Securities Arbitration Lawyers BlogFINRA’s Failure to Supervise Rule
Financial Industry Regulatory Authority (“FINRA”) is the non-governmental organization that regulates stockbrokers and brokerage firms. FINRA rules set out the appropriate conduct for its members. This includes several rules detailing member firms’ requirement to supervise their brokers and advisers.
FINRA Rule 3110 is the main rule discussing supervision. It requires firms to “establish and maintain a system to supervise the activities of each associated person that is reasonably designed to achieve compliance” with both FINRA rules and state or federal securities laws. FINRA requires these procedures to be in written form. A copy of the procedures must be kept in every location where supervisory activities are conducted.
Once a brokerage firm establishes a supervisory system, it must routinely check that the system works properly. To ensure this, FINRA requires firms to assign a qualified principal to each registered person at the firm. The principal is responsible for supervising the registered person’s actions.
In addition, the firm must have a meeting at least annually with all of the supervisory principals to discuss compliance issues and ensure that they are on track with their supervisory responsibilities. The firm must also conduct an annual review of its business that is reasonably designed to detect and prevent any violations of FINRA rules or other securities laws.
Failure to establish or maintain adequate supervisory procedures could lead to FINRA taking disciplinary action against the firm. This action could result in a fine, suspension, or even a ban from the industry. Violation of the FINRA supervisory rules also provides a basis for an investor to bring a customer dispute if he or she lost money due to a firm’s failure to supervise its broker or adviser. Securities arbitration claims for failure to supervise are common as are claims for failure to supervise the sale of proprietary or alternative investments.
Contact Our Firm
If you invested with a brokerage firm and believe you have lost money due to its misconduct, you may be able to file a claim to recover your losses through FINRA arbitration. For a free evaluation of your potential case by a securities attorney, please contact Silver Law Group.
Silver Law Group is a nationally-recognized securities law firm headquartered in South Florida representing investors worldwide with their claims for losses due to securities and investment fraud. The firm has successfully recovered multi-million dollar awards for its clients through securities arbitration and the courts. To contact Scott L. Silver to discuss your legal matter, call toll-free (800) 975-4345 or e-mail him at SSilver@silverlaw.com.