Agent qualification exams and conduct

FINRA Rule 3110 — the supervisory framework

You met this rule from the firm's side in the BD arc; here's what it means for the agent living under it. FINRA Rule 3110 (Supervision) is the central rule governing how broker-dealers must supervise their agents, covering the design, documentation, and execution of the firm's supervisory system — which is to say, every layer of oversight between an agent and a customer.

Required supervisory system components:

• Written supervisory procedures (WSPs) — a written document describing how the firm supervises each line of business; updated for new rules, products, and processes
• Designation of registered principals for each line of business, with specific responsibility allocated and recorded
• Office of Supervisory Jurisdiction (OSJ) designations for offices conducting customer order handling, market making, or supervisory activities
• Annual compliance meeting with each registered person discussing the firm's compliance and supervisory program
• Annual certification by the CEO that the firm has procedures reasonably designed to achieve compliance

What that system does to an agent's daily work — specific supervisory obligations:

• Pre-use principal approval of certain communications (FINRA Rule 2210 retail communications — covered in the Communications chapter)
• Transaction review — principal review of customer transactions for compliance with applicable rules
• Correspondence review — supervisory procedures for review of incoming and outgoing written and electronic correspondence
• Office inspections — OSJs inspected annually; non-OSJ branches at least every 3 years
• Heightened supervision for agents with disciplinary history under Rule 3110(e) (the "taping rule" applied to certain firms)

FINRA Rule 3210 — outside brokerage accounts

An agent's personal investing doesn't get to hide from the employer. FINRA Rule 3210 governs any securities or commodity account that a registered person of one BD opens at another BD — giving the employing firm visibility into all securities activity by its personnel, including outside investing.

The script — required disclosures and approvals:

• The associated person must notify the employing firm in writing before opening any account at another BD
• The associated person must obtain written consent from the employing firm before opening the account
• The associated person must notify the executing firm (the firm where the account is being opened) of the associated-person status
• The executing firm must, upon request from the employing firm, transmit duplicate copies of confirmations and account statements

And "account" reaches further than the agent's own name:

• The rule covers accounts in the registered person's own name AND accounts where the registered person has a beneficial interest or control (spouse, dependent, family accounts where the registered person makes investment decisions)
• The rule applies to accounts at any registered BD, including bank-affiliated BDs, and to certain accounts at IAs and FCMs
• Accounts holding only mutual funds with no underlying trading account are typically excluded

FINRA Rule 2040 — payments to unregistered persons

If unregistered people can't sell securities, they can't be paid for selling securities either — that's the whole logic of FINRA Rule 2040. It prohibits a member firm or its associated persons from paying any commission, fee, concession, discount, or other allowance to any person not registered as a broker-dealer for soliciting securities business, and it prevents end-runs around registration through payment arrangements with unregistered "finders."

The general rule and its exceptions:

• Default rule: No transaction-based compensation to unregistered persons
• Foreign finders exception — under FINRA Rule 2040(c), a member firm may pay a finder's fee to a non-U.S. person for a referral if specific conditions are met, including documentation that the recipient is not a U.S. person and that the customer being referred is a non-U.S. person
• Retiring representatives exception — under FINRA Rule 2040(b), a firm may continue paying continuing commissions to a retired (now unregistered) former representative under a written contract, but the former rep may not solicit new business
• Joint accounts and family business arrangements — transaction-based compensation may flow within a registered person's own account or to a properly registered person under a legitimate business arrangement

How this connects to "selling away": Rule 2040 is the firm-and-firm-employee analog to Rule 3280 (selling away). Together they close two ends of the same loophole — 3280 prevents an agent from selling securities outside the firm, and 2040 prevents the firm from paying outsiders for securities business. One rule per direction, no gap in between.

Dual registration — agent and IAR

Many professionals wear both hats: registered as an agent of a broker-dealer AND as an investment adviser representative. Dual registration is fully permissible — the exam's interest is in which rules apply when, because the standards depend on which role the individual is playing at any given moment. Same person, same desk, different law by the hour.

Two registrations, two regulatory regimes:

• When effecting securities transactions for the BD — Reg BI + suitability apply
• When providing advisory services for the IA — fiduciary duty applies
• Compensation must be disclosed in each capacity. A customer cannot be charged advisory fees and brokerage commissions on the same transaction without explicit disclosure of both
• Form CRS must reflect both relationships clearly

And the exam-path facts — directly relevant to your own licensing plan:

• The Series 66 satisfies BOTH the state BD-agent requirement (Series 63) and the IAR requirement (Series 65) — making it the standard exam for dually-registered persons
• The Series 66 alone is not sufficient for FINRA registration — the individual must also pass the SIE and a FINRA top-off exam (Series 7, 6, etc.) to be a BD agent
• An IAR-only individual not seeking BD registration may take the Series 65 alone (no SIE required)

Representing an issuer — when registration is required

One more pass at the chapter's trickiest boundary. Individuals who represent issuers (not broker-dealers) in securities transactions may or may not need to register as agents — and the distinction is one of the most heavily tested parts of the entire agent arc.

Registration IS required when the individual represents the issuer in effecting transactions in securities with the general public — for example, selling stock to retail investors as part of a private offering or directed share program.

Registration is NOT required when any of the following apply:

• The transaction involves exempt securities under USA §402(a) — including U.S. government and agency securities, municipal bonds, bank securities, insurance company securities, and federally-regulated public utility securities
• The transaction is an exempt transaction under USA §402(b) — including transactions with institutional investors, isolated non-issuer transactions, certain limited offerings, and unsolicited customer orders
• The individual receives no transaction-based compensation for soliciting the transaction (the "officer exclusion" — covers officers and employees of an issuer who promote the issuer's offerings without separate commission)

Where any of these exclusions applies, the issuer's representative can legally sell securities without registering as an agent. Where none applies, agent registration is required — and notice how the three categories echo the §402 exemption structure from Module 1. The Act reuses its own architecture; learn it once, apply it everywhere.