A NASAA report outlines the most common broker-dealer violations and offers best practices in ten areas to help broker-dealers avoid mistakes.
The most common areas of violations involved books and records, supervision, and sales practices. Less common were violations related to licensing and registration, and the most uncommon type of violations were those related to operations. The top five violation types were as follows: “failure to follow written supervisory policies and procedures, suitability, correspondence/e-mail, maintenance of customer account information, and internal audits.”
NASAA identified best practices in ten areas – summaries of those practices follow.
-Suitability: Know your customer, know your products.
-Staffing and Expertise: Make sure there is enough staff with appropriate training/experience for the size of the firm and the scope of business activities. Also, have and enforce written supervisory procedures.
-Exception Reports: Introducing brokers must get exception reports from clearing brokers and deal with any red flags that come up.
-Branch Office Audits: Have a good, well-documented audit program with unannounced visits.
-Selling Away: Monitor agents selling away. If an agent applies to sell away and gets denied, make sure they don’t do so anyway.
-Outside Business Activity: Outside business requests must be approved before the activity occurs and must be reported on the agent’s U4.
-Advertisements: Ads must be fair and approved by the broker-dealer and/or FINRA. Seminars must be approved by the broker-dealer.
-Correspondence: Keep copies of outside communications on record.
-Customer Complaints: Investigate and respond appropriately to any complaint. Update the U4 of involved agents if necessary.
-Working with Seniors: Develop practices for working with elderly customers.
Source: Coordinated Examinations Identify Top BD Compliance Violations
This alert applies to the Series 24, Series 26, Series 7, Series 65, and Series 66.