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Onsite Inspections of Offices and Locations Still Required
By Howard Haykin
A Delray Beach, FL-based broker-dealer agreed to pay a $12.5K fine to settle FINRA charges that it failed to conduct all required inspections of its offices and locations. This firm, a FINRA member since 1978, has 5 branches, employs some 33 registered individuals and is approved to engage in corporate debt securities, OTC equity securities, commodities, mutual funds, municipal debt and bonds, options, private placements, proprietary trading, underwriting of corporate securities, and other activities. The firm was fined in 2006 for failing to conduct inspections of several of its Offices of Supervisory Jurisdiction ("OSJs").
FINRA FINDINGS. From 2015 to 2016, FINRA examiners noted that the broker-dealer …
- conducted remote inspections of 3 OSJs;
- failed to inspect 2 non-OSJ locations that have been open at the firm since 2009; and,
- failed to inspect 8 out of 34 non-registered locations, 7 of which had been opened between December 2001 and April 2014.
WHAT’S REQUIRED UNDER THE RULES. FINRA Rule 3110(C) and its predecessor NASD Rule 3010(c), require broker-dealers to, among other things …
- conduct a review, at least annually, of the business in which the firm engages;
- inspect, at least annually, every OSJ and any branch that supervises one or more non-branch locations
- inspect at least every 3 years, every branch office that does not supervise one or more non-branch location at least every 3 years.
- inspect on a regular, periodic basis, non-branch locations.
- Regulatory Notice 11-54 sets forth that such inspections shall be conducted onsite.
This case was reported in FINRA Disciplinary Actions for May 2018.
For details on this case, go to ... FINRA Disciplinary Actions Online, and refer to Case #2016047570101.
