Maven Strategic | Outsourced Financial Operations Principal (FINOP) Services

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Wow, it’s been almost 5 years…what’s new? POO and PFO designations for one.

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It is hard to believe that it has been almost 5 years since my last post. While a lot has stayed the same, a lot has changed. One thing is for sure, the role of the FINOP is more important than ever. In an effort to ensure transparency, the regulators continue to add additional regulatory reports to our periodic filings. Depending on your minimum net capital requirements and broker/dealer business types, we are now preparing and filing some or all of the following: FOCUS, Supplemental Statement of Income (SSOI), Form Custody, Supplemental Inventory Schedule, and Supplemental Schedule for Derivatives and Other Off-Balance Sheet Items (OBS).

Additionally, we have been given some new hats to wear. Per FINRA Regulatory Notice 17-30, effective October 2018, firms are required to designate a Principal Financial Officer (PFO) and a Principal Operations Officer (POO). The PFO designation makes all the sense in the world to me. The FINOP has always been considered the “regulatory CFO”. The PFO designation has memorialized the role and its responsibilities. The PFO must hold the Series 27 FINOP license, and is required to primarily be responsible for financial filings and the related books and records.

On the other hand, the POO designation is where I think they missed the mark. It appears that the the POO is geared towards self-clearing or firms with a minimum requirement of $250,000 or more. But, it is does not exclude all of the other firms, which make up the majority of FINRA members. The POO has the primary responsibility for the day-to-day operations of the business, including many securities and customer related matters. AND, the POO is required to have the Series 27. This is where I have an issue. I’ve held my FINOP license for over 20 years, and I consider myself a regulatory accounting expert, but I do not profess to be an operations expert; I never needed to be. Putting aside the testing/license requirement, the practical experience necessary to aptly oversee operations is where the disconnect lies. We typically service the small to medium sized broker/dealers, and with that comes limited resources. Having said that, employees responsible for operations, compliance, and trading, are typically very qualified to address the needs of their respective departments. In fact, I would argue that those individuals with smaller firm experience are more qualified than those with just large firm experience, because they’ve done and seen it all. However, they shouldn’t be expected to sit for, or pass the Series 27 exam. Nor should a FINOP be expected to oversee operations. The Rule allows for the POO to designate others to handle certain day-to-day tasks, but still keeps the ultimate responsibility with the POO.

As FINOPs, we can voice our opinion, but when push comes to shove, we are at the mercy of the regulators. As such, we have taken the necessary steps to ensure that the most appropriate individuals are assigned these new roles, and in the cases where we must wear the POO hats and are somewhat in over our heads, we are working towards getting better at it. We are collaborating with those individuals that have the expertise to see that the proper structure, checks and balances, and oversight is in place.

Revision to Designation of Accountant requirements

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Back in November 2013, we talked about the Designation of Accountant requirements. Well, effective June 1, 2014 there was an amendment to SEC Rule 17a-5(f)(2). As such, all Broker/Dealers must file a NEW Designation of Accountant form. FINRA has recently announced that there is a new electronic form, which will be available on the FINRA Gateway as of November 24, 2014. As in the past, this form is due by the 10th of the December (for fiscal year end December firms). All Broker/Dealers are required to file a new form, regardless of whether or not you have changed auditors, or if your audit engagement is continuous in nature. So, be sure to remind your FINOP to mark their calendars for the period 11/24 – 12/10, as they will have 16 days to file the new form. Again, a reminder that you should make sure your audit engagement letters have language in them stating that the agreement is of a continuing nature, providing for successive engagements. This will allow you to avoid having to file a new Designation of Accountant form each year, and does not preclude the annual renegotiation of fees and terms. Of course should you decide to change auditors, you will be required to file a Replacement of Accountant under Rule 17a-5(f)(3).

FINRA Banking Changes

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As a reminder, in February 2014, FINRA will switch its banking services to a new bank. As part of this transition, FINRA will simplify the methods firms use to make payments to them. FINRA will consolidate all check payment addresses, with the exception of GASB payments, into a single payment address. This change will allow for a more efficient check payment and deposit process. Second, to ensure your firm’s payments are applied to the correct invoice in a timely manner, firms must include invoice numbers on all check remittances, and include it as the reference number on ACH and wire payments. Note: If a firm submits a payment without an invoice number, FINRA will apply the funds to the firm’s FINRA Flex-Funding account, which is accessible via E-Bill. Someone at your firm must then transfer the funds to the appropriate invoice in order for the invoice to be closed. Starting in February,you must use the following information to make payments to FINRA. Mailing Address To mail a check to FINRA, include the invoice number on the check and mail the payment to: All payments (except GASB payments) Bank of America Lockbox Services FINRA 418911 MA5-527-02-07 2 Morrissey Blvd.

Designation of Accountant

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As per SEC Rule 172-5(f)(2): Every broker or dealer that is required to file an annual report of financial statements section shall file no later than December 10 of each year a statement with the Commission’s principal office in Washington, DC, the regional office of the Commission for the region in which its principal place of business is located, and the principal office of the designated examining authority for such broker or dealer. Such statement shall indicate the existence of an agreement dated no later than December first, with an independent public accountant covering a contractual commitment to conduct the broker’s or dealer’s annual audit during the following calendar year. (ii) The agreement may be of a continuing nature, providing for successive yearly audits, in which case no further filing is required. If the agreement is for a single audit, or if the continuing agreement previously filed has been terminated or amended, a new statement must be filed by the required date.In summary, you must have an executed engagement letter for your annual independent audits (which must be conducted by a PCAOB approved CPA firm) by December 1st, and if your engagement letter does not have language stating that it is of a continuing nature, providing for successive yearly audits.

SEC Rule Amendment Summary

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We recently sent out the following cover letter to our clients, along with a .pdf summary. If you would like to receive a copy of our rule amendments summary, please contact us! To our valued clients: On August 21, 2013, The Federal Register published the Final Rule of the SEC on their adoption of amendments to the net capital, customer protection, books and records, and notification rules for broker-dealers operating under the Securities and Exchange Act of 1934.  The SEC issued two releases relating to these Rule amendments.  Each release was over 300 pages.  In the interest of our clients,  we have attempted to summarize these amendments as succinctly and accurately as possible,  with a focus on those items that are most likely to impact our clients.  After each rule summary we include a “Maven Takeaway” – our topside interpretation of the rule change (if you read nothing else, read these).  We encourage questions, challenges, and further review of published documentation.

Welcome to our new and improved website!

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Welcome to our new and improved website.  We are very excited to launch the site concurrent with the roll-out of our new company logo.Our hopes are that the site provides a clean concise conveyance of information and resources for our clients and prospects.Additionally, current clients have the ability to log directly into their books and records portal at the top right-hand corner of the site. If you have any questions or comments about our new website, please feel free to contact us.