FINRA Rule 3110 requires every broker-dealer to establish and maintain a supervisory system — including written supervisory procedures (WSPs) — reasonably designed to achieve compliance with applicable securities laws, SEC rules, and FINRA rules, and to supervise the activities of each associated person. The standard is reasonable design, not a guarantee against every violation.
What Rule 3110 requires
Rule 3110 is FINRA's core supervision rule. It obligates a member firm to build and run a system that supervises the securities and investment-banking activities of everyone associated with the firm. The rule is organized around two connected requirements: a supervisory system (the people and structure) under paragraph (a), and written supervisory procedures (the documentation of how supervision happens) under paragraph (b). The rule also addresses internal inspections, transaction review for insider trading, and the firm's duty to investigate the people it registers.
Throughout, the governing standard is reasonableness: the system must be reasonably designed to achieve compliance given the nature of the firm's business. FINRA does not expect supervision to be perfect, but it does expect it to be thoughtful, current, documented, and actually followed.
The supervisory system — Rule 3110(a)
Paragraph (a) sets the minimum components of a supervisory system. A member firm must, at minimum:
- Maintain written procedures for supervising the types of business it does and the activities of its associated persons.
- Designate one or more appropriately registered principals with authority to carry out supervisory responsibilities for each type of business.
- Register each office of supervisory jurisdiction (OSJ) and each branch office, and designate an appropriately registered principal for each OSJ.
- Assign each registered person to an appropriately registered supervisor responsible for their activities.
- Make reasonable efforts to determine that each supervisor is qualified — by experience or training — to carry out the assigned responsibilities.
- Provide each registered person with participation in an annual compliance meeting.
Written supervisory procedures — Rule 3110(b)
Paragraph (b) requires the firm to establish, maintain, and enforce written supervisory procedures (WSPs). WSPs are the operating manual for supervision. To be reasonable, they should make four things clear for each supervisory task:
- Who is responsible for the review (identified by title or name).
- What is being supervised or reviewed.
- How and how often the review is conducted.
- How completion of the review is documented and evidenced.
WSPs must be kept current. When a firm changes its business, adds a product, or a rule changes, the procedures must be updated to match. Procedures that describe a supervision practice the firm no longer follows — or that fail to reflect a new obligation — are a common examination finding.
Communications review — Rule 3110(b)(4)
Rule 3110(b)(4) requires procedures for the review of incoming and outgoing written (including electronic) correspondence and internal communications relating to the firm's investment-banking or securities business. In practice this covers email, and — where used for business — text messages and chat.
The review must be reasonably designed to identify and address issues such as customer complaints, unsuitable recommendations, misrepresentations, and undisclosed outside business. Firms may use risk-based sampling and lexicon (keyword) screening rather than reading every message, provided the approach is reasonable and documented. Critically, the firm must both conduct reviews and evidence that they occurred. This obligation works hand in hand with the recordkeeping rules — see FINRA & SEC-compliant text and email archiving.
Internal inspections — Rule 3110(c)
Paragraph (c) requires firms to inspect their offices on a set schedule and produce a written report for each inspection:
| Location type | Minimum inspection frequency |
|---|---|
| Offices of supervisory jurisdiction (OSJs) and branches that supervise non-branch locations | At least annually |
| Non-supervisory branch offices | At least every three years |
| Non-branch locations | On a regular periodic schedule (presumption of at least every three years) |
Each inspection must be reduced to a written report, and the firm must have procedures to prevent the person conducting an inspection from supervising their own activities or reporting to someone they supervise, where practicable.
Rule 3110 compliance checklist
- A written supervisory system is in place and covers every line of business the firm conducts.
- Appropriately registered principals are designated for each business type and each OSJ.
- Every registered person is assigned to a named, qualified supervisor.
- WSPs specify the who, what, how, how-often, and documentation for each review.
- WSPs are reviewed and updated when the business or the rules change.
- Procedures for reviewing electronic communications (email, text, chat) are defined and evidenced.
- Branch and OSJ inspections occur on schedule with a written report for each.
- An annual compliance meeting is provided to all registered persons.
- Rule 3120 testing and the Rule 3130 CEO certification are completed annually.
Frequently asked questions
Who does FINRA Rule 3110 apply to?
FINRA Rule 3110 applies to every FINRA member firm — that is, broker-dealers registered with FINRA. It governs how a member supervises the securities and investment-banking activities of its associated persons. Registered investment advisers that are not broker-dealers are instead subject to the SEC's compliance-program rule (Rule 206(4)-7).
What are written supervisory procedures (WSPs)?
Written supervisory procedures are the documented policies a broker-dealer maintains under Rule 3110(b) that describe how it supervises its business. WSPs must identify who is responsible for each supervisory review, what is reviewed, how and how often the review occurs, and how it is documented. They must be kept current as the firm's business and the rules change.
What is the difference between a supervisory system and written supervisory procedures?
The supervisory system, required by Rule 3110(a), is the overall structure of people and controls — designated principals, assigned supervisors, and registered offices. Written supervisory procedures, required by Rule 3110(b), are the written documentation of how that system operates day to day. A firm needs both.
Does Rule 3110 require review of email and electronic communications?
Yes. Rule 3110(b)(4) requires firms to have procedures for the review of incoming and outgoing written (including electronic) correspondence and internal communications relating to the firm's investment-banking or securities business. The review must be reasonably designed to identify and address compliance issues, and the firm must evidence that reviews took place.
How often must a broker-dealer inspect its branch offices?
Under Rule 3110(c), OSJs and branch offices that supervise non-branch locations must be inspected at least annually. Other (non-supervisory) branch offices must be inspected at least every three years, and non-branch locations on a regular periodic schedule. Firms must keep a written inspection report for each inspection.
Is the standard "perfect compliance" or "reasonably designed"?
The standard is reasonableness. Rule 3110 requires a supervisory system reasonably designed to achieve compliance with applicable securities laws and rules — not a system that guarantees no violation ever occurs. FINRA evaluates whether the firm's supervision was reasonable in light of its business, not whether misconduct was theoretically possible.
How does Rule 3110 relate to Rules 3120 and 3130?
Rule 3110 sets the supervisory obligations themselves. Rule 3120 requires a system of supervisory control policies that test and verify those supervisory procedures. Rule 3130 requires the firm's chief executive to certify annually that the firm has processes to establish, maintain, review, and test its supervisory procedures. Together they form FINRA's supervision framework.
Primary sources
- FINRA Rule 3110 (Supervision) — official rule text: finra.org/rules-guidance/rulebooks/finra-rules/3110
- FINRA Rule 3120 (Supervisory Control System): finra.org/rules-guidance/rulebooks/finra-rules/3120
- FINRA Rule 3130 (Annual Certification of Compliance and Supervisory Processes): finra.org/rules-guidance/rulebooks/finra-rules/3130
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