What is a Financial & Operations Principal (FinOp)?
Rule 1022 requires every FINRA member firm to designate one individual to serve as a Financial and Operational Principal (FinOp). 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 Rule 1022 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 qualified FinOp thoroughly understands the broker dealer’s business, its operations, and the reporting needs of 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 an inability for these member firms to 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 qualified and experienced personnel employed on a part-time basis.