Series 24 Written Supervisory Procedures Practice Questions
Question 1
The CEO asks a principal to sign an annual compliance certification even though the firm has not completed the required supervisory-control testing. What should the principal recommend?
- A. Sign first because the certification is a symbolic formality, and the supervisory-control testing can be completed and documented after the certification has been executed.
- B. Use the prior-year report without checking if business has changed, since last year's testing results can be carried forward to support this year's certification.
- C. Defer remediating the identified weaknesses until an external examination occurs, then address whichever ones the examiners raise in their report.
- D. Complete a defensible compliance assessment and supervisory-control testing, remediate findings, then follow the required certification process.
Show answer and explanation
Correct answer: D. Complete a defensible compliance assessment and supervisory-control testing, remediate findings, then follow the required certification process.
A certification must rest on completed testing and a reasonable basis for the statements made. The principal should recommend finishing the assessment and remediation before certifying.
- A. Certifying before testing is complete makes the statement unsupported.
- B. Prior-year results cannot support a current certification without confirming that the business and risks have not changed.
- C. Known weaknesses should be remediated promptly, not held until examiners find them.
- D. Completing the testing and remediation gives a reasonable basis for the certification.
Question 2
Under FINRA Rule 3110(f)(2), which of the following is NOT one of the functional criteria used to determine whether a location is an Office of Supervisory Jurisdiction (OSJ)?
- A. The location where the member's order execution or market-making occurs
- B. The location where the member structures public offerings or private placements
- C. The location's average daily equity trading volume exceeds $10 million
- D. The location where the member maintains custody of customer funds or securities
Show answer and explanation
Correct answer: C. The location's average daily equity trading volume exceeds $10 million
Rule 3110(f)(2) defines an OSJ by function, not by trading volume: order execution/market-making, structuring public offerings or private placements, custody of customer funds/securities, final approval of retail communications, responsibility for supervising one or more branch offices, and the location where a person with proprietary interest exercises sole discretion over hiring/firing/discipline. A dollar-volume trading threshold is not one of the listed criteria — the rule is functional, not size-based.
- A. This is one of the actual Rule 3110(f)(2) functional criteria -- a location where order execution or market-making occurs qualifies as an OSJ, so it is not the exception being asked for.
- B. Structuring public offerings or private placements is explicitly listed as an OSJ-qualifying function under Rule 3110(f)(2), so this is a valid criterion, not the odd one out.
- C. Correct -- there is no dollar-volume trading threshold in the Rule 3110(f)(2) functional test; OSJ status turns on the specific supervisory/business functions performed at a location, not a trading-volume metric.
- D. Maintaining custody of customer funds or securities is one of the enumerated functional criteria for OSJ status, so it doesn't belong as the excluded answer.
Question 3
Under FINRA Rule 3110's inspection requirements, absent a risk-based schedule adjustment, an Office of Supervisory Jurisdiction (OSJ) must generally be inspected on what cycle?
- A. At least annually (every calendar year)
- B. At least every two years
- C. At least every three years
- D. At least every five years
Show answer and explanation
Correct answer: A. At least annually (every calendar year)
FINRA Rule 3110(c) generally requires firms to inspect each OSJ (and each branch office that supervises one or more non-branch locations) at least annually. Non-supervisory branch offices must generally be inspected at least every three years, and non-branch locations are inspected on a regular periodic schedule, presumed reasonable if at least every three years, subject to the firm's risk-based approach.
- A. Correct — OSJs must generally be inspected at least annually under Rule 3110(c).
- B. Two years is not a recognized inspection cycle under Rule 3110 for any location type.
- C. Three years is the presumptively reasonable cycle for non-supervisory branch offices and non-branch locations, not OSJs — a common mix-up.
- D. Five years is longer than any permitted default inspection cycle under Rule 3110.
Considering a career as an advisor?
Explore careers at ParsonexQuestion 4
FINRA Rule 3130 requires each member firm to designate one or more principals to certify annually that the firm has processes in place to establish, maintain, review, test, and modify its WSPs reasonably designed to achieve compliance. Under the rule, this annual certification must be executed by:
- A. Any registered principal designated by the Chief Compliance Officer
- B. The registered representative with the highest production in each branch
- C. The Financial and Operations Principal (FINOP) responsible for net capital computations
- D. The Chief Executive Officer (or equivalent officer) of the firm
Show answer and explanation
Correct answer: D. The Chief Executive Officer (or equivalent officer) of the firm
Rule 3130 specifically requires the CEO (or equivalent officer) to sign the annual certification, based on a process the firm's designated principal(s) establish, following consultation with the CCO. The certification cannot simply be delegated to any principal — the accountability is placed at the top of the organization.
- A. Incorrect. While principals are involved in establishing the underlying processes, the certification itself must be executed by the CEO or equivalent.
- B. Incorrect. Sales production has no bearing on who is authorized to execute this certification.
- C. Incorrect. The FINOP's role relates to net capital and financial recordkeeping, not the Rule 3130 certification.
- D. Correct. Rule 3130 requires the CEO (or equivalent officer) to sign the annual certification.