FINRA outlines members' responsibilities when outsourcing activities to third-party service providers

Original title: Notice to Members 05-48

FINRA issued Notice to Members 05-48 establishing guidance on members' responsibilities when outsourcing activities to third-party service providers. Members must ensure that outsourced activities comply with applicable FINRA rules and regulations, and maintain appropriate oversight and control mechanisms. Members remain ultimately responsible for the activities performed by their service providers, regardless of whether those activities are conducted in-house or outsourced.

What changed

• FINRA establishes formal guidance on members' obligations regarding third-party service providers, clarifying that members cannot delegate regulatory responsibility through outsourcing arrangements
• Members must conduct due diligence on service providers and maintain written agreements that specify regulatory compliance requirements
• Members are required to implement ongoing monitoring and oversight of outsourced activities to ensure compliance with FINRA rules
• Members must ensure service providers implement appropriate controls, including cybersecurity measures and business continuity planning
• Members retain ultimate regulatory responsibility and accountability for all outsourced functions, regardless of service provider performance

Who is affected

FINRA members (US-based securities firms and brokers of all sizes)

Summary generated by a language model; the official text prevails. Not legal advice.