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What is Failure to Supervise?

The duty to properly monitor and supervise employees is a responsibility that any brokerage firm must assume. The North American Financial Regulatory Association (FINRA) Rule 3010 requires brokers, dealers, and other intermediaries such as investment counselors or money managers to have an obligation toward all customers they serve—that means investors placing funds in their trust and in the trust of their advisors. 

Firms are expected not only to act professionally but also diligently when it comes down to the protection of customer assets. Why? Because if there was ever anything wrong, whether large-scale fraud like an insider trading scandal shaking investor confidence in stocks or more imperceivable fraudulent actions, the ones most vulnerable are the brokerage’s investors. 

FINRA Rule 3010

“Each member shall establish and maintain a system to supervise the activities of each associated person that is reasonably designed to achieve compliance with applicable securities laws and regulations, and with applicable FINRA rules. Final responsibility for proper supervision shall rest with the member…”

The Securities and Exchange Commission (SEC) has reiterated its backing of FINRA Rule 3010. The duty of supervision includes investigating and taking responsibility over potential red flags

A securities attorney can help investors who want to make a claim against the financial advisors and their firms. A violation of FINRA Rule 3010 might include claims of securities law violations, lack of supervisory overview over an advisor, and the failure of the broker-dealer to supervise the financial advisor breaking the law. These actions can have serious consequences for investors and their investments.

The supervisory standard requires that broker-dealers be aware when there are ‘red flags’ being raised about potential problems within their company but also take proper supervision for these issues with clear policies and procedures as well so nothing goes unnoticed 

Are you an investor thinking about bringing a claim against an advisor or brokerage?

The importance of brokerage firms to the market cannot be understated. However, they are responsible for monitoring their brokers’ investment recommendations, outside business activities and representations as well as those they sell to clients or investors among other things. They also must use due diligence with securities products offered by working within regulatory requirements. 

Going out of the bounds of FINRA rules, SEC rules, state, and federal laws can cause losses for investors and their portfolios. Larry Landsman is a securities and investment fraud attorney with over 30 years of experience. Contact us today if you believe your investments have been lost or are at risk.