Customer Complaints Under FINRA Rule 4530
On July 1, 2011, the Financial Industry Regulatory Authority (“FINRA”) Rule 4530 went into effect, subjecting firms to a host of new reporting requirements. A combination of NASD Rule 3070 and NYSE Rule 351, the Rule mandates, among other things, the quarterly reporting of “statistical and summary information regarding written customer complaints.” However, complying with this regulation has proven tricky as firms work to create internal processes designed to address complaint reporting requirements.
In this White Paper we will address some of the common questions that have arisen since Rule 4530 was passed, specifically in regards to customer complaints. While the Rule itself mandates a whole host of other disclosures, we will regard those other types of disclosure events as outside the scope of this document. We will start with a look at the language of Rule 4530 and then examine the various gray areas that may leave compliance officers scratching their heads.
FINRA Rule 4530
Rule 4530 was designed to increase the reporting that FINRA firms are required to complete, with the intention that the organization will thus be able to provide improved industry oversight. With higher levels of oversight, the hope is that customers will begin to place greater trust in the industry as a whole once they start to see that illegal and unethical business dealings are brought out into the open and not swept under the rug. The Rule puts a 30-day deadline on the reporting of disclosure events, defined as the violation of any “securities, insurance commodities, financial or investment-related laws, rules regulations or
standards of conduct of any domestic or foreign regulatory body or self-regulatory organization.” Any written customer complaints that allege the firm is in violation as stated above is subject to the 30-day reporting deadline.
In addition to the 30-day deadline, the Rule also requires all FINRA firms to submit quarterly reports of their customer complaints to FINRA. The regulator uses these reports as a way to identify particularly risk-prone firms and possibly initiate an investigation. The Rule comes as part of
a greater shift within the governing organization to take a more risk-based approach to industry regulation. Statistical and summary information reports are due by the 15th day of the month following the calendar quarter in which customer complaints are received by the member and must include such information as the contact name and phone number, complaint number and date, branch ID, customer account number, etc. A full list of reporting requirements can be found on FINRA’s website at: www.finra.org/industry/4530/rule-4530-customer-complaints.
Tweets and texts are on the table
One aspect of this rule that has the potential to cause logistical headaches for compliance officers is the expanded definition of what counts as a customer complaint. FINRA Rule 4530 requires that any written complaint alleging misconduct must be reported, including virtual format complaints in the form of tweets or complaints sent as text messages. As these are deemed to be written complaints, they must be reported within the filing timeframe and also included in the quarterly complaint summary report.?
What counts as a customer?
A customer of a FINRA member firm has been defined by Rule 4530 as both a person with whom the firm has engaged in securities activities as well as a person with whom a member firm has sought to engage in securities activities. As a result, even those to whom the firm has not directly sold their services may still be considered a customer whose complaints would need to be dealt with accordingly.
In an effort to stave off the double counting of customer complaints, FINRA only considers the complaints that member firms self-report through the Firm Gateway. Should a customer file a complaint directly with FINRA, they will forward the complaint on to the firm against which the complaint was filed. Do not make the mistake of assuming that since a complaint came to your attention from FINRA that they have already accounted for it in their system. Member firms are still responsible for reporting in the Firm Gateway any customer complaints they receive from FINRA.
Customer satisfaction surveys
For the purposes of this Rule, the responses to a customer satisfaction survey are not necessarily considered written customer complaints. For example, if a firm hired a third-party organization to conduct a customer satisfaction survey, that firm would not be automatically required to report low scores. However, if there is a written comments section of the survey, and if in those comments a customer alleges some violation such as the theft of funds, then that would have to be filed as a written customer complaint. As such, firms should take great care to read through the written comments in all customer satisfaction surveys for possible reportable information.
Ensuring your firm remains compliant with FINRA Rule 4530 requires a functional internal review process of all written complaints that mention the firm, a branch office, or an individual employed by or associated with the firm. The complexity of this internal review amplifies exponentially the more complaints you receive. Therefore, in order to minimize the number of disclosure events you are reporting to FINRA, you will want to have a solid complaint review system in place.
The ComplianceMAX™ Customer Complaints Module does exactly that. Its scalable and customizable workflow allows it to fit seamlessly into your firm’s business process. It centralizes all the written complaints coming into the firm and provides a place for the entry of crucial details and information from a single, organized interface. The Customer Complaints Module even automates the Quarterly Statistical and Event Disclosure filings to make certain you are never missing important deadlines. For more information on how this module can ensure you stay compliant with Rule 4530, visit the NRS website at www.nrs-inc.com/ Complaints.