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Difficulty: MediumSelf-Regulatory Organizations (SROs) and FINRA

Under FINRA rules, every member broker-dealer must establish and maintain a written supervisory system to ensure that its associated persons comply with applicable securities laws and regulatory rules. Which of the following is a mandatory requirement for a member firm's Written Supervisory Procedures (WSPs)?

  1. The firm must designate qualified registered principals to oversee each line of securities business and administrative function in which the firm engages.Answer
  2. B
    The firm must submit its written supervisory procedures to federal criminal prosecutors for formal approval prior to implementation.
  3. C
    The supervisory procedures must enforce compliance over commercial bank consumer lending practices conducted by affiliated banking entities.
  4. D
    The procedures must mandate that the firm act strictly in an agency capacity on all transactions and prohibit market-making or principal trading.

Answer

The correct option is the requirement that the firm must designate qualified registered principals to oversee each line of securities business and administrative function in which the firm engages.
Under FINRA Rule 3110, member firms must establish a supervisory system reasonably designed to achieve compliance with applicable securities laws and FINRA rules. A central requirement of this system is the formal designation of registered principals responsible for supervising each category of business the broker-dealer conducts.

Step-by-Step Solution

1
Identify the statutory and SRO framework governing broker-dealer supervisory obligations under FINRA Rule 3110.
FINRA requires each member firm to create, maintain, and enforce Written Supervisory Procedures (WSPs).
WSPs ensure that all activities of registered representatives and associated persons are properly supervised for regulatory compliance.
2
Evaluate the mandatory operational elements of a compliant WSP structure.
Firms must explicitly designate appropriately registered principals who hold supervisory responsibility for each specific area of securities business.
Clear delegation of supervisory responsibility to qualified principals is essential for holding firms accountable under SRO rules.

Key Concept

FINRA Supervision Requirements and Written Supervisory Procedures (Rule 3110)
Estimated Time:1m 15s
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Topics

Self-Regulatory Organizations (SROs) and FINRA

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