FINRA Rule 3110, also known as the supervisory responsibility rule, mandates FINRA member firms including brokerage firms and investment banks, to establish and enforce a systematic supervisory policies and procedures to supervise their associated persons such as brokers and advisors. The overall objective of this rule is to prevent fraudulent activities, safeguard against criminal behavior, and ensure the integrity of the securities markets.
The core functions of this rule are to:
Ensure Compliance of Securities Laws, Industry Regulations, and FINRA Rules; and
Allow for Oversight and Review. This includes reviewing their communications, transactions, and adherence to procedures.
FINRA Rule 3110 is a complex and complicated Rules. The full text of 3110 is located here:
https://www.finra.org/rules-guidance/rulebooks/finra-rules/3110
Some of the key requirements 3110 imposes on member firms include:
Written Supervisory Procedures (WSPs): Firms must create customized WSPs outlining supervisory practices for their specific business activities and personnel.
Supervisory Personnel: The rule prevents conflicts of interest by barring supervisors from overseeing their own work or having their compensation influenced by those they supervise.
Branch Office Supervision: The rule classifies branch offices (supervisory vs. non-supervisory) which determines the frequency of FINRA inspections.
For an in-depth exploration of FINRA Rule 3110, you can refer to the FINRA website https://www.finra.org/rules-guidance/key-topics/supervision.