bfinance US Ltd.
Written Supervisory Procedures
March 19, 2015
Table of Contents
INTRODUCTION 13
Section 1 DESIGNATION OF SUPERVISORS AND OFFICES 14
1.1 Designation of Principals and Qualifications 14
1.2 Designation of Principals 14
1.3 Designation of Offices 16
Section 2 SUPERVISION AND COMPLIANCE 18
2.1 Role of Compliance 18
2.2 Supervision 18
2.3 Responsibility 19
2.4 Controls 19
Verification and Testing 19
Outside Auditors 20
2.5 Maintenance of Written Compliance and Supervisory Procedures 20
2.6 Chief Compliance Officer (FINRA Rule 3130) 20
2.7 Annual Compliance Report to Chief Executive Officer (“CEO”) 20
FINRA Report (FINRA Rule 3130) 21
Annual Compliance and Supervision Certification (FINRA Rule 3130) 21
2.8 Supervision of Producing Managers' Customer Account Activity (FINRA Rule 3120) 21
Reviews to be Conducted 21
Heightened Supervision 22
Limited Size and Resource Exception 22
2.9 Outsourcing Activities 23
Initial Due Diligence 23
Monitoring 24
Section 3 EMPLOYMENT, REGISTRATION AND LICENSING 25
3.1 Employment 25
Hiring Procedures 25
Registered Representative Interview Guidelines 25
Prospective RRs Require Pre-Clearance by Compliance 25
Qualification of Supervisors (FINRA Rule 3110) 25
Background Investigation (FINRA 3110) 26
Fingerprints (Exchange Act Rule 17f-2; FINRA Rule 1010, NTM 05-39) 26
Policies and Procedures 26
New Employee Questionnaire 26
Termination Procedures (FINRA By-Laws Article V, Section 3 and Regulatory Notice 10-39)) 27
Notification to Compliance 27
Retrieval of bfinance Property 27
Reassignment of Accounts 27
Responding To Customer Inquiries 27
Form U5 27
3.2 Registration and Licensing (FINRA Rule 1122) 27
CRD Electronic Filings (FINRA Rule 1010) 27
Registration Requirement 28
Requests for Waivers 28
State Registrations 28
Parking Registrations 28
Form U4 (FINRA Rules 1010 and FINRA Rule 2263) 28
Series 79 28
Series 99 29
Amendments to Forms U4 or U5 30
Assignment of RR Numbers 30
3.3 Statutorily Disqualified Persons (Exchange Act Sec. 3(a)(39) Rule 19h-1; FINRA By-Laws Art. III, Sections 3 and 4) 31
Hiring a Statutorily Disqualified Person 31
Regulatory Filings 31
Supervision 31
Reporting Statutory Disqualifications 31
3.4 Broker-Dealer Registration 31
Form BD 31
Change in Ownership, Control, Or Business Operations 31
Executive Representative (FINRA By-Laws Article IV, Section 3) 32
3.5 Heightened Supervision 32
Identifying RRs for Heightened Supervision 32
Criteria for Identifying Candidates for Heightened Supervision 32
Heightened Supervision Memorandum 32
Scope of Potential Heightened Supervision 32
Certification by RR's Supervisor 33
3.6 Taping Rule 33
Section 4 TRAINING AND EDUCATION 35
4.1 Annual Compliance Meeting 35
4.2 Continuing Education 35
4.3 Regulatory Element 35
Who is Subject to the Requirements 35
When Requirements must be Completed 35
Regulatory Element Contact Person 35
CRD Notices and Appointments for Training Sessions 35
Registered Persons Who Fail To Complete Requirements 35
Tracking 36
4.4 Firm Element 36
Who Is Subject To the Requirements 36
Firm Requirements 36
Annual Needs Analysis 37
Evaluating the Firm Element Program 37
Training Medium and Tracking 37
Section 5 EMPLOYEE SUPERVISION 38
5.1 Standards of Conduct 38
5.2 Outside Business Activities (FINRA Rule 3270) 38
5.3 Private Securities Transactions 38
5.4 Employee and Employee Related Accounts 39
Employee and Employee Related Accounts Defined 39
Outside Accounts Permitted 39
Review of Transactions 39
Sharing In Accounts (NTM 03-21) 39
Prohibition On Purchases Of Initial Public Offerings (IPOs) (FINRA Rule 5130) 39
Restrictions on Purchase and Sale of IPOs Equity Securities (FINRA Rule 5130) 40
Restricted Persons 40
5.5 Gifts and Business Entertainment 41
Gifts to Others 42
Acceptance of Gifts 42
Entertainment 42
De Minimis and Promotional Items 43
Supervision 43
5.6 Cash and Non-Cash Compensation Policy (NTM 99-55) 43
5.7 Media Contact is Limited to Certain Authorized Employees 44
5.8 Requests for Information from Outside Sources 44
5.9 Employee Obligation to Notify bfinance and bfinance’s Obligation to Report (FINRA Rule 4530) 44
5.10 Reports of Crimes and Suspected Crimes 45
5.11 Prohibited Activities 45
Use of Firm Name 45
Providing Tax Advice not Permitted 45
Sharing Commissions or Fees with Non-Registered Persons 45
Borrowing From and Lending to Customers (NTM 04-14) 45
Personal Funds Deposited In Customer Accounts 46
Prohibition against Guarantees (FINRA Rule 2150) 46
Fees and Other Charges 46
Customer Signatures 46
Rumors 46
Misrepresentations 46
Bribes 47
The Foreign Corrupt Practices Act (“FCPA”) - (United States Code, Title 15, Chapter 2B) 47
Acting Without Registration 49
5.12 Computer Records, Equipment and Software 49
5.13 Use of Titles 49
5.14 Annual Certification 49
5.15 Employees Acting as Trustees, Executors, or Other Fiduciary Capacities 49
Section 6 CUSTOMER COMPLAINTS 51
6.1 Written Complaints 51
6.2 Oral Complaints 51
6.3 Records of Complaints 51
6.4 Office Records of Complaints 52
6.5 Notice to Customers 52
6.6 Disclosure Events 52
6.7 Other Required Filings 53
6.8 Complaint Reporting FINRA Rule 4530 53
6.9 Procedure for Investigation 54
6.10 FINRA’s BrokerCheck Complaint Disclosure (Regulatory Notice 10-34) 55
Section 7 COMMUNICATIONS WITH THE PUBLIC 56
7.1 Advertising and Sales Literature (NTM 03-38) 56
Advertising and Sales Literature Defined 56
General Guidelines 56
Required Information 56
Approval Prior to Publication 56
Disclosure of Prices For Recommended Corporate Securities 57
Use of Outside Advertising or Sales Literature 57
SIPC Membership (Securities Investor Protection Act of 1970, U.S. Code Title 15, Chapter 2B-1) 57
Telemarketing Scripts 57
Special Filing or Approval Requirements 57
Institutional Sales Material 58
Records of Advertising and Sales Literature 59
Advertisements Involving Non-Branch Locations 59
7.2 Outgoing Correspondence (NTM 98-11) 59
Correspondence Defined 59
Prohibition against Sending Correspondence from Personal Computers and Other Non-Firm Facilities 59
Review and Approval - Outgoing Written Correspondence 59
Independently Prepared Reprints 60
Content Guidelines 60
Form Letters and Group Emails 61
Letters and Notes 61
Facsimiles 61
7.3 Incoming Correspondence 61
Review of Incoming Correspondence 61
Personal Mail 61
7.4 Legends And Footnotes 62
7.5 Internal-Use Only Information 62
7.6 Investment Analysis Tools (NTM 04-86) 62
7.7 Recorded Phone Solicitations 62
7.8 Cold Calling Restrictions 62
Introduction 62
Requirements and Restrictions 62
Prohibited Activities 63
Do Not Call Lists 63
Established Business Relationship 63
National Do-Not-Call Registry 64
State Restrictions 64
Internal Do Not Call List 64
7.9 Cold Callers (NTM 95-54) 64
Cold Caller Requirements 64
Permissible Cold Caller Activities 64
Prohibited Cold Caller Activities 65
Telemarketing Restrictions 65
Scripts 65
7.10 Public Speaking 65
General Guidelines 65
Approval 65
Radio, TV, and Other Extemporaneous Presentations 66
Securities Sold by Prospectus 66
7.11 Electronic Communications (NTM 01-23 and 98-11) 67
Electronic Mail 67
Commercial Email Procedures (CAN-SPAM Act of 2003) 67
Review and Approval 67
Information Required On Outgoing Electronic Mail 67
Designated Reviewer 68
Branch/Department Supervisor's Responsibilities 68
Monitoring Procedures 68
Email Policy Violations 69
Record Retention 69
Education and Training 69
Special Reviews 70
Bulletin Boards, Web Sites and Other Electronic Communication Systems 70
bfinance Web Site 70
RR Web Sites 70
7.12 Identification Of Sources 70
7.13 Electronic Communications Policy 70
Introduction 70
Summary of Policy 70
Electronic Communications Defined 71
Social Networking Sites (Regulatory Notice 10-06) 71
Instant Messaging (NTM 03-33) 71
Guidelines for Proper Use 72
Electronic Communications are not Private 72
Communications Must Conform to Appropriate Business Standards and The Law 72
Electronic Communications are Business Communications and Should be Treated as Such 72
Encryption 73
Special Requirements/Restrictions 73
Record Retention Requirements 73
Required Pre-Use Review and Approval 73
Monitoring, Audit and Control 74
Email 74
System Maintenance 74
Attachments 74
Restrictions on Unsolicited Emails (CAN-SPAM Act of 2003) 74
Internet 75
Chat Rooms 75
Failure to Comply 75
Consent To Policy 76
7.14 Advertising and Publishing Activities 76
Section 8 PROTECTION OF CUSTOMER INFORMATION 77
8.1 Customer Privacy Policies and Procedures (SEC Regulation S-P) 77
Introduction 77
"Public" vs. "Nonpublic" Personal Information about Customers 77
Sharing Nonpublic Financial Information 77
Annual Notification 77
Protection of Customer Information And Records (SEC Regulation S-P, Rule 30(a) and SEC Release No. 34-50781; Fair and Accurate Credit Transactions Act of 2003, Section 216) 78
Disposal of Consumer Report Information and Records (SEC Regulation S-P, Rule 30(b) and SEC Release No. 34-50781; Fair and Accurate Credit Transactions Act of 2003, Section 216) 78
8.2 Identity Theft Program (Fair and Accurate Credit Transactions Act of 2003, Section 114 and 315) 78
8.3 SEC Regulation S-AM 79
Introduction 79
Opt Out Provision 79
Supervision 79
8.4 Holding Customer Mail 80
8.5 Encryption Requirement When Sending Documents to FINRA 80
Section 9 ANTI-MONEY LAUNDERING (FINRA Rule 3310; Bank Secrecy Act) 81
9.1 Introduction 81
9.2 AML Compliance Officer 81
9.3 Definitions 81
9.4 Independent AML Program Testing 81
9.5 Employee AML Program Education 81
9.6 Customer Identity Verification 81
Required Customer Information 82
Customer ID Verification for Accounts for Individuals 83
Customer Identification Third Party Accounts 83
Omnibus and Sub-Accounts (SEC Q&A Regarding the Broker-Dealer Customer Identification Program Rule, October 1, 2003) 84
Accounts for Non-Individuals 84
Additional Identifying Information for Non-Individuals 84
Non-Documentary Methods of Verifying Customer Identification 85
Additional Verification For Certain Customers 85
Lack of Acceptable Customer ID Verification 85
Customer Notice 86
9.7 OFAC List and Blocked Property (Dept. of Treasury, various statutes) 86
Prohibited Transactions 86
Blocking Requirements 86
Monitoring Procedures 87
Other Requests to Monitor Accounts 87
Blocking Property 87
Reporting Blocked Property and Legal Actions 87
Legal Actions involving Blocked Property 88
Blocking Disbursements 88
Monitoring Procedures 88
Other Requests to Monitor Accounts 88
Role of Operations Personnel 88
9.8 Acceptance of Cash Deposits 89
Cash Equivalents 89
Reporting Requirements (Exchange Act Rule 17a-8) 89
Transactions Involving Currency over $10,000 89
Transactions involving Currency or Bearer Instruments over $10,000 Transferred into or Outside the U.S. 90
State Reporting Requirements 90
Foreign Financial Accounts 90
Recordkeeping Requirements 90
Funds Transfers 90
National Security Letters 91
9.9 Detecting Potential Money Laundering 91
9.10 Information Sharing Between Financial Institutions (USA PATRIOT Act Sec. 314) 91
9.11 Suspicious Activity Reports (“SARs”) (USA PATRIOT Act Sec. 356; NTM 02-47) 92
Identification of Potential Suspicious Activity 92
SAR Filing Requirement 94
Filing Deadlines 95
Retention of Records 95
Prohibition against Disclosure 95
SAR Sharing with Foreign or Domestic Parent Entities 95
9.12 Requests and Written Notices from Enforcement Agencies 95
Compliance with Federal Banking Agency Information Requests - 120-Hour Rule (USA PATRIOT Act Sec. 319(b)) 96
Compliance with FinCEN Information Requests (USA PATRIOT Act Sec. 314) 96
9.13 Foreign Bank Correspondent Accounts (USA PATRIOT Act Sec. 313; Bank Secrecy Act 103.185) 96
9.14 Customer Identification Program (“CIP”) (USA PATRIOT Act Sec. 326; NTM 03-34) 96
Responsibilities 96
AMLCO Approval Requirements for New Accounts 97
Minimum Identifying Information 98
Accounts for Non-Individuals 98
Additional Identifying Information for Non-Individuals 98
CIP Records 99
Comparison with Government Lists 99
Customer Notice 99
9.15 Correspondent Accounts (USA PATRIOT Act Secs. 312 and 313) 99
Special Due Diligence for Private Banking Accounts (USA PATRIOT Act Sec. 312) 99
Accounts for Senior Foreign Political Figures 100
Enhanced Scrutiny 100
Section 10 INSIDER TRADING (Insider Trading and Securities Fraud Enforcement Act of 1988, Rule 10b-5 under the Securities Exchange Act of 1934, NTM 89-5) 101
10.1 Confidential Information 101
Responsibility for Implementation 101
Questions and Additional Information 101
Confidential Information and Trading Restrictions 103
Preservation of Confidentiality 104
Protecting Confidential Information 104
Access to Office Areas and Physical Separation of Business Units 104
Access to Documents and Technology – Confidential Information 104
10.2 Material Inside Information 105
10.3 The Civil and Criminal Consequences of Misusing material Inside Information 106
10.4 bfinance’s Chinese Wall Policies and Procedures 107
Document and Information Control 107
Control of Sensitive Areas 108
Policies and Procedures 109
Private Side of the Wall 109
Restrictions on Communications 109
Individuals “Above the Wall” 110
Information Barriers between Investment Banking and Public Side Employees 110
Wall-Crossings 110
Effects and Limitations on the Wall-Crosser 110
Wall-Crossing Procedures 111
Inadvertent Wall-Crossings 111
Role of the Compliance Department 111
10.5 The Watch/Restricted List 112
Adding Securities to the List 113
The Grey List and Restricted List 113
Watch/Restricted List Maintenance 114
Watch/Restricted List Access and Confidentiality 114
The Restricted List 114
Restrictions on Listed Issuers or Securities 115
Restricted List Maintenance 116
Exception Policy 116
10.6 Designated Principal Responsibilities Regarding Insider Trading 116
Section 11 FINANCIAL and OPERATIONS ACTIVITIES 118
11.1 Books and Records (Exchange Act Rules 17a-3 and 17a-4) 118
RN 11-19 Books and Records (Effective Dec 5, 2011) 119
Electronic Storage of Records (Exchange Act Rule 17a-4(f)) 120
Notification to Examining Authority (Exchange Act Rules 17(d) and 17a-4(f)(2)(i)) 120
Electronic Storage Media Requirements (Exchange Act Rule 17a-4(f)(2)(ii)) 120
Ability to Retrieve And Reproduce (Exchange Act Rule 17a-4(f)(3)) 121
Electronic Audit System 121
Confidentiality of Electronic Records 121
Availability of Records in Offices 121
11.2 Net Capital Calculation and Reporting (Rules 15c3-1 under the Exchange Act; NTMs 92-72, 93-30, and 99-44) 121
11.3 Reconciliations 123
11.4 Other FINOP Responsibilities 123
Notification Provision for Broker Dealers 123
Financial Deficiency Responsibility 124
Fund and Liquidity (FINRA Regulatory Notice 10-57) 124
Disclosure of Financial Condition to Customers (FINRA Rule 2261) 124
11.5 Fees And Service Charge Disclosures (FINRA Rule 2121) 125
11.6 Fidelity Bonding (FINRA Rule 4360) 125
11.7 RN 11-21 Fidelity Bond (January 2012) 125
11.8 New Accounts 125
11.9 Customer Payments for Purchases 126
Inadvertent Receipt of Customer Funds or Securities 126
Guaranteed Accounts 126
11.10 Disbursements of Funds 126
Disbursements of Funds To Third Parties 126
Letters of Authorization 126
LOA Instructions 127
Issuing Checks to Customers 127
11.11 Safekeeping of Customer Funds and Securities (Exchange Act Rules 8c-1, 15c2-1, 15c3-3 17a-13; NTM 99-44) 127