Checklist for FINRA Compliance


The Financial Industry Regulatory Authority (FINRA) is the largest independent securities regulator in the U.S.. Their mandate is to protect the American people through ensuring the securities industry operates fair dealings and provides honest statistics. To operate in compliance with FINRA, brokerage firms must do a number of things to provide both FINRA and American investors with the transparency they require to make accurate and informed investments in the stock market.

Identify Principles of Supervisory Control

  • All securities firms should have a system of supervisory control in place to ensure there is no misappropriation of funds or fudging of numbers. Transparency is absolutely vital, so being upfront with the principles a firm will be using to establish, maintain and enforce that system of supervisory control is a must. These supervisory procedures will need to be tested on a regular basis to ensure their suitability. Both who will be testing them and when the testing is to be done must be reported to FINRA.

Commit to Preparation and Submission of an Annual Report

  • Every securities firm needs to designate someone to prepare annual reports describing both the firm's aforementioned system of supervisory controls, a summary of the review of those procedures and any significant additions or amendments to the procedures. These reports must be submitted to FINRA no later than one year after the date of the last report. These reports provide FINRA with a concise summary of all supervisory actions taken by an individual firm, allowing them to spot inconsistencies or weaknesses in a firm's control policies.

Identify Managers and High-Stakes Producers

  • Any managers working within the company must be identified to FINRA to ensure only approved, qualified individuals operate within each individual securities organization. This is a security and accountability issue more than anything. More important is FINRA's requirement that all producing managers (managers buying and selling stocks) that are qualified to sell up to 20 percent of a given stock must be under heightened supervision. Actual "heightened supervision" procedures are approved on a case-by-case basis and must be submitted to FINRA for approval before implementation. The objective of the requirement is simply to ensure an extra level of oversight for any brokers handling significant amounts of the stock market at any given point in time.

State Review and Supervision Procedures

  • Similar to the supervisory control procedures, FINRA requires securities firms seeking to be in compliance to provide an explanation of how and when a firm will monitor and confirm three distinct issues: first, the transmission of funds and securities from customers to third-party or outside accounts; second, any customer changes or address; and third, any customer changes of investment objectives. These final rules are an added level of oversight and defense against shady financial dealings including the transfer of money to off-shore money havens.


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