg BI, due diligence, fees charged to customers and reviewing transactions and handling customer complaints
- Financial and Operational Issues: FinOp responsibilities, filing of FOCUS and related forms, handling of funds and securities, capital & credit regulation and margin
- Recordkeeping: Maintenance of books and records, customer complaints, order tickets, confirmations and electronic communications
- Internal Controls: Account transfers, branch office controls, clearing firm monitoring of correspondents, customer information controls, risk mitigation and systems and operations controls
- Direct Participation Programs: Suitability determinations and reviews, general supervisory obligations, organization and offering expenses and secondary market trading
- Fixed Income Securities: Municipal securities, delivery of investor brochure, political contributions, trade reporting, municipal securities business and TRACE
- Investment Company Products: Fees charged to customers, general requirements, late trading and market timing, mutual fund underwriters/dealers, customer information and disclosures, suitability and Reg BI and employee supervision
- Options: Recordkeeping, supervision of options accounts and transaction processing
- Research: General supervisory obligations and research
- Underwritings and Private Placements: General obligations, types of offerings, material event disclosure, securities registration and syndicate settlement
- Variable Products: Communications with the public, general obligations, suitability and Reg BI and sales practices
- Trading and Trading Operations: Order handling, best execution, anti-intimidation/coordination, trade reporting, sale transactions, other trading rules, soft dollar accounts and trading, CAT, other rules, use of MPID, ATS and ATS/ECN
Related: Understanding the New FINRA Rule 3290
For example, under “General Administration,” you would find the subsection “A. Form and Regulatory Filings, Notifications and Fees.” The first thing under that subsection is Form BD Amendments.
At the very top of the WSP Checklist, you can also find a general overview, disclaimer, updates and staff contacts that should be reached in the event that you have further questions.
How Can Broker-Dealers Use FINRA’s Written Supervisory Procedures Checklist?
On the right side of the WSP Checklist, you’ll find a column labeled “Applicable to Firm’s Business.” This section is intentionally left blank for you to fill out and to guide FINRA’s staff to easily review your firm’s specific structure and organizational needs.
To get started, you can visit this page to download and make a copy of either an Excel spreadsheet or PDF version of the WSP Checklist.
As you develop your own written supervisory procedures, we recommend that you use this checklist to guide your process. Additionally, since FINRA requires a completed copy of the checklist to be submitted alongside your WSP, it’s a good idea to review the checklist for accuracy and completeness before submitting your application.
Related: A Recap of the FINRA Exam Report for 2023
Of course, FINRA reminds broker-dealers that an accurate and complete checklist does not guarantee your application will be accepted and notes that it “does not necessarily represent all the areas of inquiry that the staff will make when evaluating supervisory procedures proposed in an application.”
Per their accompanying disclosure statement, “…This tool is provided as a starting point, and you must tailor this tool to reflect the size and needs of your firm. Using this tool does not guarantee compliance with or create any safe harbor with respect to FINRA rules, the federal securities laws or state laws, or other applicable federal or state regulatory requirements…”
It’s critical that you understand your duties and responsibilities pertaining to FINRA’s Rule 3110(b) by properly creating and maintaining a written supervisory procedures document specific to your broker-dealer.
Related: The Top Five Compliance Program Deficiencies Found at Investment Firms and Brokerage Firms
Should you have any further questions about successfully registering your firm with FINRA, you can find more information via the FINRA Topic Pages or connect with one of our compliance specialists here at ComplySci.
Create and Customize Your Written Supervisory Procedures with Confidence
COMPLY’s expert consulting team has helped broker-dealers just like you to establish and maintain their firm’s compliance. And one such example? Helping those firms create and customize written supervisory materials to COMPLY with FINRA requirements.
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