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Series 14 study materials
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Series 14 practice questions

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Question 1Firm Compliance Program and Regulatory Obligations

A FINRA member firm is building its supervisory system. Under FINRA Rule 3110, the firm's supervisory policies and procedures must be:

  1. submitted to and approved by FINRA before the firm may rely on them
  2. copied from the model procedures published in FINRA's rulebook
  3. limited to the activities of representatives serving retail customers
  4. in writing and reasonably designed to achieve compliance Correct answer.

Explanation

FINRA Rule 3110 requires each member to establish and maintain a supervisory system, including written procedures, that is reasonably designed to achieve compliance with applicable securities laws, regulations, and FINRA rules. The procedures must be tailored to the firm's actual business lines and activities. FINRA does not pre-approve them, and no model text must be adopted.

Question 2Firm Compliance Program and Regulatory Obligations

FINRA rules require a member firm to hold a compliance meeting for its registered personnel at least:

  1. once every two years
  2. monthly
  3. quarterly
  4. annually Correct answer.

Explanation

FINRA Rule 3110 requires each member to conduct, at least annually, a meeting at which compliance matters relevant to the registered persons' activities are discussed. The meeting may be held in person or by electronic means. Quarterly or monthly meetings exceed the minimum and are not mandated.

Question 3Firm Compliance Program and Regulatory Obligations

A firm's AML compliance staff have just determined that a customer's transaction is suspicious and a suspicious activity report is required. The firm must file the SAR no later than:

  1. 5 business days after the determination
  2. 24 hours after the determination
  3. 30 calendar days after the initial determination Correct answer.
  4. 60 business days after the determination

Explanation

A SAR must be filed no later than 30 calendar days after the date the firm initially detects facts that constitute a basis for filing. If no suspect is identified, the period may be extended to no more than 60 calendar days. The clock runs from detection, not from the completion of any internal investigation.

Question 4Firm Compliance Program and Regulatory Obligations

A registered representative wants to give a holiday gift to an employee of a customer firm. Under FINRA Rule 3220, the gift is permissible without violating the rule only if its value does not exceed, per person per year:

  1. $250
  2. $50
  3. $25
  4. $100 Correct answer.

Explanation

FINRA Rule 3220 limits gifts and gratuities given to a person in relation to the business of that person's employer to $100 per person per year. The limit applies to anything of value given directly or indirectly. Amounts above the limit may be permissible only in narrow circumstances the rule expressly carves out.

Question 5Firm Compliance Program and Regulatory Obligations

Under SEC Rule 17a-4, most books and records of a broker-dealer must be preserved for three years, with which portion required to be maintained in an easily accessible place?

  1. the first two years Correct answer.
  2. the entire three years
  3. the first six months
  4. the final two years

Explanation

SEC Rule 17a-4 requires most broker-dealer books and records to be preserved for at least three years. The first two years of that period must be maintained in an easily accessible place so examiners can retrieve them promptly. Records for the third year may be stored in a less accessible manner.

Question 6Firm Compliance Program and Regulatory Obligations

The Regulatory Element of continuing education must be completed by a registered representative:

  1. within 30 days of each anniversary of the representative's initial registration
  2. only when the firm's written supervisory procedures require additional training
  3. within 120 days of the second anniversary, then every three years Correct answer.
  4. by December 31 of each calendar year following the representative's registration

Explanation

The Regulatory Element is administered by FINRA and must be completed within 120 days of the second anniversary of initial registration and every three years thereafter. The requirement is set by rule and is not waivable by the firm. Failure to complete it in time results in the person's registration becoming inactive.

Question 7Firm Compliance Program and Regulatory Obligations

An individual begins association with a FINRA member firm as a registered representative. Within what period must the firm file the individual's Form U4 through CRD?

  1. 10 calendar days of the association
  2. 30 days of the association Correct answer.
  3. 90 days of the association
  4. 5 business days of the association

Explanation

FINRA Rule 1010 requires a member to file a Form U4 for the individual within 30 days of the person's association with the firm. The form must be complete and accurate, and the firm must have the person attest to its accuracy. The registration cannot be effective until the form is properly filed.

Question 8Firm Compliance Program and Regulatory Obligations

A member firm's business continuity plan must be reviewed and, if necessary, updated at least:

  1. annually Correct answer.
  2. quarterly
  3. monthly
  4. every three years

Explanation

FINRA Rule 4370 requires each member to create a written business continuity plan and to review it, updating it as necessary, at least annually. The review should account for changes in the firm's business, technology, and personnel. The plan must also identify a designated emergency contact.

Question 9Firm Compliance Program and Regulatory Obligations

Under FINRA Rule 3130, the chief executive officer's annual certification must state that the firm has:

  1. audited financial statements prepared by an independent public accountant
  2. a chief compliance officer registered as a Series 14 principal
  3. processes to establish, maintain, and review compliance policies Correct answer.
  4. no pending customer arbitrations carried over from the prior year

Explanation

FINRA Rule 3130 requires the CEO to certify annually that the member has in place processes to establish, maintain, review, test, and modify written compliance policies and written supervisory procedures reasonably designed to achieve compliance with applicable rules. The certification addresses the firm's compliance process, not its financial condition or personnel registrations.

Question 10Firm Compliance Program and Regulatory Obligations

Under FINRA Rule 3120, a member firm must prepare a report on its supervisory control system and submit it to:

  1. each registered representative for signature
  2. the firm's outside counsel for independent review
  3. FINRA's district compliance committee each quarter
  4. the firm's senior management at least annually Correct answer.

Explanation

FINRA Rule 3120 requires each member to test and verify its supervisory control system and to submit a report on the results to senior management at least annually. The report must identify the firm's compliance processes and any significant deficiencies found. It supports the CEO certification required under Rule 3130.

Question 11Firm Compliance Program and Regulatory Obligations

An office of supervisory jurisdiction must be inspected on site by the member firm at least:

  1. semi-annually
  2. every three years
  3. every five years
  4. annually Correct answer.

Explanation

FINRA Rule 3110 requires a member to inspect each office of supervisory jurisdiction on site at least annually. Other branch offices must be inspected on a cycle of no less than every three years. The inspections must be conducted by someone who is independent of the office being reviewed.

Question 12Firm Compliance Program and Regulatory Obligations

Before an associated person may participate in a private securities transaction outside the scope of her employment, FINRA Rule 3280 requires her to:

  1. give the firm written notice describing the transaction and her role Correct answer.
  2. file a Form U4 amendment disclosing the transaction within 30 days
  3. confirm in writing that she will receive no selling compensation
  4. obtain written approval from the firm before participating in any capacity

Explanation

FINRA Rule 3280 requires prior written notice to the member describing the transaction, the person's proposed role, and any compensation she will receive. Written approval is required only when the person will receive selling compensation. The member may then require the transaction to be recorded on its books and supervised like its own business.

Question 13Firm Compliance Program and Regulatory Obligations

Under FINRA Rule 3270, an associated person who intends to accept outside employment for compensation must first:

  1. give the firm prior written notice of the proposed activity Correct answer.
  2. amend the firm's Form BD within five business days
  3. obtain approval from FINRA's membership department
  4. complete an additional continuing education module

Explanation

FINRA Rule 3270 prohibits an associated person from being employed by or accepting compensation from another entity unless the person has given the member prior written notice. The firm then determines whether the activity will be permitted and applies appropriate supervision. Certain passive investments and approved outside board service fall outside the rule.

Question 14Firm Compliance Program and Regulatory Obligations

A member firm's anti-money laundering compliance program must be tested independently:

  1. every three years by the firm's outside auditor
  2. only when the firm has filed a suspicious activity report
  3. whenever the firm changes its clearing arrangement
  4. at least annually by persons independent of the AML function Correct answer.

Explanation

FINRA and Bank Secrecy Act rules require a member's AML program to include independent testing at least annually. The testing must be performed by personnel who are independent of the AML compliance function, which may include internal audit or an outside party. The program must also include a designated AML compliance person and ongoing training.

Question 15Firm Compliance Program and Regulatory Obligations

A newly hired associated person becomes subject to the firm's code of ethics under FINRA Rule 204A-1. Her initial holdings report must be filed within:

  1. 10 days Correct answer.
  2. 30 days
  3. 45 days
  4. 5 business days

Explanation

FINRA Rule 204A-1 requires an access person to file an initial holdings report no later than 10 days after becoming subject to the code of ethics. The information must be current as of a date no more than 45 days before the report is filed. Thereafter the person files quarterly transaction reports and an annual holdings report.

Question 16Firm Compliance Program and Regulatory Obligations

When a registered representative leaves a member firm, the firm must file a Form U5 through CRD within:

  1. 30 days Correct answer.
  2. six months
  3. 5 business days
  4. 90 days

Explanation

FINRA Rule 1010 requires the member to file a Form U5 within 30 days of the termination of a person's association with the firm. The form must disclose the reason for termination and any relevant circumstances. Amendments to the Form U5 must also be filed promptly when new information arises.

Question 17Firm Compliance Program and Regulatory Obligations

The Firm Element of continuing education must be delivered to covered registered persons:

  1. at least annually, based on the firm's assessment of its training needs Correct answer.
  2. at the discretion of the representative's supervisor
  3. only when a representative is the subject of a customer complaint
  4. every three years, in conjunction with the Regulatory Element

Explanation

FINRA rules require each member to maintain a written training plan based on an annual needs analysis and to provide Firm Element training to covered registered persons at least annually. The content must address the firm's business, products, and regulatory developments. Unlike the Regulatory Element, the Firm Element is designed and delivered by the firm.

Question 18Firm Compliance Program and Regulatory Obligations

A registered principal delegates certain supervisory duties to a competent subordinate. Under FINRA guidance, the delegating principal:

  1. may delegate only to another registered principal
  2. remains responsible for the supervision of the delegated activities Correct answer.
  3. is relieved of supervisory responsibility once the delegation is documented
  4. must obtain FINRA approval before delegating any duty

Explanation

A supervisor may assign tasks, but the responsibility for supervising the activity stays with the supervisor and the member firm. Written procedures should identify what may be delegated and to whom, and the supervisor must monitor the delegated work. Delegation never transfers accountability away from the firm.

Question 19Firm Compliance Program and Regulatory Obligations

Under FINRA Rule 2030 (pay-to-play), which contribution to an official of a state pension plan falls within the de minimis exception and therefore does not trigger the two-year ban?

  1. $500
  2. $1,000
  3. $350 Correct answer.
  4. $250

Explanation

FINRA Rule 2030 permits de minimis contributions of up to $350 per election to an official for whom the contributor is entitled to vote, and up to $150 per election if the contributor is not entitled to vote. Contributions above those amounts can trigger a two-year ban on compensated business with the government entity. The thresholds are measured per election, not per year.

Question 20Firm Compliance Program and Regulatory Obligations

Under FINRA Rule 4512, a member firm must make reasonable efforts to obtain the name and contact information of a trusted contact person:

  1. only when the customer requests one
  2. only for accounts carrying discretionary authority
  3. for every non-institutional customer account Correct answer.
  4. only for customers over age 65

Explanation

FINRA Rule 4512 requires reasonable efforts to obtain a trusted contact person when opening a non-institutional customer account or when updating account information. The rule is not limited by the customer's age or by the type of authority on the account. The firm may open or maintain the account even if the customer declines to provide one.

Question 21Firm Compliance Program and Regulatory Obligations

A person subject to a statutory disqualification seeks to become associated with a member firm. Which statement is correct?

  1. Filing a Form U5 describing the matter permits the association
  2. The branch manager may approve the association in writing
  3. The firm must obtain FINRA approval through the Rule 9520 process Correct answer.
  4. The person may be hired if his duties are limited to clerical or administrative work

Explanation

A member may not associate with a statutorily disqualified person unless eligibility is granted through FINRA's Rule 9520 eligibility proceedings, which typically involve an MC-400 application. The firm or the individual must demonstrate that the association is consistent with the public interest and investor protection. Absent that approval, any association is prohibited regardless of job title.

Question 22Firm Compliance Program and Regulatory Obligations

Under Section 15(g) of the Securities Exchange Act, a broker-dealer must maintain policies and procedures reasonably designed to:

  1. prevent the misuse of material, nonpublic information Correct answer.
  2. prohibit employees from holding securities outside a firm plan
  3. guarantee that no employee ever trades on inside information
  4. report every employee securities trade to the SEC within one business day

Explanation

Section 15(g) and Exchange Act Rule 15g-1 require broker-dealers to establish, maintain, and enforce written policies and procedures reasonably designed to prevent the misuse of material, nonpublic information by the firm or any associated person. The standard is reasonableness, not a guarantee. Firms often use information barriers, watch and restricted lists, and surveillance to meet it.

Question 23Firm Compliance Program and Regulatory Obligations

A firm has filed a suspicious activity report on a customer. Under the Bank Secrecy Act, the firm:

  1. may not disclose the existence of the report to the customer or any unauthorized person Correct answer.
  2. may confirm the filing if the customer signs a written waiver
  3. may disclose the filing to the customer's attorney on request
  4. may disclose the filing to the customer after 30 days have elapsed

Explanation

The Bank Secrecy Act prohibits a financial institution and its personnel from notifying any person involved in the transaction that a suspicious activity report has been filed. This confidentiality rule prevents tipping off the subject of the report. Disclosure is permitted only to appropriate regulators and law enforcement.

Question 24Firm Compliance Program and Regulatory Obligations

Under FINRA rules, a member firm must maintain a record of each written customer complaint for at least:

  1. four years Correct answer.
  2. two years
  3. three years
  4. one year

Explanation

FINRA Rule 4513 requires a member to keep a record of each written customer complaint for a minimum of four years. The record must include the customer's identity, the date received, and the nature and disposition of the complaint. Certain complaints must also be reported to FINRA under Rule 4530.

Question 25Firm Compliance Program and Regulatory Obligations

A firm maintains electronic records under SEC Rule 17a-4(f) using the audit-trail alternative to the WORM requirement. The firm must:

  1. extend the retention period for those electronic records to ten years
  2. have a designated third party able to furnish the records to the SEC Correct answer.
  3. convert all electronic records to paper at the end of each month
  4. obtain advance written approval of the recordkeeping system from the SEC staff

Explanation

Rule 17a-4(f) allows an audit-trail alternative to WORM provided the firm arranges for a designated third party that can access the records and furnish them to the SEC on request. The firm must also notify its examining authority of the use of the alternative and maintain the records in a manner that preserves their integrity. There is no SEC pre-approval of the system.

Question 26Firm Compliance Program and Regulatory Obligations

A member firm must conduct an annual compliance meeting for its registered personnel. Which statement best describes this requirement?

  1. The requirement is satisfied if the firm distributes written compliance materials instead of holding a meeting.
  2. The requirement applies only to registered principals who supervise other registered persons.
  3. Each registered person must be given an opportunity to participate in an annual interview or meeting at which compliance matters are discussed. Correct answer.
  4. The meeting must be held in person at the firm's principal office during the first quarter of each calendar year.

Explanation

FINRA Rule 3110(a)(7) requires each member firm to provide every registered person an annual interview or meeting at which compliance matters relevant to the person's activities are discussed. The firm must also document attendance and participation. The format may be in person, by telephone, or by other means.

Question 27Firm Compliance Program and Regulatory Obligations

Under FINRA Rule 3130, a member firm must designate a chief compliance officer. Which statement about that designation is accurate?

  1. The chief compliance officer must also be registered as a general securities principal and be a member of senior management.
  2. Only a member of the firm's board of directors may serve as chief compliance officer.
  3. The designation becomes effective only after FINRA approves the candidate's qualifications.
  4. The designated officer is responsible for establishing, maintaining, and enforcing the firm's compliance policies and procedures. Correct answer.

Explanation

Rule 3130(b) requires each member firm to designate a chief compliance officer who is responsible for establishing, maintaining, and enforcing the firm's compliance policies and procedures. FINRA does not pre-approve the individual, and the rule does not require board membership.

Question 28Firm Compliance Program and Regulatory Obligations

An associated person wants to give a gift to an employee of a customer in connection with the customer's employer's business. Under FINRA Rule 3220, the gift is permissible without prior written consent of the member firm only if its value does not exceed:

  1. 100 dollars per recipient per year. Correct answer.
  2. 50 dollars per recipient per year, with no exceptions permitted.
  3. Any amount, provided the gift is recorded in the firm's gift and entertainment log.
  4. 250 dollars per recipient per year, with no documentation required.

Explanation

FINRA Rule 3220 prohibits giving anything of value in excess of $100 per year to any person in relation to the business of that person's employer unless the member firm gives prior written consent. Gifts at or below the threshold are permitted, but firms typically still require internal recording and approval.

Question 29Firm Compliance Program and Regulatory Obligations

A firm prepares a new sales piece that will be distributed to retail investors. Under FINRA Rule 2210, the piece must be:

  1. Reviewed for the first time as part of the firm's annual compliance review.
  2. Approved by outside legal counsel before it is first used.
  3. Approved by a registered principal before it is first used. Correct answer.
  4. Filed with FINRA for approval before it is first used in every case.

Explanation

Rule 2210(b) requires that a registered principal approve retail communications before first use, and the firm must maintain evidence of that approval. Filing with FINRA is required only for specified categories of communications, not for every retail piece.

Question 30Firm Compliance Program and Regulatory Obligations

FINRA amends a rule that affects one of a member firm's business lines. Under FINRA Rule 3110, the firm must:

  1. Revise its procedures only if FINRA sends a written request that it do so.
  2. Suspend the affected business until FINRA approves revised procedures.
  3. Amend its written supervisory procedures as necessary to remain current within a reasonable time after the change. Correct answer.
  4. Wait until its next annual review of the supervisory system to make any change.

Explanation

Rule 3110 requires written supervisory procedures that are reasonably designed to achieve compliance and that are updated as necessary to remain current with applicable rules. A firm may not wait for an annual cycle or a regulator's request when a rule change affects its procedures.

Question 31Firm Compliance Program and Regulatory Obligations

A member firm opens a branch office that is not an office of supervisory jurisdiction and staffs it with two registered representatives. On-site inspections of that office must occur:

  1. Only when the firm's annual certification discloses a supervisory deficiency.
  2. At least once every three years. Correct answer.
  3. At least twice in each calendar year.
  4. Only if the office employs more than ten registered representatives.

Explanation

Under FINRA Rule 3110(c), a member firm must inspect each branch office that is not an office of supervisory jurisdiction on site at least once every three years. Offices of supervisory jurisdiction are subject to annual inspection on a schedule set by the firm.

Question 32Firm Compliance Program and Regulatory Obligations

With respect to economic sanctions administered by the Office of Foreign Assets Control, a member firm must:

  1. Screen each customer once, at the time the account is opened, and take no further action.
  2. Screen only natural persons, because entity accounts are screened by the clearing broker.
  3. Rely on the customer's representations in the new account application as evidence of sanctions compliance.
  4. Maintain procedures to check customers and transactions against OFAC's lists and to block prohibited property. Correct answer.

Explanation

OFAC regulations require broker-dealers to maintain policies and procedures reasonably designed to identify and block transactions involving sanctioned persons or property. Screening must be ongoing and cover both customers and transactions, and it cannot be delegated by representation.

Question 33Firm Compliance Program and Regulatory Obligations

A member firm becomes aware that one of its registered representatives was convicted of a felony involving dishonesty. Under FINRA Rule 4530, the firm must report the event to FINRA:

  1. Promptly, and in any event within 30 calendar days after the firm knows or should have known of it. Correct answer.
  2. Within 60 calendar days after the end of the calendar quarter in which it occurred.
  3. Within one year, as part of the firm's annual compliance certification.
  4. Within 5 business days after the firm learns of it.

Explanation

Rule 4530(a) requires a member firm to report specified events promptly and no later than 30 calendar days after the firm knows or should have known of the event. The report is made through the firm's designated electronic filing system.

Question 34Firm Compliance Program and Regulatory Obligations

Under SEC Rule 17a-4, most records that a broker-dealer is required to make must be preserved for:

  1. Ten years, with no requirement as to accessibility.
  2. Six years, the first two of which must be maintained in an easily accessible place. Correct answer.
  3. Three years, with all records maintained in the firm's principal office.
  4. Two years, after which the records may be destroyed without further review.

Explanation

Rule 17a-4 generally requires preservation of required records for six years, with the first two years in an easily accessible place. Certain categories carry different periods and different accessibility requirements, so the rule's specific provisions must be checked for each record type.

Question 35Firm Compliance Program and Regulatory Obligations

Under Regulation S-P, a broker-dealer must provide a privacy notice to its retail customers:

  1. Within 30 days after the customer's account is closed.
  2. At the time the account is opened, with no further delivery obligation.
  3. Only when the customer submits a written request for the firm's privacy policy.
  4. At the start of the customer relationship and at least annually thereafter. Correct answer.

Explanation

Regulation S-P requires a broker-dealer to deliver an initial privacy notice at the establishment of the customer relationship and to deliver a notice at least annually during the continuation of the relationship, unless an exception applies.

Question 36Firm Compliance Program and Regulatory Obligations

A firm asks departing employees to sign a settlement agreement stating that they will not discuss the firm's conduct with any government agency. Under SEC rules governing whistleblower protections, that provision is:

  1. Permissible if the employee is represented by independent counsel during the negotiations.
  2. Impermissible because it purports to impede communications with the SEC about possible violations. Correct answer.
  3. Permissible because the firm is not an issuer with publicly traded securities.
  4. Permissible if the provision does not name the Securities and Exchange Commission specifically.

Explanation

SEC Rule 21F-17 prohibits any action to impede an individual from communicating directly with the SEC staff about a possible securities law violation, including through confidentiality agreements. Such provisions are improper whether or not the SEC is named and whether or not counsel is involved.

Question 37Firm Compliance Program and Regulatory Obligations

Under the fingerprinting requirements applicable to broker-dealers, which associated persons must be fingerprinted?

  1. Only persons who hold a securities registration with the firm.
  2. Only persons who are compensated on a commission basis.
  3. Those who handle funds or securities, or who have access to customer account records. Correct answer.
  4. Every employee of the firm, including building maintenance staff without access to records or assets.

Explanation

Exchange Act Section 17(f) and the related FINRA rules require fingerprinting of partners, directors, officers, and employees who handle securities or funds, or who have access to records of customer accounts or to the firm's securities and funds. Registration status and compensation method are not the tests.

Question 38Firm Compliance Program and Regulatory Obligations

Which statement about a member firm's review of correspondence is accurate?

  1. Review is not required if the firm retains a third-party vendor that archives all messages.
  2. The firm's procedures must provide for review of electronic communications as well as written correspondence and internal communications. Correct answer.
  3. Review is required only for correspondence that is sent to retail customers.
  4. Review may be performed by any associated person who has completed the firm's general training program.

Explanation

FINRA Rule 3110 requires written procedures governing review of incoming and outgoing written correspondence and internal communications, and the procedures must also address review of electronic communications. Reviews must be conducted by a registered principal or a qualified designee, and archiving alone does not satisfy the review obligation.

Question 39Firm Compliance Program and Regulatory Obligations

A member firm hires an outside vendor to review and archive employees' electronic mail. Which statement is correct?

  1. The firm may rely on the vendor only if the vendor itself is a FINRA member firm.
  2. The firm remains responsible for ensuring that the review is performed as its written procedures require. Correct answer.
  3. The firm's supervisory obligations end once the vendor certifies that its system meets industry standards.
  4. The firm's written procedures need not mention the vendor because the vendor is not an associated person.

Explanation

A member firm may use service providers to perform supervisory functions, but it cannot transfer its regulatory responsibility for those functions. Its written procedures should describe the arrangement and the firm's oversight, and the firm must ensure the work is actually performed as designed.

Question 40Firm Compliance Program and Regulatory Obligations

A broker-dealer is subject to Regulation S-ID, the identity theft red flags rule. Its written identity theft prevention program must be:

  1. Rewritten in full every calendar quarter regardless of changes in risk.
  2. Limited in scope to consumer accounts opened after the program's effective date.
  3. Submitted to FINRA for approval before it takes effect.
  4. Approved by the board of directors or an appropriate committee and overseen by a designated senior employee. Correct answer.

Explanation

Regulation S-ID requires the identity theft prevention program to be appropriate to the size and complexity of the entity, approved by the board of directors or an appropriate committee, and administered under the oversight of a designated senior employee. The program must be updated periodically as risks change.

Question 41Supervision and Control Procedures

A member firm's written supervisory procedures must be:

  1. written so that each supervisor decides which rules apply
  2. reasonably designed to achieve compliance and updated as needed Correct answer.
  3. filed with FINRA for approval before they take effect
  4. identical to the parent company's procedures in all respects

Explanation

FINRA Rule 3110(b) requires written supervisory procedures that are reasonably designed to achieve compliance with applicable securities laws, regulations, and FINRA rules. They must be reviewed and amended whenever the firm's business, personnel, or the applicable rules change. They become effective without any filing or approval step.

Question 42Supervision and Control Procedures

FINRA rules require a member firm to hold a compliance meeting for its registered representatives:

  1. only when FINRA schedules a cycle examination
  2. at least once each year Correct answer.
  3. only for representatives hired within the past year
  4. every two years, alternating with branch inspections

Explanation

Rule 3110(a)(7) requires a member to conduct an annual compliance meeting at which current compliance matters are discussed with registered representatives. The obligation belongs to the firm and is not triggered by an examination or by a representative's tenure.

Question 43Supervision and Control Procedures

Under FINRA's internal inspection requirement, an office of supervisory jurisdiction must be inspected:

  1. at least every three years
  2. at least once every calendar year Correct answer.
  3. only when its branch manager changes
  4. whenever FINRA requests an inspection of the office

Explanation

Rule 3110(c)(1)(A) requires an annual inspection of each office of supervisory jurisdiction and of each branch office that supervises one or more non-branch locations. The three-year cycle applies only to other branch offices. The inspection duty rests on the firm, not on a FINRA request.

Question 44Supervision and Control Procedures

Branch offices that are not offices of supervisory jurisdiction and that do not supervise non-branch locations must be inspected:

  1. at least once each year
  2. at least once every three years Correct answer.
  3. at least once every five years
  4. only if the office handles customer cash

Explanation

Rule 3110(c)(1)(B) sets a three-year inspection cycle for branch offices outside the annual category. Annual inspection is reserved for OSJs and for branch offices that supervise non-branch locations.

Question 45Supervision and Control Procedures

A member firm's supervisory control system under FINRA Rule 3120 must include, at a minimum:

  1. formal approval of the system by FINRA's Membership Application Program
  2. an outside audit of the firm's financial statements
  3. a guarantee that no rule violations occur during the year
  4. testing of procedures and an annual report to senior management Correct answer.

Explanation

Rule 3120 requires the firm to identify and prioritize compliance risks, adopt written supervisory control procedures, test and verify those controls, and report the results, including exceptions, to senior management at least annually. The obligation is to build and operate a reasonable system, not to eliminate violations.

Question 46Supervision and Control Procedures

Under FINRA Rule 3130, the annual certification concerning the firm's compliance processes must be executed by:

  1. the firm's chief compliance officer
  2. the firm's outside securities counsel
  3. the chief executive officer or equivalent Correct answer.
  4. each branch office manager

Explanation

Rule 3130(b) places the annual certification obligation on the chief executive officer or equivalent officer, who attests that the firm has processes to establish, maintain, and enforce policies reasonably designed to achieve compliance. The compliance officer supports the process but is not the certifying officer.

Question 47Supervision and Control Procedures

FINRA rules require each member firm to:

  1. rotate its compliance officer every three years
  2. designate a chief compliance officer responsible for compliance Correct answer.
  3. hire an outside consultant to serve as compliance officer
  4. obtain FINRA approval of its compliance officer's qualifications

Explanation

Rule 3130(a) requires each member to designate a chief compliance officer responsible for day-to-day compliance with the firm's policies and the applicable rules. The firm chooses the individual, and FINRA does not review or approve the selection.

Question 48Supervision and Control Procedures

A firm is performing its required inspection of a branch office. The inspection should be conducted by:

  1. the branch's top-producing registered representative
  2. someone independent of the office being inspected Correct answer.
  3. any employee chosen by that branch's manager
  4. an associated person who works in that branch

Explanation

Rule 3110(c) requires that internal inspections be performed by a person independent of the location under review. Independence is what makes the review objective, so anyone working in or accountable to that office is unsuitable.

Question 49Supervision and Control Procedures

Which approach best satisfies a firm's obligation to review correspondence with the public?

  1. Review is postponed until a customer complaint is received
  2. Review is limited to letters sent by the compliance department
  3. Each registered representative reviews his or her own outgoing mail
  4. A principal reviews a risk-based sample on a set schedule Correct answer.

Explanation

Rule 3110(b)(4) requires written procedures for reviewing incoming and outgoing written correspondence and internal communications, and the review must be conducted by a registered principal. A documented, risk-based sampling schedule is acceptable; self-review and reactive review are not.

Question 50Supervision and Control Procedures

Before a registered representative may accept outside employment in a non-securities business, the representative must:

  1. give the firm prior written notice of the activity Correct answer.
  2. obtain FINRA's written approval of the position
  3. place the outside income in a segregated account
  4. resign from any firm committees with oversight duties

Explanation

Rule 3270 requires prior written notice to the member before an associated person may be employed by, or receive compensation from, another person for activity outside the scope of the firm's business. The firm then evaluates the activity for conflicts and may impose conditions or prohibit it.