Duty to Supervise

Every broker dealer has a duty to establish and enforce an effective supervisory system designed to prevent violations of the securities laws. FINRA Rule 3110 sets out the requirements for establishing and implementing a supervisory system.

The branch manager and the chief compliance officer have a multitude of duties and responsibilities to make sure that the firm’s registered representatives are observing “high standards of commercial honor” in dealing with customers. Among their duties are ensuring that a client’s opening account documents are properly completed; approving the daily transactions, periodically reviewing transactions for suitability and following up on “red flags” or indications of wrongdoing.

Failure to supervise is one of the most commonly brought claims in FINRA arbitrations. On the regulatory side FINRA referred more than 700 fraud cases for prosecution in 2014 and levied more than $166 million in fines.