FINRA has proposed a new rule regulating and restricting the use of third party service providers.  The new rule makes clear that outsourcing never relieves the member firm from its regulatory obligations.  Additionally, a firm must adopt policies and procedures to ensure proper supervision including due diligence procedures that require a review of a third party firm’s capabilities and compliance.  The rule proposal restricts outsourcing by clearing or carrying firms by requiring that (a) an associated person have responsibility for movement of cash, preparation of net capital computations, and execution of compliance systems and (b) the member firm notify FINRA of all outsourcing arrangements. 

 

OUR TAKE: For the most part, the proposed rule codifies existing FINRA guidance on outsourcing relationships.  Most significantly, all firms must ensure ongoing due diligence and supervision, and clearing firms must provide notice of outsourcing arrangements.