Office Of Supervisory Jurisdiction

A FINRA examiner asks Ravensmere Securities to demonstrate that a principal actually reviewed the mutual fund transactions its representatives entered last month. Written supervisory procedures alone will not satisfy the examiner because the firm must also:

1. A.Evidence the review, for example by documenting who reviewed each transaction and when.Correct. FINRA requires the review to be evidenced, so the firm can show the reviewer and the date for each item.
2. B.File the reviewed transaction reports with FINRA each month.There is no monthly filing of reviewed transactions. The evidence is kept at the firm and produced on request.
3. C.Obtain the customer's written acknowledgement that a principal reviewed the transaction.Supervisory review is an internal obligation; no customer acknowledgement is involved.
4. D.Have the reviewing principal re-approve each transaction annually for the life of the account.Review attaches to the transaction when it occurs; there is no annual re-approval requirement.

Why: Supervision is tested by evidence, not by intention. FINRA requires a member to have procedures for the review of transactions and to evidence that review, so that the firm can show who reviewed what and when. Initialling or electronically flagging the reviewed items, or generating a dated exception report the reviewer signs off, is how the obligation is met in practice.

A firm applies the exact same inspection schedule to every branch office, regardless of office size, business mix, or whether the office supervises other locations. What is the concern with this approach under Rule 3110(c)?

1. A.None -- treating every office identically ensures fairness across the firmWrong. Fairness of treatment is not the standard; Rule 3110(c) calls for a risk-based schedule, which by design differentiates among offices.
2. B.The schedule ignores the risk-based differentiation Rule 3110(c) calls for among offices with different supervisory roles and risk levelsCorrect. A risk-based inspection program should apply more scrutiny to higher-risk or more supervisory-significant locations, not a single uniform schedule.
3. C.None, as long as every office is inspected at least onceWrong. Simply inspecting every office is not enough if the schedule fails to reflect differing risk levels among them.
4. D.None, because inspection frequency is entirely at the firm's discretionWrong. Rule 3110(c) imposes a risk-based inspection standard; it is not simply left to unconstrained firm discretion.

Why: Rule 3110(c) calls for a risk-based inspection program: offices with greater supervisory responsibility or higher-risk business (such as an Office of Supervisory Jurisdiction) generally warrant more frequent or more intensive inspection than lower-risk locations. Applying an identical schedule to every office ignores that required risk differentiation.

Under FINRA Rule 4513, how must a member maintain its records of written customer complaints?

1. A.In each office of supervisory jurisdiction, either as a separate file of the complaints and the action taken or as a separate record of them with a clear reference to the correspondence file.Correct. It states both the location and the two permitted forms the record may take.
2. B.In a single centralized file at the firm's main office, so that no branch can suppress a complaint about its own staff.Wrong. This is a defensible internal policy and firms often adopt it, but it is not what the rule requires and it moves the record away from the responsible supervisor.
3. C.Within each customer's account file, so that the complaint travels with the account if it is later transferred.Wrong. Filing by customer destroys the supervisor's ability to see a pattern across an office, which is the reason a separate file is required.
4. D.In the general correspondence file, provided the firm can produce the items on request.Wrong. Producibility on request is not separateness, and it is exactly the arrangement the requirement of a separate file is written to prevent.

Why: The rule locates the record at the office of supervisory jurisdiction and requires it to be kept separately, either as a distinct file containing the complaints and the action the firm took, or as a distinct record of the complaints carrying a clear reference to the file where the correspondence itself sits. Separateness is the point: a complaint buried in general correspondence is unfindable by a supervisor and by an examiner, and the action taken is part of the record rather than an optional annotation. Firms may of course maintain a central complaint system in addition, but the rule's requirement runs to the supervisory office.

Thurlow Securities operates a location where two registered representatives meet the public and take mutual fund orders, and a second location where a principal gives final approval to new customer accounts and to retail communications. With respect to those two locations:

1. A.the first is an office of supervisory jurisdiction because customer orders originate there, and the second is a back office.Taking orders is ordinary branch activity. Reviewing and endorsing them is the supervisory function.
2. B.the first is a branch office and the second is an office of supervisory jurisdiction, because final approval of accounts and retail communications occurs there.Correct. The listed functions are what designate an OSJ.
3. C.neither is a branch office, because open-end fund sales are exempt from the branch office definition.No such exemption exists for fund sales.
4. D.both are ordinary branch offices, since an office of supervisory jurisdiction requires at least five registered persons.There is no headcount test. The designation turns on the functions performed.

Why: Any location at which one or more associated persons regularly conducts a securities business is a branch office. A location becomes an office of supervisory jurisdiction when specified supervisory functions occur there, among them final acceptance or approval of new accounts, final approval of retail communications, review and endorsement of customer orders, structuring public offerings, market making or order execution, and custody of customer funds or securities. Every office of supervisory jurisdiction is a branch office, but most branch offices are not offices of supervisory jurisdiction.