Series 65 Uniform Investment Adviser Law Exam

Correct: Under Rule 22d-1 of the Investment Company Act of 1940, investment companies are permitted to offer variations in sales loads as long as those variations are applied uniformly to all offerees in a specified class and are clearly disclosed in the prospectus. The supervisor’s primary responsibility is to ensure that the firm is adhering to the disclosed schedule to prevent discriminatory pricing and maintain compliance with the public offering price (POP) requirements. Incorrect: Allowing representative discretion to deviate from the prospectus schedule would violate Section 22(d) of the Investment Company Act, which requires sales at the current public offering price described in the prospectus. Form BR is used for branch office registration and is not the appropriate venue for reporting sales load issues. Negotiating retroactive waivers for specific clients rather than following a uniform schedule fails to address the underlying compliance failure regarding the uniform application of the sales load schedule. Takeaway: Broker-dealers must strictly adhere to the sales load schedules disclosed in a mutual fund’s prospectus to ensure all investors within a defined class are treated uniformly.

Correct: Under FINRA Rule 4517, each member firm is required to identify and maintain specific contact information for personnel such as the Executive Representative, AML Officer, and Business Continuity Plan contact. In addition to updating this information within 30 days of any change, firms must review and, if necessary, update this information within 17 business days after the end of each calendar year to ensure FINRA has accurate regulatory communication channels. Incorrect: Updating information quarterly is not the regulatory standard for the annual verification process. Semi-annual verification within 10 business days does not align with the specific 17-business-day year-end requirement mandated by Rule 4517. While Form BD is used for general registration and must be kept current, the specific annual verification of contact information required by Rule 4517 is a distinct regulatory obligation typically managed through the FINRA Contact System (FCS) or CRD. Takeaway: Member firms must verify and update their designated contact information within 17 business days of the end of each calendar year to comply with FINRA Rule 4517.

Correct: Under FINRA Rule 3110 and Rule 3220, firms must maintain a supervisory system that effectively addresses rule violations. When a pattern of non-compliance is identified, such as repeatedly exceeding the $100 gift limit, informal coaching is insufficient. The firm must escalate its response by formally documenting the disciplinary action, issuing a written warning (letter of caution), and applying heightened supervision to mitigate the risk of future violations. Incorrect: Increasing the gift limit is not an option because the $100 limit is set by SRO rules (FINRA Rule 3220) and cannot be unilaterally changed by a member firm. Obtaining waivers from clients does not negate the regulatory violation of the gift rule. While termination is a possible firm decision, reporting a gift limit violation as a statutory disqualification is incorrect, as these violations do not typically meet the legal definition of a disqualifying event under the Securities Exchange Act of 1934. Takeaway: Recurring compliance violations require a formal, documented disciplinary response and enhanced supervisory measures to satisfy regulatory requirements for effective oversight.

Correct: Rule 10b-5, promulgated under Section 10(b) of the Securities Exchange Act of 1934, is a broad anti-fraud provision. It makes it unlawful for any person, directly or indirectly, to use any device, scheme, or artifice to defraud, to make any untrue statement of a material fact, or to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security. Incorrect: The other options are incorrect because Rule 10b-5 is not a registration rule (Option B), which is governed by other sections of the Exchange Act and FINRA By-Laws. It is not limited to investment advisers (Option C); it applies to ‘any person’ involved in securities transactions. Furthermore, Rule 10b-5 does not have a minimum dollar threshold for its anti-fraud provisions to apply, nor is its primary function the reporting of activities to the CRD (Option D). Takeaway: Rule 10b-5 serves as the primary regulatory tool against market manipulation and fraud, applying broadly to any person and any security transaction.

Correct: Under the Uniform Securities Act and NASAA Model Rules, an Investment Adviser (IA) and its representatives (IARs) have a fiduciary duty to provide advice that is suitable for the client. This requires a ‘reasonable basis’ for any recommendation, which is established through diligent ‘Know Your Customer’ (KYC) procedures. While verbal interviews are a valuable tool for gathering qualitative data, the failure to utilize the firm’s standardized questionnaires—especially when mandated by internal compliance protocols—results in inconsistent data collection and a failure to maintain adequate records. This lack of a standardized audit trail makes it impossible for the firm to demonstrate that it acted in the client’s best interest when the resulting investment strategy deviates from the client’s previously documented risk profile. Incorrect: The assertion that verbal interviews are strictly prohibited is incorrect; regulators encourage a mix of methods to understand a client, provided the results are documented. The claim that standardized questionnaires are the only legally recognized method under the Prudent Investor Act is a misunderstanding of that Act, which primarily governs the management of trust assets and the evaluation of the portfolio as a whole rather than the specific format of suitability intake. While a failure to supervise is a secondary concern, the primary regulatory breach is the IAR’s specific failure to follow recordkeeping and suitability protocols that ensure recommendations are based on a comprehensive and consistent assessment of client needs. Takeaway: Fiduciary duty requires that suitability assessments be supported by consistent, documented processes, such as standardized questionnaires, to provide a defensible basis for investment recommendations.

Correct: Under FINRA Rule 3110 and Article IV of the FINRA By-Laws, firms are required to investigate the good character, business repute, and qualifications of applicants. A bankruptcy within the last 10 years is a reportable event on Form U4 and must be disclosed. The firm must verify all disclosures against the Central Registration Depository (CRD) and maintain a record of their due diligence and the basis for their hiring decision to ensure the candidate is fit for a registered position. Incorrect: Approving a waiver based on the age of a fine or the reason for bankruptcy is incorrect because the firm has a regulatory obligation to perform due diligence regardless of the candidate’s explanation. Regulatory fines and bankruptcies do not automatically result in statutory disqualification; statutory disqualification is typically triggered by felony convictions or specific bars by the SEC or SROs. Allowing a candidate to engage in client-facing activities before the background check and registration process are complete violates FINRA’s registration and supervisory standards. Takeaway: Firms must verify all Form U4 disclosures against the CRD and conduct thorough due diligence on a candidate’s financial and disciplinary history to ensure regulatory compliance and suitability for registration.

Correct: According to FINRA Rule 3160, any member firm that is a party to a networking arrangement must provide specific disclosures at or prior to the time a customer account is opened. These disclosures must clearly state that the securities products are not insured by the FDIC, are not deposits or other obligations of the financial institution, are not guaranteed by the financial institution, and are subject to investment risks, including the possible loss of the principal invested. This is a critical risk mitigation step to prevent customer confusion between banking and brokerage services. Incorrect: Using the financial institution’s branding as the primary visual element is incorrect because the rule requires the broker-dealer to be clearly identified as the provider of securities services. Paying non-registered bank employees a percentage-based referral fee is prohibited; referral fees to non-registered persons must be nominal, one-time, and not contingent on a transaction. Requiring a document stating the financial institution assumes fiduciary liability for brokerage recommendations is incorrect, as the broker-dealer remains responsible for the suitability of its own recommendations and the bank does not assume this liability under a standard networking arrangement. Takeaway: Broker-dealers operating within financial institutions must provide explicit written disclosures that securities are not FDIC insured or bank-guaranteed and are subject to investment risk.

Correct: According to FINRA By-Laws Article IV, Section 5 (Resignation of Members) and Section 6 (Retention of Jurisdiction), a member may resign by filing a Form BDW (Uniform Request for Broker-Dealer Withdrawal) via the CRD. Crucially, Section 6 stipulates that a person or firm whose registration has been terminated or revoked remains subject to FINRA’s jurisdiction for two years for the purpose of any investigation or disciplinary proceeding regarding conduct that occurred while the firm was a member. Incorrect: The suggestion that resignation is effective immediately and ends all jurisdiction is incorrect because FINRA retains jurisdiction for two years to address potential prior misconduct. Amending Form BD to ‘Non-Operating’ is not the correct procedure for termination; Form BDW is the specific form required for withdrawal. While Form BR is used for branch offices, the SEC does not require a 90-day waiting period after Form BR amendments before a firm can file Form BDW. Takeaway: Broker-dealers must file Form BDW to withdraw registration and remain subject to FINRA’s jurisdiction for two years after the termination becomes effective.

Correct: Under Section 404 of the Sarbanes-Oxley Act, management is responsible for the assessment and effectiveness of internal controls. When a deficiency is identified—such as a failure to update Form BR in the CRD system—management must evaluate the root cause, implement a remediation plan (like a new communication protocol), and perform testing to ensure the new control is operating effectively. This ensures both financial reporting integrity and regulatory compliance. Incorrect: Requesting retroactive extensions from FINRA is not a standard or guaranteed remedy for internal control failures and does not address the underlying deficiency. Management cannot delegate the design or implementation of controls to external auditors, as this would impair the auditors’ independence. Reclassifying a regulatory requirement as ‘administrative’ to avoid internal control scope is an improper attempt to bypass statutory obligations and fails to address the compliance risk associated with inaccurate registration filings. Takeaway: Management must take direct responsibility for remediating internal control deficiencies through documented process improvements and effectiveness testing to ensure regulatory and financial reporting accuracy.

Correct: Under FINRA Article IV and Rule 3110, broker-dealers are required to keep their registration information current. Form BD must be amended to reflect changes in executive representatives or other material firm information, and Form BR must be filed to register new branch offices. These updates must typically be made within 30 days of the change. Filing these forms through the CRD system immediately is the necessary corrective action to ensure the firm’s public and regulatory records are accurate. Incorrect: Waiting for the annual renewal is incorrect because material changes to Form BD and the opening of branch offices require prompt notification, usually within 30 days. Filing a Form BDW is inappropriate as that form is used to withdraw registration, not to update or add locations. Requesting a waiver from the SEC is not the standard procedure for SRO registration updates, which must be handled through the CRD system regardless of the internal source of the discovery. Takeaway: Broker-dealers must ensure that all changes to firm structure and branch locations are updated in the CRD system via Form BD and Form BR within the 30-day regulatory window.

Correct: Under FINRA Rule 3110 and Article IV of the FINRA By-Laws, member firms are required to register each branch office location. This is accomplished by filing Form BR (Uniform Branch Office Registration Form) through the CRD system. Additionally, Form BD must be amended to reflect changes in the firm’s hierarchy or office structure. These filings must typically be completed within 30 days of the opening or change of the location to ensure regulatory transparency and oversight. Incorrect: Notifying the SEC via letter is incorrect because branch registration is managed through FINRA’s CRD system, and waiting for an annual renewal violates the prompt reporting requirements. Designating a location as an OSJ is based on the specific supervisory functions performed at that site (such as approving advertising or supervising other branches) rather than a simple production threshold. While updating Form U4 for individual representatives is necessary, it does not fulfill the firm’s regulatory obligation to register the physical branch location itself via Form BR. Takeaway: Broker-dealers must register new branch locations by filing Form BR and amending Form BD within 30 days to comply with FINRA registration and supervisory requirements.

Correct: Under FINRA Rule 3110 and Rule 2320, firms must register branch offices using Form BR and ensure that a registered principal reviews and approves the suitability of each variable contract transaction. This oversight is critical not only for investor protection but also for identifying potential AML red flags in high-value insurance products before the application is transmitted to the carrier. Incorrect: Option B is incorrect because a broker-dealer cannot delegate its primary AML and supervisory responsibilities to an insurance company. Option C is incorrect because the nature of the business (selling securities) generally requires branch registration and active principal supervision, not just annual reviews. Option D is incorrect because suitability and supervisory requirements apply to all variable contract transactions regardless of a dollar threshold, and a Rule 1017 filing is not the primary mechanism for branch registration. Takeaway: Proper branch registration via Form BR and pre-transmission principal review of variable contracts are essential for regulatory compliance and effective risk management.

Correct: FINRA Rule 8110 requires that members make available a current copy of the FINRA Manual for examination by customers upon request. While firms are not required to maintain a physical copy, they must provide access to the rules. Providing access via the official FINRA website is a compliant and efficient way to meet this obligation, especially when internal systems are unavailable. Incorrect: Directing a customer to a District Office or an OSJ is incorrect because the rule requires the member firm itself to make the manual available at the location where the request is made. Delaying access until network maintenance is finished is also non-compliant, as the manual must be made available upon request. Furthermore, a firm’s summarized version of the rules is not a substitute for the actual FINRA Manual. Takeaway: Under FINRA Rule 8110, member firms must provide customers with immediate access to the FINRA Manual upon request, which can be satisfied through electronic access to the official FINRA website.

Correct: Under FINRA By-Laws Article IV and Rule 3110, broker-dealers are required to keep their registration information current in the CRD system. Form BR is specifically used to register new branch offices, while a partial Form BDW (Uniform Request for Broker-Dealer Withdrawal) is used to terminate the registration of specific branch locations. These amendments must generally be filed within 30 days of the change to ensure the CRD accurately reflects the firm’s physical footprint and supervisory structure. Incorrect: Waiting for the annual renewal period is incorrect because material changes to a firm’s registration, including office locations, must be reported promptly, typically within 30 days. Form BR is required for all branch offices, not just Offices of Supervisory Jurisdiction (OSJ), making the distinction in the third option incorrect. Filing a completely new Form BD is an inappropriate and unnecessary response to a change in office locations, as the existing registration should be amended rather than replaced. Takeaway: Firms must use Form BR to register new locations and a partial Form BDW to terminate old ones in the CRD system within 30 days to maintain regulatory compliance.

Correct: FINRA Rule 4560 requires members to maintain a record of total short positions in all customer and proprietary firm accounts in all equity securities (other than restricted equity securities) and report this information to FINRA. This reporting must be done on a gross basis, rather than a net basis, and occurs twice a month according to the schedule designated by FINRA. Incorrect: Reporting net positions is incorrect because the rule specifically requires gross short interest to be reported. Weekly reporting is not the standard requirement under Rule 4560, which mandates a bi-monthly cycle. Limiting reporting to exchange-listed securities is incorrect because the rule applies to all equity securities, including OTC securities, unless they meet the specific definition of a restricted equity security. Takeaway: FINRA Rule 4560 mandates the bi-monthly reporting of gross short positions for both customer and proprietary accounts across substantially all equity securities.

Correct: Under Rule 15a-6 of the Securities Exchange Act of 1934, foreign broker-dealers are permitted to engage in certain activities with U.S. institutional investors without SEC registration, provided they utilize a registered U.S. broker-dealer to intermediate the transactions. The U.S. broker-dealer must take responsibility for issuing confirmations, maintaining books and records, and ensuring compliance with net capital requirements. Incorrect: The asset threshold of an investor or a written waiver does not bypass the requirement for a U.S. intermediary when a foreign broker-dealer executes trades for U.S. persons. Form BDW is used specifically for the withdrawal of an existing registration, not for obtaining a temporary exemption for foreign entities. Lacking a physical presence in the U.S. does not grant an automatic exemption; the Act regulates the solicitation of U.S. residents regardless of where the broker-dealer is physically located. Takeaway: To maintain an exemption under Rule 15a-6, foreign broker-dealers must use a registered U.S. broker-dealer to execute and record transactions involving U.S. institutional investors.

Correct: Under FINRA Rule 3210, any person associated with a member firm who opens an account at another member firm or financial institution where securities transactions can be effected must obtain the prior written consent of their employer member. This is a proactive requirement that must be met before the account is established to ensure the employer can properly supervise the associated person’s trading activities. Incorrect: Notifying the executing firm is a required step, but it does not replace the obligation to obtain prior written consent from the employer. The rule applies to all associated persons regardless of their title or rank within the firm. While there is a 30-day window for associated persons to disclose accounts that existed prior to their association with a firm, new accounts opened while already associated require consent before they are established. Takeaway: Associated persons must obtain prior written consent from their employer member before opening a securities account at any other financial institution.

Correct: Rule 10b-18 provides a safe harbor for issuers repurchasing their own common stock, provided they meet four specific conditions: manner of purchase, timing, price, and volume. The ‘manner of purchase’ condition requires that the issuer use only one broker or dealer on any single day to solicit and purchase its securities. Using multiple brokers on the same day disqualifies the issuer from the safe harbor protections against market manipulation charges. Incorrect: Limiting volume to 50% of the average daily trading volume is incorrect because the Rule 10b-18 volume limit is generally 25% of the ADTV. Executing orders at the ask price may violate the price condition, which limits purchases to the higher of the highest independent bid or the last independent transaction price. Moving activity to the final ten minutes of the session violates the timing condition, which prohibits safe harbor purchases during the last 30 minutes (or 10 minutes for actively traded securities) of the trading day. Takeaway: To qualify for the Rule 10b-18 safe harbor, an issuer must consolidate all daily repurchase activity through a single broker-dealer and adhere to strict timing, price, and volume restrictions.

Correct: When a supervisor identifies a violation of FINRA Rule 3220 (Gifts and Gratuities) and internal firm policy, they must take corrective action. This includes internal discipline and a regulatory assessment. FINRA Rule 4530 requires firms to report certain internal disciplinary actions and rule violations to FINRA. Additionally, if the disciplinary action involves a fine above a certain threshold or other statutory disqualifications, the representative’s Form U4 must be amended to reflect the disclosure. Incorrect: Reimbursing the vendor does not rectify the past violation of reporting requirements. Form BR is used for branch office registration and is not the mechanism for reporting individual representative misconduct. Form BDW is used to withdraw the registration of a broker-dealer, not to suspend an individual representative. While heightened supervision may be an internal outcome, the SEC is not the primary body for initial reporting of gift limit violations; such matters are handled through SRO (FINRA) reporting channels like Rule 4530. Takeaway: Supervisors must ensure that violations of gift rules are addressed through documented disciplinary actions and evaluated for mandatory SRO reporting via Form U4 or FINRA Rule 4530 filings reporting requirements.

Correct: A qualified auditor’s opinion is a significant issuer-specific risk indicating that the financial statements may contain material misstatements or that the auditor was unable to obtain sufficient evidence for certain areas, such as the valuation of illiquid assets. This legal and regulatory risk directly impacts the reliability of financial reporting. Simultaneously, when a central bank adopts a restrictive monetary policy to curb inflation (rising CPI), interest rates typically rise, leading to a widening of credit spreads. This systematic financial risk reduces the market value of fixed-income securities and increases the issuer’s cost of future borrowing, creating a dual-threat scenario for the investor. Incorrect: The suggestion that a transition from accrual to cash accounting is the primary concern is misplaced, as most large-scale infrastructure partners are required to use accrual accounting under GAAP or IFRS, and a qualified opinion is a far more severe red flag than an accounting method change. The mention of a deflationary environment contradicts the scenario’s premise of rising Consumer Price Index (CPI) figures and restrictive monetary policy. Finally, the claim that a SIFI (Systemically Important Financial Institution) designation would decrease regulatory oversight is factually incorrect; such a designation significantly increases regulatory scrutiny, capital requirements, and compliance costs. Takeaway: Investment advisers must evaluate the interplay between issuer-specific risks, such as qualified audit disclosures, and systematic risks like credit spread widening driven by monetary policy shifts.

Correct: According to FINRA By-Laws Article IV, Section 6, the association retains jurisdiction to file a complaint against a member that has resigned or had its membership canceled or revoked for a period of two years after the effective date of the resignation, cancellation, or revocation. This ensures that firms cannot avoid disciplinary action for past misconduct simply by resigning their membership. Incorrect: The 60-day period is the standard timeframe for a Form BDW to become effective, but it does not mark the end of FINRA’s jurisdiction. The five-year period is incorrect as the By-Laws specifically mandate a two-year window for the retention of jurisdiction. Tolling agreements are not required for this jurisdiction to apply, as it is an automatic provision of the FINRA By-Laws upon termination of membership. Takeaway: FINRA maintains disciplinary jurisdiction over former member firms for two years following the effective date of their membership termination.

Correct: Under current federal tax regulations for individual taxpayers, capital losses are first used to offset capital gains. If the total capital losses exceed total capital gains, the taxpayer is permitted to use up to $3,000 of the remaining net loss to offset ordinary income (such as wages or interest) in the current tax year. Any net capital loss exceeding this $3,000 threshold does not expire; instead, it is carried forward to future tax years indefinitely until the loss is fully utilized. This treatment is a fundamental component of tax-loss harvesting strategies used by investment advisers to manage a client’s after-tax returns. Incorrect: The suggestion that capital losses must offset ordinary income before capital gains is incorrect because the IRS requires a netting process where losses first reduce gains within the same category (short-term or long-term) and then across categories before any deduction against ordinary income is allowed. The idea that individuals can carry back capital losses to prior years is a common confusion with corporate tax rules or specific net operating loss provisions; individual capital losses can only be carried forward. The claim that the $3,000 limit applies to the total realized loss regardless of gains is inaccurate because the limit only restricts the amount of net loss that can be applied against non-investment income, not the amount that can offset investment gains. Takeaway: Individual taxpayers can offset capital gains without limit but are restricted to a $3,000 annual deduction against ordinary income for net capital losses, with the remainder carried forward indefinitely.

Correct: SEC Rule 15b7-1 stipulates that no broker-dealer shall effect any transaction or induce the purchase or sale of any security unless the associated person is registered or approved in accordance with SRO qualification standards. In the context of complaint handling, individuals who exercise professional judgment, negotiate settlements, or interpret the suitability of transactions are performing functions that require registration (typically as a General Securities Representative or Principal). Simply being in an ‘operations’ role does not exempt an individual if their actual job functions overlap with those requiring registration. Incorrect: Allowing a non-registered person to perform the function and then having a principal review it later does not satisfy the requirement that the person performing the act must be qualified at the time of the activity. Filing a Form BR relates to the registration of branch offices and does not provide a blanket exemption for individuals performing regulated functions within those offices. There is no monetary threshold under Rule 15b7-1 that allows non-registered persons to handle securities-related disputes based on the dollar amount of the claim. Takeaway: Associated persons must be properly registered and qualified by an SRO before performing any function that involves professional judgment regarding securities transactions or the resolution of customer disputes.

Correct: According to FINRA Rule 9134, service of a complaint on a member firm is properly executed by sending the papers to the business address of the member as listed in the Central Registration Depository (CRD). Crucially, the rule specifies that service by mail is deemed complete upon the act of mailing, regardless of when the document is physically received or signed for by the firm. Incorrect: The requirement for a signed acknowledgment or a ‘Read Receipt’ is not a condition for the completion of service under Rule 9134; service by mail is complete upon mailing. While personal service is an allowed method, it is not the exclusive requirement for member firms, as mail and courier services are also permitted. The CRD is used to identify the correct address for service, but it is not a platform that requires a manual signature to validate the legal service of a complaint. Takeaway: Under FINRA Rule 9134, service on a member firm is based on the address in the CRD and is legally complete at the moment of mailing.

Correct: According to Article IV, Section 6 of the FINRA By-Laws, FINRA retains jurisdiction over a member firm or an associated person for a period of two years following the effective date of resignation or termination of registration. This allows the SRO to initiate disciplinary proceedings for conduct that occurred while the entity was a member, ensuring that firms cannot evade regulatory accountability simply by resigning. Incorrect: Option B is incorrect because while FINRA may delay the effectiveness of a resignation under certain circumstances, the By-Laws specifically provide for a two-year retention of jurisdiction rather than an indefinite stay. Option C is incorrect because FINRA’s jurisdiction does not vanish or transfer to the SEC; it is retained by FINRA for the specified two-year window. Option D is incorrect because the requirement for an Executive Representative (Section 3) applies to active members, and there is no five-year post-resignation appointment requirement in Article IV. Takeaway: FINRA retains disciplinary jurisdiction over former member firms and associated persons for two years after their registration is terminated.

Correct: Under Article III, Section 4 of the FINRA By-Laws, a person is subject to statutory disqualification if they have been found to have violated or are enjoined from violating any foreign statute or regulation regarding fraudulent, manipulative, or deceptive conduct. This applies regardless of whether the individual is in a supervisory role. To associate with such a person, the firm must undergo a specific eligibility proceeding (MC-400 process) to demonstrate that the association is in the public interest. Incorrect: The two-year timeframe is incorrect as statutory disqualification triggers for foreign findings of fraud do not expire in that manner for registration purposes. Limiting the role to non-supervisory functions does not negate the statutory disqualification status itself. Membership in IOSCO by the foreign authority is not a prerequisite for the disqualification trigger; the nature of the conduct and the finality of the order by a foreign financial regulator are the determining factors. Takeaway: A final order from a foreign financial regulator involving fraudulent or manipulative conduct triggers a statutory disqualification, requiring an eligibility proceeding for the individual to associate with a member firm.

Correct: According to FINRA Rule 4311(i), each carrying firm must provide, at least annually (no later than July 1 of each year), a list of all reports (e.g., exception reports) it offers to the introducing firm’s Chief Executive Officer and Chief Compliance Officer. This ensures that the introducing firm is aware of the tools available to help it fulfill its allocated supervisory and compliance responsibilities under the agreement. Incorrect: The carrying firm does not automatically assume the introducing firm’s AML responsibilities; rather, the agreement must clearly allocate these duties, and the introducing firm remains responsible for its own compliance program. While carrying firms have AML obligations, Rule 4311 allows for the allocation of specific tasks like customer identification (CIP) to the introducing firm. Sharing exception reports is not prohibited; in fact, the rule mandates that the carrying firm notify the introducing firm of the reports available to assist in supervision. Takeaway: FINRA Rule 4311 requires carrying firms to provide an annual list of available supervisory reports to the introducing firm’s leadership to ensure proper oversight of allocated responsibilities.

Correct: Under FINRA Rule 3170, a firm that meets the criteria for a taping firm (for a mid-sized firm with 10-19 representatives, the threshold is 4 or more from disciplined firms) is granted a one-time, 30-day window following notification to reduce its staffing levels. By reducing the number of representatives from disciplined firms to below the threshold, the firm can avoid the taping and reporting requirements entirely, as long as they have not used this specific exemption before. Incorrect: The requirement to record conversations applies to all registered persons, not just those from disciplined firms, but the reporting requirement is quarterly, not monthly. Heightened supervision and Form BD amendments do not satisfy the specific requirements of the Taping Rule. There is no provision for a standard waiver from the DBCC based on existing procedures; the firm must either comply with the taping requirements or reduce staff within the 30-day window. Takeaway: Firms designated as taping firms have a single 30-day opportunity to adjust their staffing levels to fall below the regulatory threshold and avoid the taping and quarterly reporting obligations of Rule 3170.