If broker-dealers didn’t know so already, the Financial Services Regulatory Authority is making it clear once again.
In a proposed new rule regulating the use of third-party service providers, the self-regulatory agency for broker dealers, says that outsourcing doesn’t relieve a broker-dealer from its regulatory obligations. The broker-dealer must adopt policies and procedures that will ensure the proper supervision of the third party firm’s capabilities and compliance.
FINRA also wants to restrict outsourcing by clearing or carrying firms by requiring that an associated person have responsibility for movement of cash, preparation of net capital computations and execution of compliance systems. Clearing firms must also notify FINRA of any outsourcing agreements. Comments on the new rule are due by May 13.
“The proposed FINRA rule is consistent with FINRA’s current guidance that a member firm’s use of a third-party service provider for such activities does not relieve the firm of its ultimate responsibility to achieve compliance with all applicable securities laws and regulations and FINRA and MSRB [Municipal Securities Rulemaking Board] rules and that the ultimate responsibility for supervision of outsourced activities lies with the firm, “ wrote FINRA.
The regulatory agency said that given the responsibilities of a clearing or carrying firm to process trades for an introducing broker-dealer it was important that the third-party provider also comply with FINRA and MSRB regulations. “The involvement by improperly authorized or inadequately supervised persons may cause systemic risk and undermine investor confidence in the securities industry,” wrote FINRA.
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