Account Maintenance and Ongoing Review
Supervision doesn't stop after an account is opened and approved. FINRA Rule 3110 imposes ongoing obligations for inspections, transaction monitoring, hiring due diligence, and annual compliance reviews.
Internal Inspections (FINRA Rule 3110(c))
Firms must conduct internal inspections of offices on a regular schedule. The required frequency depends on the office type:
| Office Type | Minimum Inspection Frequency |
|---|---|
| Office of Supervisory Jurisdiction (OSJ) | At least annually |
| Supervisory branch office | At least annually |
| Non-supervisory branch office | At least every 3 years |
| Non-branch location | On a regular periodic schedule |
What Inspections Must Examine
- Safeguarding of customer funds and securities
- Maintenance of books and records
- Supervision of supervisory personnel
- Fund and securities transmittal procedures with customer confirmation
- Customer account information changes with documented customer verification
Exam Tip: Gotchas
- OSJs and supervisory branch offices require annual inspections, but non-supervisory branch offices only need inspections every 3 years. The exam loves testing this distinction.
Transaction Review
Members must review securities transactions for potential insider trading or manipulative conduct in these account types:
- Member firm accounts (proprietary accounts)
- Accounts introduced or carried by the member where associated persons have a beneficial interest
- Associated person accounts disclosed under FINRA Rule 3210
- Covered accounts: accounts of spouses, children, related individuals, or persons over whom the associated person has control
Exam Tip: Gotchas
- Transaction monitoring extends to associated persons' family members and related accounts, not just customer accounts.
Applicant Investigation (FINRA Rule 3110(e))
Before hiring, a firm must investigate an applicant's character, reputation, and qualifications:
| Requirement | Deadline |
|---|---|
| Review applicant's most recent Form U5 | Within 60 days |
| Verify accuracy of initial or transfer Form U4 | Within 30 calendar days |
- Form U5 is the Uniform Termination Notice. It shows why the applicant left their previous firm and any disclosed regulatory events.
- Form U4 is the Uniform Application for Securities Industry Registration. It contains the applicant's background and disclosure information.
Exam Tip: Gotchas
- The firm must review the Form U5 within 60 days and verify the Form U4 within 30 days. Do not mix up the forms or the timelines.
Annual Compliance Meeting
- Firms must conduct a review of their business at least annually on a calendar-year basis
- The review must be reasonably designed to detect and prevent violations of securities laws and FINRA rules
- This is distinct from the Rule 3120 annual report; this is a broader business compliance review