FINOP News – FINRA South Region Compliance Seminar

November 21, 2014


FINRA Financial and Operations Update

The FINRA South Region Compliance Seminar was held on November 20 and 21, 2014 in Fort Lauderdale, Florida. During the session on Financial and Operational Issues on November 21, 2014, FINRA Associate Vice President Susan DeMando Scott and FINRA Vice President Kris Dailey updated the audience, which was largely made up of introducing firms, on recent rule updates as well as FINRA priorities.

In listening to the information packed session, there were several items that seemed to be of particular note to introducing members of FINRA since both are new and both are required to be implemented in relative short order. The first item is the amended SEC Rule 17a-5 which is more fully detailed in SEC Release 34-70073.

While the SEC Release itself is 316 pages long, the panel did an excellent job of boiling it down to the needs of the particular audience. The final rule was published by the SEC on July 30, 2013, and the requirements become effective June 1, 2014.

The first matter is relatively simple. The SEC amended paragraph (f)(2) of SEA Rule 17a-5 to the statement that must be filed regarding the designation of a member’s independent accountant. Specifically, broker-dealers must file a Statement Regarding Independent Public Accountant. This is the case even if the broker-dealer had previously filed a “Designation of Independent Accountant” form with FINRA in the past. Fortunately, FINRA has made this easy by creating a template that is available in the Firm Gateway. This electronic filing must be made no later than the 10th day of the month in which the broker-dealer’s fiscal year ends, which for most will mean December 10, 2014.

The second matter, while somewhat more complex, was also made simple by the panelists. Introducing broker-dealers must now prepare either an Exemption Report discussing the broker-dealer’s compliance (or non-compliance) with their exemption from SEC Rule 15c3-3. In the case of a clearing firm, a Compliance Report must be prepared discussing details of the carrying firm’s compliance (or non-compliance) with the financial responsibility rules of the SEC. The former, which applies to most firms that were in attendance requires the preparation of a report by the firm which essentially addresses three areas in the rule.

First, the report must contain a statement as to which exemption the broker-dealer is claiming from SEC Rule 15c3-3. Second, the report must state whether the broker-dealer met the identified exemption provisions in paragraph (k) of Rule 15c3-3 throughout the most recent fiscal year without exception or the report must include a third statement as to each exception during the most fiscal year, including a brief description of the nature of each exception and the approximate dates that each exception existed.  These statements are to be made regarding the most recent fiscal year of the broker-dealer and must be made to the “best knowledge and belief of the broker or dealer.” These reports are required for broker-dealers filing audit reports with fiscal years ended after June 1, 2014.

Also, broker-dealers that are members of SPIC and who must file audited reports pursuant to SEC Rule 17a-5(d)(1), must file a copy of these reports with SIPC which can be done electronically (via email) at Just include the firm’s SEC number, the date of fiscal year end and the name of the member in the subject line.

If you have questions about these amendments, call Mitch Atkins, FINRA’s former South Region Director who is now Principal at FirstMark Regulatory Solutions at 561-948-6511.


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