Pursuant to Regulatory Notice 11-10, firms must electronically file specified events and quarterly customer complaint information pursuant to Rules 3070 and NYSE Rule 351 through a new process which becomes effective on July 1, 2011. Compliance Officers should cross reference Regulatory Notice 11-06, as well as become familiar with the automated application disclosure events and conflicts sections which are new.
FINRA has modernized its systems of self-reporting misconduct by mandating that electronic filings be made within 30 days of the determination that the Firm or an Associated Person committed a reportable violation. Member firms are required to self report violations. This process, however, allows FINRA and, uncertain circumstances the public, earlier access to such information. The new methodology creates consistency and clarity in the filing process.
What: There is a menu in the FINRA automated application system, containing new dropdown items for reporting of events corresponding with Rule 4530 information. The numeric codes previously used will be eliminated. (See footnotes 8 and 9 of Regulatory Notice 11-10) Batch submissions are possible via a file transfer protocol. There is also a new hyperlink for access.
When: Reporting must be accomplished within 30 calendar days after the Firm has made its conclusion, based upon the “reasonable person” standard, that either the Firm or one of its Associated Persons has committed a reportable violation.
Why: A Broker-Dealer or Associated Person is required to self report violation of the securities, commodities, financial, investment related law, rule, regulation or SRO standard of conduct.
How to Report: (1) Firm designates an individual to make an internal investigation and complete a report. The designated firm individual would then access the system and utilize the dropdown menu to make the report. (2) An update of the firm’s written supervisory procedures to reflect the compliance process concerning Regulatory Notice 11-10 should also be considered.
Who: Firms’ internal decision making for self reporting must be done by an experienced and trained individual. The “reasonable person” standard is applied to the conclusion that a violation occurred. The internal decision maker must review the conduct and consider its impact, including potential, actual, and widespread impact to the firm, its customers and brokers. Conduct that must also be considered when making a report:
- any material failures of the firms’ policies and procedures; and
- whether or not the specific violation has involved numerous clients, material errors, significant dollar amounts and/or patterns or series of events that are related
In order to support the firms’ good faith reasonable determination, the firms’ decision making individual must be able to support the conclusions reached as to whether the event requires disclosures with relevant documentation for each filing or the decision that no filing is required. The Firm should assure that Associated Persons understand that they are required to promptly inform the proper individual at the Firm of any reportable event. Rule 4530 includes findings of financial, business, or professional misconduct which may result in civil litigation, arbitration proceedings or regulatory matters. Note that non-securities insurance products are covered.
