In last week’s blog post, CCLS’ Compliance Corner outlined the five (5) primary sections of the Financial Industry Regulatory Authority (“FINRA”) Rule 3110, recently approved by the Securities and Exchange Commission (“SEC”). One of the four (4) new consolidated rules for Supervision and Supervisory Control Systems, FINRA Rule 3110 has been approved alongside new Rules 3120, 3150, and 3170, all of which will go into effect on December 1, 2014. In this week’s blog, CCLS will discuss Rules 3120, 3150 and 3170 and their subsections.
While FINRA Rule 3110 and its subsections create a detailed set of Supervision regulations, Rules 3120, 3150 and 3170 are significantly more precise in scope and focus, dealing with the internal operation of Supervisory Control Systems. The three (3) Rules are as follows:
- 3120 consists of two (2) subsections, including: 3120(a), which requires a firm to outline one or more supervisory principals to FINRA who will test and verify the firm’s supervisory procedures, amend and/or add procedures as needed, and report their findings annually to senior management; 3120(b), which requires firms to report $200 million or more in gross revenue on their previous year’s FOCUS report must now include additional information, including customer complaint tabulations and the previous year’s compliance efforts in areas such as trading, investment banking activities, and anti-money laundering (AML), as applicable.
- 3150 seeks to replace NASD Rule 3110(i) related to the Holding of Customer Mail. The new FINRA 3150 “eliminates the strict time limits” imposed by 3110(i) of holding mail, and allows for a more holistic system of “a specific time period in accordance with the customer’s written approval.” Under Rule 3150, a firm can hold mail for a customer who will not receive mail at his/her primary address if the firm receives a written notification of a mail hold for a specified period of time by the client, provided the firm notifies the client about alternative methods of account monitoring (email and/or website access) and reconfirms the mail hold “at reasonable intervals.”
- 3170 reaffirms the NASD Rule 3010(b)(2) regarding “Tape Recording of Conversations” with the name “Tape Recording of Registered Persons by Certain Firms,” and sets to redefine the term “tape recording” to include “any electronic or digital recording that meets the rule’s requirements.” To this point, 3170 aims to require specific written procedures which help to supervise “telemarketing activities” and “tape recordings” of all registered individuals if the firm falls under the category of a “disciplined firm.” This new Rule includes a “Disciplined Firms List” to help firms identify themselves in this category.
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