FINRA Rule 3120 testing and the certification required by FINRA Rule 3130 are each required to be completed once each calendar year. FINRA members are required to submit a report to the firm’s senior management that details the system of supervisory controls and the results of the test of those controls. The FINRA Rule 3120 report is required to be completed no less than annually. And, the certification required under Rule 3130 must be completed annually but not later than the anniversary date of the previous year’s certification. The FINRA Rule 3130 report must be current as of the date of the certification. Finally, if you are a new FINRA member you are required to conduct your first FINRA Rule 3120 test and FINRA Rule 3130 certification within 12 months of becoming a FINRA member.

The annual CEO certification required by FINRA Rule 3130 must be supported by a report that covers the firm’s processes for establishing, maintaining, reviewing, testing and modifying its supervisory and compliance procedures. The report generated as a result of the FINRA Rule 3120 testing may also be combined with the FINRA rule 3130 report. This report services as the basis for the CEO’s certification. Once the CEO has held a meeting with the CCO to discuss matters related to the certification, including the firm’s compliance efforts and plans (along with any corrective action required as a result of the report) the certification should be completed and maintained.

FINRA requires the Rule 3120 report to be submitted to the firm’s senior management. However, the FINRA Rule 3130 report must be submitted to the firm’s board of directors and audit committee (or equivalent) at the earlier of their next scheduled meetings or within 45 days of the annual certification.

Written supervisory procedures (or WSPs as they are often called) are the procedures that the firm has developed to supervise the various businesses in which it is engaged. For each area, they specify the primary requirements, who is responsible for supervising that area, what review is performed (with what records), how often the review is conducted, and how it is documented. Supervisory control procedures however, are different in that they specify how (and who) tests and verifies the WSPs to ensure that they are reasonably designed in respect to all business lines of the broker-dealer. Importantly, they include procedures for how the firm monitors developments, rule filings, and changes in business to ensure that new or revised procedures are put into place as required.

The prior version of FINRA Rule 3120 was called NASD Rule 3012. The old version of the rule contained extensive requirements related to the supervision of producing branch managers. Specifically, firms were required to identify producing managers who generated 20% or more of the revenue of the business units supervised, and then to develop heightened supervisory procedures for monitoring the activities of those managers. FINRA rule 3110(b)(6)(C) replaces this requirement and instead requires procedures that effectively mitigate the conflicts presented by the producing branch manager rules. That provision also requires that a firm develop procedures prohibiting its associated persons from supervising themselves or reporting to, or having their compensation or continued employment determined by a person they are supervising. In other words, FINRA expects that firms have procedures to sufficiently mitigate conflicts of interest. In 2013, FINRA published this report on conflicts that extensively outlines these requirements.