FINRA to Keep Annual Compliance Meeting Rule

Based on a retrospective rule review, which took place in April 2018, FINRA has decided to continue requiring broker-dealers to conduct an annual compliance meeting (ACM). After a lengthy assessment, FINRA determined that Rule 3110(a)(7) “continues to meet its regulatory objectives effectively and efficiently,” and that the broker-dealer regulator will maintain the rule in its current form.

While the review confirmed the continuing importance of the rule, some stakeholders asked for some clarifying guidance concerning the various ways in which annual compliance meetings may be conducted. Below Quest CE summarizes the review process, the predominant themes that emerged from stakeholder feedback and the basis for the determination.

Background of Rule

Rule 3110(a)(7) requires each registered representative and registered principal to participate, at least once each year, in an interview or meeting at which compliance matters relevant to their particular activities are discussed. The requirement gives registered persons the opportunity to regularly discuss compliance issues and assist the firm in ensuring that registered persons remain current on applicable regulatory developments or changes in firm policies.

Rule Assessment

To conduct this assessment, FINRA first sought feedback from all interested external stakeholders through a request for comment in Regulatory Notice 18-14. FINRA also obtained the perspective of its operating departments, most notably Member Supervision. Lastly, a confidential survey was distributed to all member firms to validate the feedback received and to provide an additional opportunity for all members to provide input on the effectiveness and efficiency of the ACM requirement. At the end of the assessment, a few key themes emerged, which included:

1.) The majority of stakeholders viewed the ACM as an important component of a preventive compliance program that promotes a culture of compliance in a cost-effective manner.
2.) Many stakeholders suggested that FINRA provide updated guidance on the flexibility concerning the methods or manner by which an ACM may be conducted.
3.) Members requested additional guidance on the topics that should be discussed at an ACM.
4.) Several stakeholders suggested that FINRA consider whether the ACM and Firm Element requirement can be streamlined to avoid duplication and minimize burdens on firms.

76% of Firm Members in Favor of ACM

According to the results of the survey, approximately 76% of survey respondents indicated that the ACM was an important part of a preventive compliance program. The survey also showed that the benefits associated with conducting ACMs were equal to or greater than their costs, and most stakeholders agreed that the value of ACMs was worth the time it takes to conduct them.

Firms Desire More Flexibility to Conduct ACM

Stakeholders suggested FINRA should consider providing more flexibility in how compliance information is delivered. FINRA does, however, permit firms to use methods outside of a live presentation to host their ACM, such as on-demand webcast or course, video conference, interactive classroom setting, telephone or other electronic means, given that they can ensure attendance throughout the entire meeting.

Topics to Discuss at a Compliance Meeting

Some stakeholders also asked that FINRA provide guidance on the topics that should be discussed at a compliance meeting. FINRA had indicated that it would not be possible to provide an exhaustive list of the topics that should be addressed at a compliance meeting. As the purpose of the compliance meeting is to provide firms with the opportunity to review compliance matters relevant to the particular registered person, naturally, topics to be discussed would depend largely on the business of each firm and the particulars of their compliance policies and procedures.

Coordinate the ACM with Other Continuing Education

The Securities Industry/Regulatory Council on Continuing Education (CE Council), in partnership with FINRA and other self-regulatory organizations, is currently exploring a number of opportunities to improve the effectiveness and efficiency of the Continuing Education (CE) program. Included in this effort is assessing how the ACM requirement may be coordinated with CE training requirements. FINRA intends to continue working closely with the CE Council to assess the feedback received from firms on, among other things, identifying potential redundancies in training requirements.

After all is said and done, FINRA believes that Rule 3110(a)(7) continues to meet its regulatory objectives effectively and efficiently. Accordingly, FINRA has determined to maintain the rule in its current form. For additional questions on FINRA Rule 3110(a)(7) or implementing your firm’s annual compliance meeting, please contact the Quest CE team at info@questce.com.