BROKER DEALERS MUST IMPLEMENT REVIEW OF INTERNAL COMMUNICATIONS BY DEC. 1, 2014

DWH Legal
Chicago
Attorneys

                                             Rule Alert: REVIEW OF INTERNAL COMMUNICATION

  • December 1, 2014: Deadline for broker- dealers to implement review of internal communications related to investment banking and securities business under new FINRA Supervision rule 3110(b)(4).

Expanded Requirements: Rule 3110(b)(4) expands broker-dealer communications review to include internal communications by all firm employees related to the member’s investment banking or securities business. The review must be appropriate for the member’s business, size, structure, and customers…

Additional Requirements in SM:
• SM.06 permits firms to use risk-based principles to determine whether there should be additional policies and procedures for internal communications review which are necessi-tated by its business and structure if such messages are not of a subject matter requiring review under FINRA rules or federal securities laws.
• SM.07 requires electronic or paper review records to identify the reviewer, the material reviewed, review date and actions taken pertaining to identified, significant regulatory is-sues.
• SM.08 permits delegation of the review to unregistered personnel, but assigns ultimate responsibility to the supervisor/principal who must take reasonable and appropriate actions to ensure that delegated functions are properly executed and evidenced sufficiently to demonstrate overall supervisory control.
• SM.09 requires the firm to retain employee internal communications relating to the firm’s investment banking and securities businesses in accordance with Securities Exchange Act Section 17a-4.

Additional Guidance: NTM 14-10, Footnote 11 provides an example of reviewable internal communications: pre-publication communications between non-research and research personnel concerning a research report. Footnote 12 reflects prior guidance that permits member firms to use risk-based principles to flag communications.