Broker-Dealer Services

All Broker-Dealers (“BDs”), as required by FINRA Rule 3120, are required to review & test annually, their system of supervisory procedures and internal controls. This is a review to ensure the adequacy and effectiveness of the compliance controls and to provide a summary of the test results and significant identified exceptions. The review will also consider rule changes, as well as recently regulatory developments.

This, generally, includes an evaluation of the following:

• Has the firm designated one or more principals who are responsible for the establishment, maintenance, and enforcement of a system of supervisory control procedures that:
  • Test and verify that the firm’s supervisory procedures are reasonably designed with respect to the activities of the firm and its associated persons to achieve compliance with applicable securities laws and regulations?
  • Provide a summary of the test results and significant gaps found; and
  • Create additional or amend supervisory procedures where the need is identified by such testing and verification.

Bates Compliance will supplement the documents reviewed with interviews with key personnel to ensure that the written report accurately reflects firm practices. Upon completion of the review, Bates will create a written report for management that includes the required CEO certification.

FINRA Rule 3310 requires that Broker-Dealers (“BDs”) conduct independent Anti-Money Laundering (“AML”) program testing on a calendar year basis or more frequently if circumstances warrant. The independent testing must be conducted by a person with working knowledge of applicable requirements under the Bank Secrecy Act and its implementing regulations. 

Bates independent AML review is designed to meet the requirements of FINRA Rule 3310, the Bank Secrecy Act, and the USA PATRIOT Act.

Bates assessment of the adequacy and effectiveness of the AML Program will include a review of the following:

• AML Program Governance
• Key personnel experience
• A sampling of Know Your Client (“KYC”) information
• A review of the firm Customer Identification Program (“CIP”)
• OFAC/SDN sanction list screening
• Transaction monitoring and surveillance
• Suspicious Activity Reporting (“SAR”)
• Employee Training

Upon completion of the review, a written report will be provided that details Bates’ observations and recommendations for improvement, where applicable.

The Exchange Act requires that any Broker-Dealer (“BD”) effecting securities transactions by means of interstate commerce be registered.  BDs are subject to regulation by the SEC, FINRA and any other Self-Regulatory Organization (“SRO”) in addition to the states where they do business.  Unless a registration exemption is available, state laws require registration of any BD doing business from or with residents of their state and the representatives doing business within the state. 

Bates Compliance will aid in the drafting and submission of all required documents to register as a Broker-Dealer. Bates takes a holistic approach to the registration process by first working with your firm to design, create and implement the BD’s supervisory program prior to completing registration. FINRA will expect the firm is meeting all the regulatory requirements upon approval.

The BD will receive upon completion a host of various documents that include, but are not limited to:

• Reserve the name of the BD with FINRA
• Prepare Super Account Administrator Entitlement Form
• Member Firm FINRA Contact Form
• Provide a list and samples of all documentation required to file form NMA (New Member Application)
• Provide the project plan for the BD registration process
• Schedule regular calls to review the progress of the project plan
• Develop financial requirements, initial deposit, and funding process
• Prepare FINRA Form NMA and all required documentation
• Assist in preparation of the Business Plan and the Business Continuity/Disaster Recovery Plan
• Prepare Written Supervisory Procedures
• Prepare the Continuing Education Needs Analysis and Training Plan
• Assist with development of Anti‐Money Laundering Procedures
• Identify required experience and licensing requirements, based on the business model
• Prepare and submit Forms U4 for Principals
• Prepare and submit Form BD
• Prepare and submit Form BR
• Assist in preparation of the initial fidelity bond application
• Prepare Principals for FINRA’s pre‐membership interview
• Attend FINRA’s membership interview (If desired)
• Prepare and submit state applications, as requested

Bates may involve other practice areas as well as our subject matter expert affiliates to provide particular experience to this service.

Broker-Dealers (“BDs”) must conduct a review of its Office of Supervisory Jurisdictions (“OSJs”) and non-OSJ branches that supervise non-branch locations at least annually. All non-supervising branch offices must be inspected at least every three years. All non-branch offices must be inspected periodically depending on the nature and complexity of the branch’s business, volume of business, and number of associated persons assigned to the branch.

Bates branch inspections includes verification of policies and procedures related but not limited to:

• Safeguarding of customer funds and securities
• Maintaining required books and records
• Supervision of supervisory personnel
• Transmittal of funds or securities
• Changes in customer information
• Transaction review and reporting
• Sales practices
• Advertising and other communications
• Client complaints
• Cybersecurity

An inspection report will be produced that summarizes the findings and provides recommendations, if applicable. If a firm is utilizing an audit platform (e.g., RegEd AuditTrax), Bates will use the firm platform.

Bates Compliance may involve other practice areas as well as our subject matter expert affiliates to provide particular experience to this service. 

Broker-Dealer (“BD”) compliance programs will at times need resource assistance or added expertise. Whether it is a change in compliance program personnel, changes in the business, or application of regulatory requirements, BDs may need temporary assistance.

Bates provides “As-Needed” compliance program support on a project or hourly basis for various program needs such as, but not limited to:

• Providing interim support for vacant compliance department positions
• Creating, updating, or reviewing compliance program related documentation:
  • Written Supervisory Procedures
  • Business Continuity Plans (“BCP”)
  • Anti-Money Laundering Program
  • FINRA applications and reports
  • Client notices and applications
• Performing marketing and advertising reviews
• Performing other tailored supervisory procedure reviews and testing
• Developing and delivering compliance related training
• Supporting vendor due diligence activities
• FINRA examination support

This is a temporary service to support a BD’s periodic need for assistance with compliance program administration. Each service includes a statement of work and is engaged as a project with an estimated beginning and end date. Bates consultants and our subject matter expert affiliates can provide experience in the many areas of regulatory compliance.

Keeping investment advisers up‐to‐date on Rules and Regulations is a crucial part of maintaining a robust compliance culture. Bates Compliance and Regulatory Alerts provide firms with keen insights on what is changing and what they can do to stay compliant.