02-032 C.M.R. ch. 504, § 7 - Reasonable supervision

In determining whether a person has failed to reasonably supervise an agent or other individual under Section 16412(4)(I) of the Act, the Administrator shall consider among other things whether the broker-dealer in question has met the requirements described in this section.

1. Supervisory system. Each broker-dealer shall establish, maintain and enforce a system for supervising the activities of its agents and other persons subject to its supervision and for supervising the operations of each Maine office. The system shall be reasonably designed to achieve compliance with applicable securities laws and regulations and shall provide, at a minimum, for the following:

A. The establishment, implementation and maintenance of written supervisory procedures in accordance with Subsection 2 below;

B. The designation of one or more principals or managers with authority to carry out the supervisory responsibilities of the broker-dealer for each type of business in which it engages and for which broker-dealer licensing is required;

C. For each branch office and for its principal place of business, if located in Maine, the designation of one or more principals or managers who have authority to carry out the supervisory responsibilities assigned to that location by the broker-dealer, and who shall be located in such office unless the broker-dealer has implemented a system of adequate supervisory controls over its branch office operations, designed to ensure a level of oversight comparable to that which would have existed had the designated supervisors been located in their assigned offices. A system of adequate supervisory controls may include, without limitation:

(1) a computerized tracking system through which the broker-dealer monitors trading, handling of funds, new accounts, registration status, exceptions, outside business activity, selling away, customer complaints, and other branch office activity;

(2) the monitoring and surveillance of internal and external communications to and from branch office locations;

(3) the designation of regional managers; and

(4) frequent visits to the location by an off-site manager.

D. The assignment of each agent to a principal or manager who shall be responsible for supervising the activities of that agent;

E. Reasonable efforts to determine that all supervisory personnel are qualified by virtue of experience or training to carry out their assigned responsibilities; and

F. The participation by each agent, either individually or collectively, no less than annually, in interviews or meetings conducted by persons designated by the broker-dealer, at which compliance matters relevant to the activities of the agent(s) are discussed. The meetings or interviews may occur in conjunction with a discussion of other matters and may be conducted at a central or regional location or at the agent's place of business.

2. Written procedures. Each broker-dealer shall establish, maintain and enforce written procedures to supervise the types of business in which it engages and to supervise the activities of agents and others. The procedures shall be reasonably designed to achieve compliance with applicable securities laws and regulations and shall set forth the broker-dealer's supervisory system and shall include the titles, licensing status, and locations of required supervisory personnel as well as the responsibilities of each supervisory person as these relate to the types of business in which the broker-dealer is engaged and applicable securities laws and regulations. The broker-dealer shall also maintain on an internal record the names of all persons designated as supervisory personnel and the dates on which each such designation became or was effective.

3. Amendments to written procedures. Each broker-dealer shall amend its written supervisory procedures as appropriate within a reasonable time after changes occur in applicable securities laws and regulations and as changes occur in its supervisory system. Each broker-dealer shall communicate such amendments through its organization.

4. Internal inspections

A. Each broker-dealer shall conduct a review, at least annually, of the businesses in which it engages. The review shall be reasonably designed to detect and prevent violations of, and to achieve compliance with, securities laws and regulations.

B. Each broker-dealer shall review the activities of each Maine office. The review shall include the periodic examination of customer accounts to detect and prevent irregularities or abuses and an on-site inspection of each office at least annually. In determining the need to conduct more frequent inspections of any office, the broker-dealer shall consider the nature and complexity of the securities activities for which the office is responsible, the volume of the office's business, and the number of agents assigned to the office.

C. The broker-dealer shall make and retain a written record of the dates upon which each review and inspection is conducted and a written report of each review and inspection which shall include a description of the testing and verification of the broker-dealer's policies and procedures.

5. Review of agent transactions and correspondence. Each broker-dealer shall establish, maintain and enforce procedures reasonably designed to supervise each agent in connection with the agent's securities transactions and incoming and outgoing written and electronic correspondence with the public relating to investments or the securities business of the broker-dealer. These procedures shall require that a principalor manager review each such transaction and piece of correspondence and make a written endorsement of the transaction or piece of correspondence on an internal record.

Notes

02-032 C.M.R. ch. 504, § 7