Supervision, Recordkeeping, and Regulatory Obligations
Supervisory structure
FINRA Rule 3110 requires written supervisory procedures reasonably designed to achieve compliance. Research must be supervised by a designated supervisory analyst who is not part of investment banking. The firm should review research reports before publication and confirm that each report has a reasonable basis, accurate facts, and required disclosures. Investment banking personnel may not supervise analysts.
Recordkeeping
Rule 4511 generally requires books and records to be preserved for six years, with the first two years readily accessible. Retail communications are generally kept for three years under Rule 2210. Research reports, supporting materials, and disclosures should be retained under the firm's Rule 4511 procedures. Regulation AC certifications must also be retained. The trap is mixing the 3-year and 6-year periods; when in doubt, the general books-and-records rule is six years.
Regulatory obligations
Firms must hold annual compliance meetings, provide continuing education, and maintain supervisory systems. Research analysts must be registered and qualified. Rule 2241 also requires procedures designed to prevent conflicts from influencing research.
Worked example
A compliance officer finds a draft research report without a supervisory analyst signature. It cannot be published until the designated supervisor reviews and approves it. If the report was already distributed, the firm must correct the record and retain documentation of the review and correction.
Rule of thumb
No research report goes out without independent research supervision, and no record is destroyed before its retention period ends.