Business Compliance Partners Reviews Coordinated Examination Findings

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The North American Securities Administrators Association (“NASAA”) released their 2012 Broker Dealer Coordinated Examination Report. The report identifies the top compliance violations and offers best practices recommendations for broker-dealers.

NASAA issued a statement which summarized the broker-dealer examination findings. NASAA reported that a total of 236 examinations were conducted between January 1 and June 30, 2012, and 453 types of violations in five compliance areas were found. Twenty nine percent of the violations involved books and records, 27% were related to supervision, 24% involved sales practice violations, 14% registration & licensing and (6%) operations.

“Our best practices are designed to help enable broker-dealers to address their compliance challenges and provide better client service,” said Jack E. Herstein, NASAA President and Assistant Director of the Nebraska Department of Banking & Finance, Bureau of Securities.

NASAA recommended the following:

  • Broker-dealers (“BDs”) should improve training of their registered persons in the area of investment product suitability and adherence to suitability standards.
  • BDs should ensure that their staffing levels and the expertise of their staff are consistent with their responsibilities, types of business engaged in and the size of the BD.
  • BDs must develop, update and enforce written supervisory procedures.
  • BDs should generate exception reports to identify potential compliance violations, resolve issues in a timely manner, and extend their investigations outside of their firms by contacting investors when warranted.
  • BDs must, develop a branch audit program that includes a meaningful audit document/plan, unannounced visits, a means to convey audit results, and a follow-up plan requiring that branches take corrective action.
  • Written procedures must address private securities transactions. If private securities transactions are permitted the procedures must discuss the process for making a request, reviewing requests, and monitoring the transaction if the request is approved.
  • Salespeople must submit written requests to engage in business activities outside of their duties with the BD. When approved an outside business activity must be disclosed on the salesperson’s registration report (“Form U4”). Any changes to an approved outside activity must be promptly reported to the BD and on Form U4. A BD’s procedures must document the approval and denial processes for outside business activities.
  • All advertising and sales literature must be approved by a supervisory representative of the BD and in some cases the Financial Industry Regulatory Authority (“FINRA”). All guest speakers must also be approved by a supervisory representative. A supervisory representative of a BD should also periodically attend randomly selected seminars and other events conducted by persons associated with the BD.
  • BDs must have processes to effectively monitor, capture, and maintain all electronic and written business-related correspondence including correspondence from third-party websites and social network service providers.
  • BDs must conduct thorough reviews of and document any customer complaints. A BD must provide a remedy if any harm was caused to a customer and promptly file any applicable reports with the appropriate regulatory authority.
  • BDs should develop procedures for handling accounts of elderly investors that may be susceptible to or suffering from diminished cognitive abilities.

Use the following link to review the 2012 BD Coordinated Exam Report.

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