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🤝 Employee Conduct & Reportable Events · Lesson 5 of 5 · 5 min

Supervision: Every Rep Has a Principal

👀 No one at a broker-dealer works unsupervised, not even the top producer. The rule behind that is FINRA 3110.

💡 Key idea

Rule 3110: WSPs, a principal over every rep, annual compliance meeting, inspections (OSJ yearly, other branches every 3 years). See a red flag? Escalate to a supervisor or compliance.

🧠 Why it matters

FINRA RULE 3110 requires every member to run a SUPERVISORY SYSTEM: WRITTEN SUPERVISORY PROCEDURES (WSPs), a registered PRINCIPAL assigned to each rep, review of trades and correspondence, and an ANNUAL COMPLIANCE MEETING for every registered person. Offices are INSPECTED: an office of supervisory jurisdiction (OSJ) or a branch that supervises others at least ANNUALLY, other branches at least every THREE YEARS, non-branch locations periodically. Firms check U4 accuracy within 30 days of filing, and may place a rep with a disciplinary history under HEIGHTENED SUPERVISION (closer review, extra approvals). If something looks wrong (an odd wire request, a customer's confused complaint, a colleague's secret side deal) the right move is to escalate to your supervisor or compliance, not to investigate or fix it yourself.

📈 In the real world

📧 A customer's 'new email address' asks Tasha to wire $40,000 to an overseas account today. It feels urgent and off. Rather than calling the number in the email, she escalates to her principal, who verifies with the customer by a known phone number. It was a hacked inbox; escalation saved $40,000.

📌 Takeaways

  • 3110: WSPs and a designated principal for every registered person
  • OSJs inspected annually; non-supervising branches at least every 3 years
  • Red flags go to your supervisor or compliance right away

📖 Terms in this lesson

Written supervisory procedures (WSPs): A firm's written rules describing how it supervises its business and people to comply with securities laws.

✅ Test yourself

How often must an office of supervisory jurisdiction (OSJ) be inspected under FINRA Rule 3110?
  1. At least annually
  2. Only after complaints
  3. Every month
  4. Every three years

Answer: A · At least annually

OSJs and branches that supervise non-branch locations are inspected at least annually. The three-year cycle applies to branches that supervise no other locations.

Which is required of every registered person under Rule 3110?
  1. A personal surety bond
  2. An annual compliance meeting
  3. A quarterly Form U4 refile
  4. A yearly in-person exam

Answer: B · An annual compliance meeting

Each registered person must take part at least annually in a compliance meeting or interview (it need not be in person). Bonds, refiled U4s and yearly exams are not 3110 requirements.

A rep notices a coworker taking cash from a customer for a deal not on the firm's books. What should the rep do?
  1. Ignore it unless the customer complains
  2. Confront the coworker privately
  3. Escalate to a supervisor or compliance
  4. Report it to the SEC anonymously first

Answer: C · Escalate to a supervisor or compliance

A possible selling-away or theft red flag should go promptly to a supervisor or compliance, who are responsible for investigating. Ignoring it or confronting the coworker alone can make things worse.

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