Proposed FINRA Regulatory Changes Regarding Outsourcing That Require Attention


On March 29, 2011, the Financial Industry Regulatory Authority (FINRA) published for industry comment a proposed rule clarifying the scope of a member firm's obligations and supervisory responsibilities for functions or activities outsourced to a third-party.

The proposed Rule (FINRA Rule 3190 - Third-Party Service Providers) makes clear that:

• when a member firm outsources a function or activity related to its business as a regulated broker-dealer to a third-party service provider, it does not relieve the member firm of its obligation to comply with applicable securities laws and regulations, and FINRA and Municipal Securities Rulemaking Board (MSRB) rules;

• the member firm cannot delegate its responsibilities for, or control over, any outsourced functions or activities;

• a member firm must have supervisory procedures, including due diligence measures, to ensure that its arrangements with third party service providers are reasonably designed to achieve compliance with applicable securities laws and regulations, and FINRA and MSRB rules.

• The proposed rule also imposes additional restrictions and obligations that apply solely to a clearing or carrying member firm and its third-party service provider arrangements.

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