Series 65: 8.9.5. Broker-Dealer Supervision Of Agents

8.9.5. Broker-Dealer Supervision of Agents

Supervision of agents is one of the key responsibilities of a broker-dealer. In Section 15(b)(4) of the Exchange Act, the SEC notes that it may take punitive action against any broker-dealer that has willfully violated, enabled the violation, or failed to supervise a violator of applicable securities law and regulations under its employ. This means that if a broker-dealer does not adequately supervise one of its employees (a.k.a. an agent: more on them later), the Feds can get involved. The Act goes on to say, however, that no supervisor will have failed in his duties if a supervisory system and procedures have been established and dutifully applied to prevent and detect such violations.

For an acceptable supervisory system, each member firm is required to have a written description of supervisory responsibilities and a set of written supervisory procedures that will govern the activities of its registered employees. The firm must make sure that there are supervisory controls and periodic inspections to help ensure proper compliance with those procedures.

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