DUTIES AND CONFLICTS

Conflicts of Interest

Conflicts of Interest

In 2013, FINRA published a Report on Conflicts of Interest on conflicts of interest in the broker-dealer industry to highlight effective conflicts management practices that may go beyond current regulatory requirements and identify potential problem areas. To help firms analyze the conflicts they face and implement a conflicts management framework appropriate to the size and scope of their business, the Report includes examples of how some large broker-dealer firms address conflicts. These practices—as well as those that are based on FINRA's experience and analysis—can help firms of all sizes improve their conflicts management practices. Of course, there is no one-size-fits-all framework. Firms need to assess the approach that is most effective for their particular circumstances.

• FINRA Report on Conflicts of Interest (October 2013):  FINRA published a Report on Conflicts of Interest in the broker-dealer industry to highlight effective conflicts management practices

 

Finra Topic Page:  Conflicts of Interest

General

Accounts at Other Broker-Dealers and Financial Institutions

The SEC approved FINRA Rule 3210 (Accounts At Other Broker-Dealers and Financial Institutions), which helps facilitate effective oversight of such accounts. Rule 3210 became effective on April 3, 2017.

• FINRA Regulatory Notice 16-22 (June 2016):  SEC Approves Consolidated FINRA Rule 3210 (Accounts At Other Broker-Dealers and Financial Institutions)

 

Know-Your-Customer and Suitability Obligations

FINRA Rule 2090 (Know Your Customer) requires a firm to use “reasonable diligence, in regard to the opening and maintenance of every account, to know (and retain) the essential facts concerning every customer.” FINRA Rule 2111 (Suitability) requires a firm or associated person to “have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer, based on the information obtained through the reasonable diligence of the member or associated person to ascertain the customer’s investment profile.”

Additional information about the “know your customer” and suitability obligations—including Notices, Frequently Asked Questions, and a New Account Application Template—can be found on FINRA’s Suitability Web Page.

FINRA Topic Page: Suitability

 

Senior Designations

FINRA reminds firms of their supervisory obligations regarding the use of certifications and designations that imply expertise, certification, training or specialty in advising senior investors (senior designations). Regulatory Notice 11-52 outlines findings from a survey of firms and highlights sound practices used by firms with respect to senior designations. Firms are encouraged to adopt the practices that are outlined in this Notice to strengthen their own supervisory procedures, as appropriate to their business.  

FINRA Regulatory Notice 11-52 (November 2011):  FINRA Reminds Firms of Their Obligations Regarding the Supervision of Registered Persons Using Senior Designations

• Professional Desigantions Database: Use this tool to decode the letters that sometimes follow a financial professional’s name and see whether the issuing organization requires continuing education, takes complaints or has a way to confirm who holds the credential.

Political Contributions

FINRA ‘‘Pay-To-Play’’ and Related Rules

The SEC approved FINRA Rules 2030 (Engaging in Distribution and Solicitation Activities with Government Entities) and 4580 (Books and Records Requirements for Government Distribution and Solicitation Activities) to establish “pay-to-play” and related rules regulating the activities of member firms that engage in distribution or solicitation activities for compensation with government entities on behalf of investment advisers. The rules became effective on August 20, 2017.

FINRA Regulatory Notice 16-40 (October 2016): SEC Approves FINRA “Pay-To-Play” and Related Rules

Recordkeeping

(New) Third-Party Recordkeeping Services

This Notice provides firms with information regarding recent guidance issued by SEC staff regarding the use of recordkeeping services provided by third parties to preserve records pursuant to SEA Section 17(a) and SEA Rule 17a-4.

FINRA Regulatory Notice 18-31 (September 14, 2018): SEC Staff Issues Guidance on Third-Party Recordkeeping Services

Supervision

FINRA Supervision Topic Page

This site highlights FINRA rules 3110, 3120, and 3130 on supervisory procedures.  It also contains links to related notices, guidance, news, and investor education.

• FINRA Topic Page:  Supervision

 

Heightened Supervision

FINRA is reminding member firms of their supervisory obligations regarding associated persons with a history of past misconduct that may pose a risk to investors. FINRA Rule 3110 (Supervision) requires member firms to establish and maintain a system to supervise the activities of each associated person that is reasonably designed to achieve compliance with applicable securities laws and FINRA rules. An effective supervisory system plays an essential role in the prevention of sales abuses, and thus enhances investor protection and market integrity. As such, FINRA has long emphasized that member firms have a fundamental obligation to implement a supervisory system that is tailored specifically to the member firm’s business and addresses the activities of its associated persons. The notice highlights particular instances where heightened supervision of an associated person may be appropriate. FINRA is encouraging firms to adopt the practices that are outlined in the Notice to strengthen their own supervisory procedures, as appropriate to their business.

FINRA Regulatory Notice 18-15 (April 30, 2018): Heightened Supervision, Guidance on Implementing Effective Heightened Supervisory Procedures for Associated Persons With a History of Past Misconduct