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Regulatory Sanctions

Thou Shalt Not Permit Self-Supervision

June 21, 2018

[Image: by Richter /]


by Howard Haykin


FINRA Rule 3110(b)(6)(C) provides that a firm's supervisory system shall include procedures prohibiting associated persons who perform a supervisory function from supervising their own activities.


A New York City-based firm agreed to settle FINRA charges that it failed to supervise the variable annuity recommendations and related retail communications of one of its brokers. Under terms of the settlement, the firm will pay a $25K fine, certify in writing that its systems, policies and procedures have been adequately updated, and pre-file with FINRA’s Advertising Regulation Department for the next 6 months all new retail communications pertaining to any variable annuity product.


FINRA FINDINGS.    FINRA notes that the firm, a FINRA member since 1998, conducts a retail brokerage business and employs around 50 registered persons across 3 branch offices. From October 2014 through September 2015, the broker, who also was registered through the Firm as a general securities principal, advertised and sold variable annuities (“VA”). The Firm permitted the broker to self-supervise his VA-related activities, in deference to his experience and status as a general securities principal.


Among other things, the broker would send prospective customers numerous retail communications concerning a VA-based investment strategy that he developed. The communication typically included a form email, a form letter, and an advertisement in a national newspaper. However, these communications failed to comply with the content standards of FINRA's advertising rules in multiple respects – e.g., some communications falsely described the VA-based strategy as being "at no cost." Yet, because the broker was self-supervising his VA-related activities, the Firm failed to identify or prevent these violative communications.


This case was reported in FINRA Disciplinary Actions for June 2018.

For details on this case, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2015043369501.