| FAQs
Q. I will be managing our firm’s branch office inspection program this year. Any tips on improving quality would be appreciated.
A. Make sure the examiners have good information prior to arriving at the office. Transaction history, complaint history, OBA listings, approved websites, approved advertising, and prior inspection results are examples of information that will help an experienced examiner to conduct a thorough inspection. Posted 2-9-12
Q. We have an insurance agency along with our broker/dealer business. Is it true that complaints concerning fixed annuities now have to be reported to FINRA?
A. If the complainant is a customer of the broker/dealer it will have to be reported and it might need to be reported even if they are not. The rules changed in on July 1, 2011 and require careful consideration. FINRA Regulatory Notice 11-06 provides details about the new rule and check out my article in the LIMRA Regulatory Review for additional information. Posted 11-28-11
Q. The money laundering risk at our firm is pretty low and the testing is becoming redundant. How do we keep our program fresh?
A. The rules cover money laundering and other financial crimes. Concentrating on the “other financial crimes” portion of the rules such as insider trading and price manipulation might help. More suggestions can be found here. Posted 4-5-10
Q. Isn't there a conflict between sharing information for AML purposes and the financial privacy requirements of Reg S-P?
A. Good question. There is a safe harbor provision in the AML regulations. You must file an annual Information Sharing Notice with FinCEN and you must take reasonable steps to assure that the firm you share information with has also filed with FinCEN. Do a search on 31 C.F.R. 103.110(b) to get the exact wording of the safe harbor provision. Posted 2-19-09
Q. We just finished the exit interview for our cycle exam. I think our Supervisory Control Procedures are pretty good but FINRA wants us to develop another set of procedures or restructure our supervisory procedures manual. Is there an easy way to do this?
A. If your control procedures are in good shape there is a simple fix. The Supervisory Control Procedures must be separate from the Written Supervisory Procedures. Search the FINRA website for the "Checklist for Supervisory Control Procedures." Using the checklist as a guide, copy each of those procedures from your manual into a new document, spruce it up, and give it an appropriate title. Posted 2-12-09
Q. FINRA is coming for a routine exam. I have gathered most of the records but the files labeled "Corporate Minutes" and "Articles of Incorporation" are empty. Where do I get these records?
A. Those confidential records are not normally kept with the regular compliance related files but are in the possession of a company officer. Find out who that is and remind that person that FINRA may review those records. That will give the officer time to make sure they are in good order. Posted 4-14-08
Q. We are a Russian based brokerage firm. Our regulator demands presence from the given securities of codes ISIN and CFI. What are these codes?
A. ISIN is an abbreviation for International Securities Identification Number and CFI is an abbreviation for Classification of Financial Instruments. In the U.S. we use a different code called CUSIP. Our CUSIP codes have been converted to ISIN codes and you can get that data from Standard & Poor's. Go to www.annaservice.com for more information. Posted 1-31-08
Q. We just finished implementing the new branch office definitions and now the NASD wants to change them again. What a waste of time and effort. Isn't there some way to stop this?
A. Maybe you should save your energy for bigger battles - the changes are not significant. An OSJ will be come a SBO (Supervisory Branch Office.) Official names will be given to branch offices that supervise other locations versus those that don't. And, offices that approve research reports might be reclassified as non-branch locations. That's it. Posted 4-10-07
Q. What are the best ways to learn more about compliance? A senior member of my department is retiring next year and I want to be in the running for any possible promotions.
A. You didn't say how long you have been in compliance so I don't know your experience level but here are some suggestions:
1. Review your firm's compliance manual on occasion. It is surprising how few people are familiar with their own manual.
2. Subscribe to the NASD email notifications. Read the notices that apply to your firm and study the ones that apply to your job and your boss's job.
3. Surf the NASD website often. It is full of information.
4. Listen to the NASD Podcasts. The files can be downloaded to any mp3 player. You can listen during your commute.
5. Sign up for some of the Online Learning and Phone-In-Workshops.
6. Attend the District Preventative Compliance meetings. They are informative and you have an opportunity to start networking. Cost $75.00
7. Attend some NASD conferences. Registration fees start at $500
8. Start working towards your CRCP designation (this requires a substantial commitment.)
Posted 11-27-06
Q. I trust my Chief Compliance Officer but I'm still uncomfortable signing that CEO Certification. Do you have any suggestions?
A. Sure. We have a team of experts who can evaluate each of the three areas as needed under Rule 3013 and issue an opinion letter. You will know if your compliance system is reasonable or not. Posted 8-14-06
Q. Many of our reps conduct their business at the client's home but then return to their primary residence with the paperwork. Must we register that location as a branch office?A. Notice to Members 06-12 cleared up several issues on branch office registrations. Q&A8 clarifies that it will not be a violation solely because the rep brought a check or a certificate to their primary residence in order to process the paperwork. Posted 4-5-06
Q. I can't keep up with the new rules and regulations anymore. Is compliance more demanding now or am I just getting slow?
A. Compliance is definitely more demanding. According to the NASD website there were 264 SEC Rule Filings in the last 4 years. That is more than double the previous 4 year period. Posted 1-16-06
Q. Can we use the same CPA firm for our audited financials next year or must we go with a larger (and more expensive) firm?
A. Tell your FINOP he can keep the same firm for another year. The requirement to use a "registered public accounting firm" to audit your financial statements has been postponed for the third time. Here is the link to the SEC notice http://www.sec.gov/rules/other/34-52909.pdf
Posted 12-29-05
Q. CRD Branch Office Registration will be starting soon and the SEC has approved the new branch office definitions. My staff is overwhelmed by all of these changes. Do you have any suggestions?
A. It is probably too late to sign up for the NASD's Branch Office Registration Training so check the Web CRD daily for new information. Finish registering the branches that are already started but don't start any new registrations until after the system goes live. You will then have until May 1, 2006 to classify the offices and finish Form BR.
Posted 10-02-05
Q. We will have to use the limited size exception for some of our producing managers under Rule 3012. Do we have to report it to the SEC?
A. No, the NASD will do that. You will have to report it to them, according to a proposed addition to Rule 3012. And, you will have to report it every year until you no longer rely on the exception.
Posted 6-28-05
Q. I've just been promoted to the compliance department. What can I do to make a good impression on my boss?
A. Volunteer to take charge of the firm's Predispute project. It would be a good project for a compliance rookie; it isn't too complicated but it is important. New rules for Predispute Arbitration Agreements (see Notice to Members 05-09) go into effect soon. Your firm's Customer Account Record needs to be changed, printed, and distributed by May 1, 2005. Don't forget to notify the reps of the change!
Posted 03-09-05
Q. Has there been any news on the variable annuity rules?
A. Yes, a lot. Rule 2821 was submitted to the SEC in December. There are several changes from the draft listed in NtM 04-45, here are the highlights: TSA's and 457's have been excluded; the risk disclosure document has been eliminated; and compliance will get two days to review instead of one. The proposal is 2004-183 and can be found on the NASD web site.
Posted 02-09-2005
Q. Our compliance department has reorganized. Now I have to develop our Continuing Ed program for the year. This is new to me. How do I get started?
A. The CEP Firm Element Advisory is a great place to start. You can find it here. Pick a couple of subjects that apply to your firm and then contact me. I can present some of the training at the annual compliance meeting. A guest speaker would be a nice addition to your program.
Posted 01-25-05
Q. Our Chief Compliance Officer and I both have clients. How can we abide by Rule 3012.
A. That question is too complicated to answer fully without a meeting or two, but you might want to consider these points for starters: First, have your FinOp sit for his Series 24 exam; that will give the firm some flexibility. Second, don't allow your CCO to approve his own transactions anymore; you should review his production from now on. Third, document why you cannot comply fully with the rule and why you must use the "limited size and resources exception."
Posted 12-13-04
Q. My compliance director said she must be promoted to Chief Compliance Officer right now and she wants a raise. Is this true?
A. Yes, it is true that she has to be appointed Chief Compliance Office by the first of December, and yes, it is true that she wants a raise.
Posted 11-10-04
Q. How harsh will be NASD be if they find weaknesses in my Business Continuity Plan?
A. I can't predict what the NASD will or will not do. They understand that new rules take time to develop and an honest effort at complying provides some leeway. However, word on the street is they are no longer being lenient with sloppy AML procedures. Make sure you have them tight.
Posted 10-29-04
Q. NtM 04-71 describes some big supervisory changes but the definition of a branch office has hardly changed at all. What was everyone so excited about?
A. Don't toss your plans into the shredder, more rules are coming. The branch office definitions will change when the registration system is in place. According to the June 29, 2004 letter from the NASD to the SEC the target date is the fall of 2005. See page 10 of the letter here.
Posted 10-07-04
Q. Is it true that I have to start signing off on the firm's compliance program because I'm the CEO? I'm a people person not a detail person!
A. There is another new rule and it will likely be effective before yearend. It is Rule 3013 (CEO Certification), which basically states that you will have to make an annual certification that the firm has a good compliance program. You can find a sample of what you will have to sign and most of the other details at www.nasdr.com/mem_alert2004_09.htm. (This link no longer works-go to Ntm 04-79 for more information- Updated 10-2-05)
Updated 09-24-04
Q. Is the regulatory element really as tough as my reps tell me? I was grandfathered for some of the continuing ed requirements so I haven't taken the test.
A. I was grandfathered too but it looks like we will soon find out. The NASD has proposed the elimination of the grandfather clause for Rule 1120. You, me and the other 135,000 grandfathered persons may be on the 3 year schedule starting next year (by-the-way, it isn't a test it is a computer-based training session.-)
Posted 08-23-04
Q. It looks like Rule 3010 and 3012 are finalized. Are there any big differences with the latest amendments?
A. Not to 3010 but 3012 has some interesting changes. Section (a)(2)(A)(i) of Rule 3012 now states that the "otherwise independent" person must not work in the same office as the producing manager and item (iii) of that same section now states that if a firm is going to use the exception listed in (ii), it must document why it "is not possible" to comply. Those are strong words.
Posted 08-12-04
Q. How was the Boston seminar?
A. It would have been better if more time was spent on the upcoming changes to branch office audits. Many of the attendees came for that purpose. However, I always learn something and here is one small change - Examiners will likely ask for your Medallion Stamp logbook the next time you get audited.
Q. Was the Business Continuity Planning seminar worth the time and money?
A. I think so. I picked up some good ideas but with the driving and traffic it took the entire day. Here's one idea for your BCP. Keep an analog phone in the office and at least one analog line. If the power goes out, you will still have one working phone.
Q. The NASD was here recently, now I only have 30 days to make major revisions to our compliance manual but I promised the family a vacation. Any suggestions?
A. You only have 2 choices; give the family your credit cards and tell them to have a nice time, or give me a call. We can get together before you leave to review your situation. The changes will be waiting for your approval when you get back.
Q. What's the hot issue for audits this year?
A. Net Cap, but they will be looking at it in a whole new way. Make sure your expense agreement is up to date.
Q. Our FinOP is moving to Arizona. How are we going to file the FOCUS reports?
A. Notify your contact at the NASD before the due date and request an extension. They will generally grant 90 days. If that isn't enough time give me a call and I'll fill in until you select a replacement or perhaps we can make a long-term arrangement.
Q. We have a number of branch offices that need auditing in Wisconsin and the neighboring states. Can you help us out?
A. Of course. When do you want the written reports? Are there any special issues that need to be addressed?
Q. I'm new to compliance and the NASD is coming next week for an examination. Is it going to be rough?
A. Prepare as best as you can and then use it as a learning experience. The auditors can tell if your firm is serious about compliance and in those situations they can be quite helpful.
Q. We received three complaints last year against my best rep. Should I be concerned?
A. By best rep I assume you mean biggest producer. He may also be your biggest liability. You should consider what is referred to as Heightened Supervision. Take a look at Notice to Members 97-19.
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