General Broker-Dealer Activities
A general securities principal supervises the firm's overall business and its compliance with FINRA and SEC rules. This chapter covers the supervisory system, written procedures, financial responsibility rules, books and records, communications, and anti-money-laundering oversight.
The Supervisory System and Written Procedures
Under FINRA Rule 3110, every firm must establish and maintain a supervisory system reasonably designed to achieve compliance with securities laws and rules. This includes written supervisory procedures (WSPs), the designation of qualified principals to carry out supervision, assignment of each registered person to an appropriately registered supervisor, and internal inspections of offices. A principal must review and approve key activities, and the firm must test and verify that its procedures work.
Financial Responsibility Rules
The SEC's net capital rule (Rule 15c3-1) requires a broker-dealer to maintain minimum net liquid assets so it can wind down without harming customers. The customer protection rule (Rule 15c3-3) requires firms to safeguard customer cash and fully paid securities through the reserve formula and possession-or-control requirements. Firms must also file FOCUS reports on their financial condition. A principal monitors these ratios and ensures required notifications are made if minimums are breached.
Books, Records, and Communications
SEC Rules 17a-3 and 17a-4 specify which books and records a firm must create and how long to keep them; many records must be preserved for at least three to six years and stored in a non-rewriteable, non-erasable (WORM) format. Under FINRA Rule 2210, communications are classified as retail communications, correspondence, or institutional communications, each with different principal approval, filing, and recordkeeping requirements. Retail communications generally require principal approval before use.
Anti-Money-Laundering Oversight
FINRA Rule 3310 requires each firm to have a written AML program approved in writing by senior management, including a designated AML compliance officer, a customer identification program, ongoing monitoring, independent testing, and the filing of Suspicious Activity Reports. The principal ensures the program is implemented and that red flags are investigated and escalated appropriately.