Financial Reporting for Broker Dealers. When you decide to enter the highly regulated broker dealer world, you must arrange to have the properly licensed people registered with your firm. One of those is a FINOP (Financial and Operations Principal). FINOP’s have either a Series 27 license or a Series 28 license. Your broker dealer’s FINOP is required to submit various regulatory filings to FINRA. Note that hiring a bookkeeper or a certified public accountant will not fulfill the requirement of having a licensed FINOP registered with your broker dealer.

A new broker dealer, which is defined as a broker dealer in its first year of business, will be required to submit monthly FOCUS Part 2A reports to FINRA. Each month, your broker dealer’s FINOP will review the Balance Sheet and Net Income Statement to make sure that all necessary items have been properly booked on an accrual basis in your accounting system. The FOCUS Part 2A report provides details to FINRA such as firm liquidity which is based on the Balance Sheet items along with providing the details necessary to calculate the broker dealer’s net capital calculation. The FOCUS Part 2A also allows FINRA to see current revenue and expenses. By showing FINRA the broker dealer’s expenses, FINRA can review the burn rate of expenses and question the broker dealer should FINRA be concerned with the broker dealer’s financial wherewithal. Established broker dealers a required to file the FOCUS Part 2A quarterly.

Additionally, every broker dealer is required to file a quarterly Supplemental Schedule of Income and Form Custody. The Supplemental Schedule of Income provides FINRA with a detailed breakdown of all income and expenses, whereas the FOCUS Part 2A gives FINRA only a bird’s eye view. The Form Custody lets FINRA know the details of any customer assets. Even if not applicable, the broker dealer must still complete the Form Custody and submit it to FINRA.

Annually, your FINOP will submit to FINRA a Schedule I. The Schedule I provides FINRA with various information that helps them ascertain specific financial aspects of the broker dealer.

The reports listed above are the most common filings required by FINRA for broker dealers. However, depending on the type of broker dealer that your firm is, additional reports may be required. If you would like more information regarding the FINOP services provided by Securities Compliance Management, please contact us here and we will be glad to work with your broker dealer to ensure that it is in compliance with FINRA regulations.