Supervision of Registered Representatives in a Bank Broker

Supervision of Registered Representatives in a Bank Broker Dealer FIRMA San Francisco Conference March 31, 2010

Topics of Discussion • Regulatory Environment • Creating and Maintaining a Supervisory Hierarchy • Compliance • Evaluating Risk 2

Regulatory Environment • Which Regulators is your firm subject to? • What are the regulatory hot topics? • What is the regulatory requirement surrounding supervision of registered representatives? 3

Regulatory Perspective • FINRA / NASD Rules 3130, 3010, and 3012 form a complementary supervisory scheme: – Rule 3130 requires a CEO to CERTIFY that the firm has a PROCESS to adopt adequate supervisory polices and procedures. – Rule 3010 requires the establishment of a supervisory system and ADOPTION of adequate Written Supervisory Policies and Procedures. – Rule 3012 requires firms to TEST and verify supervisory procedures; and, if necessary AMEND policies and procedures. 4

Role of a Supervisory Principal • Supervision of the activities of registered representatives • Review and approval of sales activities • Review communications • Ensure that all registered representatives have required registrations • Ensure that all registered representatives are provided the necessary training • Ensure that branch records are maintained for the required retention period 5

Supervisory Structure • Written Supervisory Procedures • Internal Inspections • Correspondence Review • Transaction Review 6

Supervisory Hierarchy • Creation of Hierarchy System • Maintaining the Hierarchy • Supervisory Principal Qualifications • How Important is this- Enforcement History? 7

How to Ensure Compliance with Policies and Procedures • Branch/Office of Supervisory Jurisdiction Inspections • Written Supervisory Procedures • FINRA Rule 3012, Heightened and Enhanced Supervision • Surveillance • Documentation • Hiring Registered Representatives and Supervisory Principals • Training • Communication • Flexibility and Willingness to change as your business changes 8

Evaluating Risk • Clear Definition of Types of Risk Specific to Your Business • Use Regulatory Enforcements as a Learning Tool 9

Supervision • • • Trade Review Customer Contact Surveillance Reports Trainings Continuing Education Seminars and Public Speaking Engagements • Gift and Entertainment Policy 10 • • Supervisory Structure Complaints Hiring Heightened and Enhanced Supervision Branch and OSJ Visits OSJ Inspections Branch Inspections Communications with the Public

Questions? 11