What is a Financial & Operations Principal (FinOp)?
The Financial and Operational Principal (FinOp) is a role required by FINRA Rule 1200 Series (previously by NASD Rule 1022). The FinOp obtains qualification by passing the Series 27 or Series 28 examination. Upon registration, the FinOp becomes personally liable for the maintenance of the broker dealer’s books and records, the accuracy of the financial statements, compliance with applicable net capital rules, and the timely submission of all financial regulatory reports.
A Series 27 licensed FinOp requires full knowledge of the practices in these categories:
- Preservation of Accurate Books and Records
- Financial Regulatory Reporting
- Net Capital Compliance
- Customer Protection
A FinOp is responsible for the facilitation of the following duties:
- FOCUS Reports
- Net Capital Computations
- Financial Statement Preparation
- Supplemental Schedule of Income – SSOI
- Form Custody
- Bank Reconciliations
- Brokerage Statement Analysis
- Securities Investor Protection Corporation – SIPC
- Annual Audit Support
- FINRA Examination Support
- Accounting Due Diligence
While the FinOp’s responsibilities are very well defined by FINRA Rules and the subsequent FinOp related FINRA notices, it is critical that the FinOp obtain industry experience to successfully apply the rules based upon industry best practices. A fully qualified FinOp will thoroughly understand the broker dealer’s business, its operations, and the reporting needs of its management.
Why outsource the FinOp role?
While large broker dealers may employ an extensive accounting back-office, the majority of FINRA member firms are limited in scope. Despite their size restrictions, limited-purpose broker dealers are not afforded any leniency in complying with industry-wide licensing and regulatory requirements. The result is these member firms cannot employ qualified professionals at a reasonable cost. FINRA has acknowledged this and has accepted the utilization of the outsourced FinOp as an industry standard. Firms who elect to outsource the FinOp role should select highly qualified and experienced personnel who they can employ on a part-time basis to ensure they maintain books and file reports according to the regulatory requirements.