15 CSR 30-51.171 - Supervision Guidelines for Broker-Dealers
(1) The phrase "failed reasonably to
supervise" under section
409.4-412(d)(9)
of the Missouri Securities Act of 2003 (the Act) is a standard allowing each
broker-dealer (firm) the flexibility to fashion procedures and systems that
address its particular organizational and management structure. Yet the
following are guidelines that provide guidance to broker-dealers of factors
considered by the commissioner in evaluating reasonable supervision.
(2) The following guidelines shall be factors
in considering what is reasonable supervision, whether:
(A) The firm has established current
procedures and systems for supervising the activities of agents, employees, and
Missouri office operations that are reasonably designed to achieve compliance
with applicable state and federal securities laws and regulations, and, if
applicable, the rules of the Financial Industry Regulatory Authority
(FINRA);
(B) The firm has
established current procedures and systems that could reasonably be expected to
allow a supervisor reasonably discharging his/her supervisory duties under such
established procedures to prevent and detect violations of the Act, and the
firm regularly reviews these procedures and systems;
(C) The firm has reasonably implemented the
procedures and systems referred to in subsections (A) and (B) above;
(D) The firm provides appropriate initial and
periodic refresher training to supervisors, employees, and agents regarding the
firm's procedures and systems and additional initial and periodic training to
supervisors in the procedures and systems referred to in subsections (A) and
(B) above;
(E) The firm reasonably
follows up on indications of wrongdoing, "red flags." Such red flags may
consist of, but are not limited to, activities of unauthorized personnel,
churning, unauthorized trading, low level of production but high expenses,
regulatory actions, prior disciplinary history of one (1) or more customer
complaints, and recent customer complaints;
(F) The firm has an adequate system to track
and monitor the status of customer complaints;
(G) The firm has designated a qualified
supervisor of the broker-dealer for each agent or employee;
(H) The designated supervisor of agents
located in Missouri maintains a principal place of business in Missouri, or in
a location that allows the supervisor to visit the premises of supervised
agents in Missouri within a reasonable time;
(I) The designated supervisor is responsible
for supervising no more agents at any one (1) time than would allow the
supervisor to effectively execute his/her supervisory duties. The appropriate
number of agents which one (1) person can reasonably supervise is dependent on
the nature of the business conducted by the persons supervised, technical
resources available to the supervisor, additional personnel available to assist
the supervisor, and other resources made available to assist the
supervisor;
(J) The firm conducts
annual compliance examinations of supervisory locations with effective
deficiency and follow-up procedures. Unannounced examinations may be reasonable
if there are compliance issues concerning agents or activities;
(K) The firm reasonably audits for compliance
including reasonable follow-up and proof, independent of the agent, that mail
is reviewed for customer complaints and other red flags;
(L) The firm has and implements procedures
and systems for reasonable oversight of supervisors; and
(M) The firm has a reasonable policy for
disciplinary and progressive supervisory action, which is reasonably
implemented.
Notes
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