Missouri Code of State Regulations › Title 15 - ELECTED OFFICIALS › Division 30 - Secretary of State › Chapter 51 - Broker-Dealers, Agents, Investment Advisers, and Investment Adviser Representatives › Section 15 CSR 30-51.171 - Supervision Guidelines for Broker-Dealers

Current through Register Vol. 49, No. 14, July 15, 2024
PURPOSE: This rule provides guidance for reasonable
				  supervision by broker-dealers.
(1) The phrase "failed reasonably to
				supervise" under section
				409.4-412(d)(9)
				of the Missouri Securities Act of 2003 (the Act) is a standard allowing each
				broker-dealer (firm) the flexibility to fashion procedures and systems that
				address its particular organizational and management structure. Yet the
				following are guidelines that provide guidance to broker-dealers of factors
				considered by the commissioner in evaluating reasonable supervision.
(2) The following guidelines shall be factors
				in considering what is reasonable supervision, whether:
(A) The firm has established current
				procedures and systems for supervising the activities of agents, employees, and
				Missouri office operations that are reasonably designed to achieve compliance
				with applicable state and federal securities laws and regulations, and, if
				applicable, the rules of the Financial Industry Regulatory Authority
				(FINRA);
(B) The firm has
				established current procedures and systems that could reasonably be expected to
				allow a supervisor reasonably discharging his/her supervisory duties under such
				established procedures to prevent and detect violations of the Act, and the
				firm regularly reviews these procedures and systems;
(C) The firm has reasonably implemented the
				procedures and systems referred to in subsections (A) and (B) above;
(D) The firm provides appropriate initial and
				periodic refresher training to supervisors, employees, and agents regarding the
				firm's procedures and systems and additional initial and periodic training to
				supervisors in the procedures and systems referred to in subsections (A) and
				(B) above;
(E) The firm reasonably
				follows up on indications of wrongdoing, "red flags." Such red flags may
				consist of, but are not limited to, activities of unauthorized personnel,
				churning, unauthorized trading, low level of production but high expenses,
				regulatory actions, prior disciplinary history of one (1) or more customer
				complaints, and recent customer complaints;
(F) The firm has an adequate system to track
				and monitor the status of customer complaints;
(G) The firm has designated a qualified
				supervisor of the broker-dealer for each agent or employee;
(H) The designated supervisor of agents
				located in Missouri maintains a principal place of business in Missouri, or in
				a location that allows the supervisor to visit the premises of supervised
				agents in Missouri within a reasonable time;
(I) The designated supervisor is responsible
				for supervising no more agents at any one (1) time than would allow the
				supervisor to effectively execute his/her supervisory duties. The appropriate
				number of agents which one (1) person can reasonably supervise is dependent on
				the nature of the business conducted by the persons supervised, technical
				resources available to the supervisor, additional personnel available to assist
				the supervisor, and other resources made available to assist the
				supervisor;
(J) The firm conducts
				annual compliance examinations of supervisory locations with effective
				deficiency and follow-up procedures. Unannounced examinations may be reasonable
				if there are compliance issues concerning agents or activities;
(K) The firm reasonably audits for compliance
				including reasonable follow-up and proof, independent of the agent, that mail
				is reviewed for customer complaints and other red flags;
(L) The firm has and implements procedures
				and systems for reasonable oversight of supervisors; and
(M) The firm has a reasonable policy for
				disciplinary and progressive supervisory action, which is reasonably
				implemented.