Quick Answer
Written Supervisory Procedures, or WSPs, are the firm's written instructions for supervising its business and associated persons. The firm follows and updates them, tests whether they are reasonably designed for compliance, reports meaningful results to senior management annually, holds annual compliance discussions, and obtains an annual certification that compliance and supervisory processes exist.
Written procedures turn supervisory responsibility into repeatable firm practice. Testing and annual processes then show whether those procedures continue to work as the firm and its regulatory environment change.
Written Procedures as the Operating Instructions
- Written Supervisory Procedures (WSPs): Written procedures the firm establishes, maintains, and enforces to supervise its business and associated persons.
- Compliance with WSPs: The procedures must be followed as part of the broker-dealer's supervisory system.
- Updating WSPs: Procedures are updated when applicable securities laws, regulations, firm requirements, or the firm's supervisory system change.
Written procedures -> followed in daily activity -> changes identified -> procedures updated -> supervision stays aligned with the firm's business and obligations.
Exam Tip: Gotchas
- Written procedures are not a one-time document. They must be followed and updated as the relevant requirements or supervisory system change.
- A firm can have well-written WSPs and still have a supervisory failure if personnel do not follow them.
Testing and the Annual Supervisory-Control Report
- Supervisory control system: The firm tests and verifies whether its WSPs are reasonably designed for compliance.
- When testing identifies a need, the firm creates or amends procedures.
- Annual supervisory-control report: At least annually, the designated principal or principals provide senior management with a report covering:
- The supervisory-control system
- Test results
- Significant exceptions
- New or amended procedures resulting from the testing
| Step | Purpose |
|---|---|
| Test and verify WSPs | Determine whether procedures are reasonably designed for compliance |
| Identify an exception or need | Find where the existing process is insufficient |
| Create or amend procedures | Address the identified need |
| Report annually to senior management | Document the system, results, exceptions, and resulting changes |
Exam Tip: Gotchas
- Testing is not merely a report-writing exercise. A need identified by testing leads to new or amended procedures.
- The annual report goes to senior management and includes significant exceptions as well as resulting procedure changes.
Annual Compliance Discussion and Certification
- Annual compliance meeting: Registered representatives and registered principals participate at least annually in a meeting or interview that discusses compliance matters relevant to their activities.
- Annual certification of compliance and supervisory processes: Each year, the chief executive officer, or an equivalent officer, certifies that the firm has processes to establish, maintain, review, test, and modify written compliance policies and WSPs reasonably designed for compliance.
The annual meeting addresses compliance matters relevant to the participants' work. The annual certification addresses whether the firm has the processes needed to build, maintain, test, review, and modify its compliance and supervisory framework.
Exam Tip: Gotchas
- The annual certification concerns whether the firm has compliance and supervisory processes in place. It does not replace the obligation to follow and update WSPs.
- The annual compliance discussion may be a meeting or an interview, provided it addresses matters relevant to the registered person's activities.