Overview

The Financial Industry Regulatory Authority (FINRA) submitted to the Securities and Exchange Commission (SEC) for its approval a set of proposed consolidated supervision rules. This proposal seeks to consolidate NASD and NYSE supervision rules, codify previously issued guidance, and adopt some substantive changes, such as: • Requiring supervision, including the implementation of written supervisory procedures, for all of a member’s business lines, regardless of whether they require broker-dealer registration. • Requiring the review by a registered principal, evidenced in writing, of the member’s transactions relating to its investment banking and securities businesses. • Requiring that the designated principal of an Office of Supervisory Jurisdiction (OSJ) have a physical presence at the OSJ on a regular and routine basis, and stating a presumption that a principal will not be assigned as the on-site supervisor for more than one OSJ. • Permitting risk-based principles for the review of incoming, outgoing and internal communications, and permitting delegation of such review to unregistered persons. • Amending the provisions governing supervision of producing managers. • Requiring that the testing and verification conducted as part of annual office inspections include review of the policies regarding the supervision of supervisory personnel. • Requiring additional content in the annual reports to senior management regarding the testing of supervision and compliance for those firms with $150 million or more in gross revenue. FINRA first proposed consolidated supervision rules in May 2008. This new proposal addresses some, but not all, of the concerns raised by the comments to the 2008 proposal.