FINRA Rule 4530 (formerly Rule 3070) requires broker-dealers to report matters such as customer complaints, disclosure events and internal conclusions, among other things. Since 2011, the requirements of the old rule (3070) were incorporated into the new rule (4530) along with a few additional items.
The easy part of Rule 4530 is the reporting of quarterly and statistical information about customer complaints. Generally, the requirement is that any customer complaints received by a broker-dealer must be reported to FINRA by the 15th day of the month following the calendar quarter in which the compliant was received. And this requirement applies to written complaints. The complaints must be reported in the format FINRA specifies – electronically.
Another requirement of the rule is that broker-dealers must report certain specified events relating to its associated persons to FINRA no later than 30 calendar days after the employing broker-dealer knows (or should have known) about the event. The events requiring disclosure include generally serious issues such as a finding that an associated person has violated securities laws, been convicted of a felony, is a respondent in a securities arbitration involving an award exceeding $15,000, and many other items. The full list can be viewed here.
One of the more controversial aspects of the requirements can be found in Rule 4530(b). This is the section which requires reporting when a broker-dealer, “has reasonably concluded or reasonably should have concluded that an associated person of the member or the member itself has violated any securities-, insurance-, commodities-, financial- or investment-related laws, rules, regulations or standards of conduct of any domestic or foreign regulatory body or self-regulatory organization.” FINRA has said in the supplementary material to the rule that it only expects reporting of conduct that has “widespread or potential widespread impact” to the broker-dealer, its customers or the markets. It also requires reporting of conduct that arises from, “a material failure of the member’s systems, policies, or practices involving numerous customers, multiple errors or significant dollar amounts.” And for purposes of this reporting requirement, FINRA has stated that the rule applies only to situations where the member has “concluded or reasonably should have concluded on its own that violative conduct has occurred.” In other words, the requirement of paragraph (b) of the rule does not apply to findings by external bodies. Again, the full requirement can be viewed here.
Knowing what should be reported under paragraph (b) of this rule can be complicated. FINRA has issued a significant amount of guidance in this area. And importantly, FINRA expects that its members have developed written procedures about the reporting requirements and how these requirements are implemented given the organizational structure of the broker-dealer.
If you have questions about how FINRA rules may impact your broker-dealer’s operations, Mitch Atkins, FINRA’s former South Region Director is now Principal at FirstMark Regulatory Solutions and can be reached by calling 561-948-6511.