Exams and Testing by the Number
By Laura Crosby-Brown, Director
3012, 3010, 3130 and 3310. We hear these numbers thrown around by regulators but what do they mean? How does a broker-dealer comply?
Each of these numbers is a rule that has a component requiring a broker-dealer to either test certain procedures, conduct an examination or document that procedures relative to the testing are in place. Let’s break these down number by number to see what is required and how a firm can comply.
Rules 3012 and 3130: When Rules 3012 and 3013 (now 3130) were adopted in the early part of this century the intent was to ensure that the CEO, or other top business officer, at the broker-dealer was held responsible for ensuring the firm had policies and procedures in place; that the policies and procedures were designed to promote compliance; and that the procedures were actually being followed. This all arose from a case against a rep who because of shortcomings in the firm’s supervisory controls was able to steal millions of dollars from his clients over decades while he was registered with a number of very large firms.
Rule 3012(a), to be known as Rule 3120(a) as of December 1, 2014, requires a broker-dealer to appoint one or more principals to establish, maintain and enforce a system of supervisory procedures and control, to test and verify their supervisory procedures annually and amend procedures or processes where necessary as identified in testing. The rule also requires the designated principals to provide a report relative to the results of the testing and proposed remediation at least annually by the one-year anniversary of the prior report.
Rule 3130 requires the CEO, or other member of senior management, to attest that the broker-dealer has procedures and processes in place to establish, maintain, review, test and modify written compliance policies and written supervisory procedures reasonably designed to achieve compliance with applicable rules and federal securities laws and regulations and that he or she has conducted one or more meetings with the chief compliance officer in the preceding 12 months to discuss such processes.