Supervisory Control Consulting (3012-3013)
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For years, under NASD Rule 3010 and NYSE Rule 342, broker dealers have been required to have supervisory systems and written supervisory procedures in place that are reasonably designed to ensure compliance with applicable rules and regulations. However, newly adopted  NASD Rules 3012 and 3013 and amended NYSE Rule 342 have raised the bar on regulatory expectations regarding supervisory and compliance systems.

NASD Rule 3013 requires every CEO of a Broker Dealer to certify, no later than December 1 of 2005, that the Broker Dealer maintains a process to establish, maintain, review, test and modify written compliance and supervisory procedures.

Rule 3013 also requires that a written report be prepared and reviewed by the CEO, CCO and other appropriate officers prior to executing the certification. The report must also be provided to the firm’s board of directors and audit committee. The report should include the manner and frequency in which the processes are administered, as well as the identification of officers and supervisors who have responsibility for such administration. The CEO and CCO are required to have at least one meeting annually to discuss the findings of the report.

NASD Rule 3012 requires that that your firm had identified one or more principals who had established, maintained and enforced a system of supervisory control policies and procedures that test and verify that the firm’s supervisory procedures are reasonably designed to comply with applicable securities laws and NASD rules and amend those procedures when necessary. The identified principal(s) must submit to senior management, no less than annually, a report detailing the firm’s system of supervisory controls, a summary of test results, significant identified exceptions and any additional or amended supervisory procedures created in response to the test results. Rule 3012 also contains specific requirements for supervision of producing managers and supervisory controls for transmittal of customer funds, change of address and changes in customer’s objectives.

SCA Program

SCA offers the following program to assist firms in complying with the rules. Our program is based on feedback from the NASD regarding expectations for program implementation:

		Develop a list of business activities and applicable rules, regulations and internal controls for each activity;
		Conduct a “gap analysis” of your current supervisory procedures by assessing whether your procedures adequately address all applicable rules, regulations and internal policies and controls for each business activity;
		Develop new or modified procedures where material gaps in the current procedures exist;
		Develop and implement a verification and testing plan for the firm’s procedures;
		Develop a reporting model to meet the requirements of Rule 3012 and 3013; and
		Create a model that may be used to support the CEO certification and reporting requirements in future years.

The program may be customized to meet the client’s needs. For instance, clients may want SCA to conduct the gap analysis and develop the verification and testing plan while conducting the actual testing and verification in-house.