What is FINRA Rule 3110?

Definition

FINRA Rule 3110 requires each member firm to establish and maintain a system to supervise the activities of its associated persons that's reasonably designed to achieve compliance with securities laws and FINRA rules, including written procedures and review of correspondence.

FINRA's Notice 24-09 uses it as its main example of how existing rules reach AI: if a firm uses generative AI as part of its supervisory system, its procedures should address technology governance, including model risk management, data privacy and integrity, and the reliability and accuracy of the model.

Why it matters for advisors

Rule 3110 is why AI tools need written supervisory procedures, not just a vendor contract. Who reviews AI output, how often, and what gets escalated should be written down.

It also applies when AI helps with supervision itself, like AI review of flagged emails. The firm stays responsible for the outcome.

Supervision also means testing. Periodically sample AI-assisted work, like a set of meeting summaries or client emails, and check them against the source. Record what you found and what you changed, so you can show the system is working.

Example

A broker-dealer adds a section to its written supervisory procedures covering its notetaker: who reviews summaries, how client-facing recaps are approved and how exceptions are logged.

Watch out for

Outsourcing a task to a vendor doesn't outsource the supervisory duty. FINRA said so in Regulatory Notice 21-29.