Branching Out – Office Registration

by NCS Regulatory Compliance on August 1, 2016

by Patrick Labbe, Compliance Associate


I’ll bet you’ve been to Wal-Mart many times and most likely to more than one location. The retail giant started as a small business with one location and is now a house hold name with locations all over the world. This was not an overnight achievement but a long industrious process. There are many benefits to growth but the hurdles involved must be analyzed before making the decision to expand. The same is true when opening a new office in the securities industry but with a few extra hurdles standing in your way. FINRA’s Rule 3110(f), outlines the role of each associated office and registration requirements for each office type. Based on the scope of work performed at an office it will be categorized as either an Office of Supervisory Jurisdiction (OSJ), a Non-OSJ Branch or a non-registered location.


An OSJ is where the highest level functions take place and is responsible for the supervision of associated people and branches of the firm. As stated in Rule 3110(f) OSJ means any office of a member at which any one or more of the following functions take place:

  • order execution or market making;
  • structuring of public offerings or private placements;
  • maintaining custody of customers’ funds or securities;
  • final acceptance (approval) of new accounts on behalf of the member;
  • review and endorsement of customer orders, pursuant to paragraph (b)(2) above;
  • final approval of retail communications for use by persons associated with the member, except for an office that solely conducts final approval of research reports; or
  • responsibility for supervising the activities of persons associated with the member at one or more other branch offices of the member.


One of the questions I’m asked frequently is “So, why is the BD Main office also registered as a branch?” or “Why is this person’s U4 showing they are located at the BD main and a branch office with the same address?” First, the firm’s main office or BD Main is always considered an OSJ and must be registered as such[1]. The BD Main takes part in at least one, but usually more, of the functions allowed to take place at an OSJ, as highlighted above. Pertaining to the second question, a representative may be working from the BD Main but performing functions required to be carried out at an OSJ Branch therefore they must be located there. Yes, it is the same location but it is necessary to be located at the address labelled “branch” if you will be performing relative tasks.


Member firms may have more than one registered OSJ office to adequately supervise the additional non-OSJ branches and non-registered locations. Each OSJ must have at least one qualified principal on-site designated as the supervisor of that office. They will be responsible for all reps at that location and any other branch office(s) under their supervision.


The second, more common type of branch office, is the non-OSJ branch. This type of branch is defined in rule 3110 as “any location where one or more associated persons of a member regularly conducts the business of effecting transactions in, or inducing or attempting to induce the purchase or sale of, any security, or is held out as such…”. Basically, if any sales or solicitation of securities takes place and none of the seven OSJ functions are performed at the office it is a non-OSJ branch.


Lastly, you have the non-registered location. FINRA provides seven possible exemptions from registering an office location as a branch office.

  • Any location that is established solely for customer service of back office type functions where no sales activities are conducted and that is not held out to the public as a branch office
  • Any location that is the associated person’s residence; provided that:
    • The location may not be held out as an office.
    • The associated person(s) may not meet with customers at the location.
    • Neither customer funds nor securities may be handled at the location.
    • The associated person or persons are assigned to a designated branch office, which is reflected on all business cards, stationery, advertisements and other communications to the public. 05-67 NASD NTM OCTOBER 2005
    • All communications with the public must be subject to supervisory provisions pursuant to all applicable NASD rules (including, but not limited to, Rule 3010).
    • Electronic communications must be transmitted through the member’s electronic system.
    • All orders must be entered through the designated branch office or through an electronic system established by the member that is reviewable at such branch office.
    • Written procedures relating to the supervision of sales activities conducted at the location must be maintained by the member.
  • Any location, other than a primary residence, that is used for securities business for less than 30 business days in any one calendar year, provided the member complies with the provisions above;
  • Any office of convenience, where associated persons occasionally and exclusively by appointment meet with customers, which is not held out to the public as an office
  • Any location that is used primarily to engage in non-securities activities and from which the associated person(s) effects no more than 25 securities transactions in any one calendar year
  • The Floor of a registered national securities exchange where a member conducts a direct access business with public customers; or
  • A temporary location established in response to the implementation of a business continuity plan.


Growth is good but be mindful that FINRA is your partner and wants to help you during your transition. Any changes you will be making will be by their rules. While the office types and their basic functions were reviewed in this article there are other things that should be considered before opening a new office such as, initial and annual fees, supervision requirements, inspections, manual changes, filings, etc. Something else to question is whether FINRA would approve of the change. Before expanding ask yourself “Do I need to file a Change of Membership application or does this meet the Safe Harbor rule IM-1011-1?”  FINRA will be happy to weigh in if you file a Materiality Consultation.


During change, going through the proper channels will prove to be beneficial in the long run. Say what you like about Wal-Mart, but they have successfully grown and expanded their business through proper planning and vetting.  The FINRA rules force firms to go through such a process and in the end, the industry is stronger for it. This article may not cover all aspects of branch office requirements but addresses the major details. To fully understand what is required reference FINRA’s rule 3110. .




NCS Regulatory Compliance has been assisting broker-dealers and investment advisers with industry critical compliance responsibilities for over 25 years. We continue to provide products and services to thousands of firms in the financial services industry. If you have questions related to compliance obligations, compliance requirements, or other compliance topics, please contact us at 888-734-2667 or

Can you be Compliant without Culture?

by NCS Regulatory Compliance on March 10, 2016

By Stephen Murphy, VP BD Services


In Sergio Leone’s classic spaghetti western, “The Good, the Bad, and the Ugly,” one is left guessing exactly which character deserves each moniker and which character(s) we may, perhaps unfortunately, resemble. Sergio Leone spells it out for us in the final scene. It appears FINRA might take a little longer to make a similar determination.


Following on FINRA’s announcements to use risk based metrics to determine its exam schedule, their efforts to make most efficient use of examining staff now includes inquiries about a firm’s “culture of compliance.” The 2016 Examination Priorities Letter in January was a harbinger of the Targeted Exam Letter that came out in February. The opening salvo in the Targeted Letter is lifted straight out of the Priorities letter. This is no passing fad.


FINRA did not issue a checklist in this letter but rather essay prompts to drive the spirit and context of where they are headed, such as:

  1. A summary of the key policies and processes by which the firm establishes cultural values. In the summary, include whether this is a board-level function at your broker-dealer or at the corporate parent of the firm. If it is a board-level function, describe the board’s involvement. Also, provide a description of any steps you have initiated or completed in the past 24 months to promote, strengthen or change your firm’s culture.
  2. A description of the processes employed by executive management, business unit leaders and control functions in establishing, communicating and implementing your firm’s cultural values. Include a description of how executive management communicates, promotes and establishes a “tone from the top” as it relates to cultural values (to the extent not covered by the previous question). Include a description of the firm’s approach to ensure that its cultural values are adopted and applied by middle management.
  3. A description of how your firm assesses and measures the impact of cultural values (to the extent assessments and measures exist) and whether they have made a difference at your firm in achieving desired behaviors. Provide a summary of the policy statements, procedures, mission statements or other related documents that reflect your firm’s assessments and measures.
  4. A summary of the processes your firm uses to identify policy breaches, including the types of reports or other documents your firm relies on, in determining whether a breach of its cultural values has occurred. Please focus your summary on those activities your firm considers to be directly related to reinforcing its culture.
  5. A description of how your firm addresses cultural value policy or process breaches once discovered. What efforts are used to promptly address these policy or process breaches? What is the escalation process to surface and resolve such breaches?
  6. A description of your firm’s policies and processes, if any, to identify and address subcultures within the firm that may depart from or undermine the cultural values articulated by your board and senior management?.
  7. A description of your firm’s compensation practices and how they reinforce your firm’s cultural values.
  8. A description of the cultural value criteria used to determine promotions, compensation or other rewards. Describe opportunities for promotion to the managing director or equivalent level available to personnel of your compliance, legal, risk and internal audit functions


While FINRA states this information is requested merely to “better understand industry practices”, it is understandable that CCOs may have given a collective shudder when the letter was released. FINRA should be applauded for taking these steps and recognizing that more rules do not necessarily make violators comply with better standards and often cause more of a burden on those that are the least susceptible to ethical lapses and client malfeasance.


The ramifications of the Targeted Letter at first blush may appear to be just another routine burden. However, it points to an interesting change of focus by FINRA. Firms are being asked to evaluate (and seemingly to justify) their policies and procedures not in the context of a particular rule but with an introspective analysis of how their culture promulgates effective compliance. Cycle exams are good at exposing sundry mistakes, omissions, and oversights and dividing groups into the compliant and the not-so-compliant. This initiative by FINRA suggests that being compliant is not enough. If you want to walk off into the sunset, being compliant is not enough, you have to be good.

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Andrew Ceresney of the SEC Enforcement Division gives keynote address at recent NSCP conference.

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RIAs Should React Quickly When Examiners Spot Deficiency Trends

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  When investment advisers hear about examinations that went badly for other firms, they often breathe a sigh of relief to learn that someone else is in trouble and not them. Advisers’ first reaction, however, should be to determine if their compliance programs are deficient in the same areas. They may be making the same […]

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