Per the National Association of Securities Dealers (“NASD”) Rule 1022, every broker dealer must retain a Series 27/28 Financial and Operations Principal (“FINOP”). A Series 27 FINOP is one who is licensed to be a FINOP of a full service or introducing broker dealer. Whereas a Series 28 FINOP is one who is only licensed to serve an introducing broker dealer.

Your broker dealer may have a licensed FINOP on staff. However, many broker dealers retain a third party FINOP service provider which is allowed by the Financial Industry Regulatory Authority (“FINRA”) . If your broker dealer is engaging with a third party FINOP, it is possible that you assume that your FINOP knows everything related to the position and is doing all of the necessary work involved. There are many quotes that come to mind regarding assumptions, and none are positive. A licensed FINOP should know all of the basic FINOP responsibilities within Rule 1022, but when hiring your FINOP, do you take the time to interview them; do you ask how your new FINOP will make your firm a priority and strive to meet all of the obligations and timelines to ensure that your broker is always in compliance? You may say that you do not know exactly what to ask, and that is where this post picks up. Below are a few basic questions to ask when interviewing a third party FINOP service provider.

Does your service provide a Financial and Operations Supervisory Matrix? Your FINOP should have a Financial and Operations Supervisory Matrix that he/she completes with the Series 24 Principal as soon as the relationship begins. This matrix will determine who is ultimately responsible for various tasks. This sets the precedent within the relationship of what is expected of the FINOP, the Series 24 Principal, and any other designated parties within the broker dealer. This matrix opens true lines of communication within the relationship.

Does the FINOP maintain control worksheets to ensure that responsibilities are not forgotten? Every role within the broker dealer has many responsibilities, including the FINOP. Your FINOP should be consistently reviewing his/her control worksheets to ensure that all appropriate responsibilities are being handled, filings are being completed in a timely manner, and that no responsibility is left unresolved. Additionally, know that as the broker dealer, you may ask the FINOP for a copy of their control worksheets if you believe that the FINOP is failing to meet all his/her obligations to the firm.

Is there an annual FINOP audit of the broker dealer? Pursuant to FINRA Notice to Members 06-23, if your broker dealer engages with a FINOP who works part-time, works off-site, or holds multiple registrations, an annual FINOP audit must be conducted. This applies any time a broker dealer engages a third party FINOP service provider. Although not required to be onsite visits since COVID, they are still required to be completed. During this audit, the FINOP reviews a checklist of items with the accounting and operations of the broker dealer to make sure that all books and records are most accurate and current. A written report of this audit should be submitted to management.

Asking these questions of your broker dealer’s third party FINOP service provider will help your firm gain the confidence necessary to make a hiring decision. These are also worthy questions to ask of your current FINOP if you are already in business. If your FINOP cannot provide all three of these key pieces of information to you, it may be time to start interviewing.

Securities Compliance Management employs a full-service accounting and FINOP team. If your broker dealer is looking to engage a best in class third party service, please contact SCM here to set up an interview. Our team of dedicated professionals will help your broker dealer ensure accounting and FINOP compliance as determined by all regulatory authorities.