Every FINRA member broker-dealer is required by regulation to maintain the services of a FinOp (Financial and Operations Principal). This position helps govern how your firm manages its finances, files regulatory reports, and demonstrates adherence to net capital rules. Here’s the role of a financial and operations principal in your financial services firm:
The Role of a FinOp
A FinOp is a FINRA Series 27 licensed principal. The Financial and Operations Principal Qualification Examination is a FINRA-administered exam that tests knowledge of financial responsibility rules, net capital requirements, and record obligations. It also involves the financial reporting requirements applicable to broker-dealers; the license must be held by an individual at the firm or by an outsourced provider performing the function on the firm’s behalf.
The role is distinct from a general accounting or bookkeeping function; a financial and operations principal holds responsibility for the regulatory financial compliance of a FINRA member firm. They understand broker-dealer-specific rules under SEC Rule 15c3-1 (the net capital rule) and SEC Rule 15c3-3 (the customer protection rule). General CPA credentials or accounting experience alone do not qualify someone to serve as a FinOp on the Series 27.
The CCO of Compliance Infrastructure
The Chief Compliance Officer (CCO) is responsible for the firm’s overall compliance program. This includes written supervisory procedures, regulatory filings related to registration and licensing, and adherence to conduct rules. The CCO focuses specifically on the financial and operational side of regulatory compliance.
Firms with a FINRA Series 24 licensed CCO handle supervisory and conduct-related compliance; the financial and operations principal handles financial reporting and net capital oversight. Smaller broker-dealers sometimes combine these responsibilities under a single individual. This depends on the firm and whether the individuals hold both licenses and can realistically manage the workload of both functions.
The combined demands may make that arrangement difficult to sustain without compromising one area or the other. Firms that outsource the CCO role to a qualified provider also have the option of outsourcing the FinOp function. Some firms choose to do both to maintain consistency across their compliance and financial operations.
The Responsibilities of Regulatory Filings
The financial and operations principal oversees the firm’s books and records. They make sure all financial data is accurately maintained in a format that satisfies FINRA and SEC requirements. The principal monitors the firm’s net capital position on an ongoing basis, and this verifies that the firm maintains the minimum required net capital at all times. A net capital deficiency is a regulatory violation that can trigger immediate consequences, including suspension of business operations.
The financial and operations principal files all required financial regulatory reports. This includes the FOCUS Report (Financial and Operational Combined Uniform Single Report), and this is filed with FINRA on a monthly or quarterly basis. They also provide technical assistance related to financial and operational matters, including responding to regulatory inquiries and preparing for examinations. Each of these responsibilities must be performed accurately and on time; errors or missed filings can result in deficiency letters, fines, or more regulatory action.
The Outsourcing Role of Firms
FINRA permits broker-dealers to outsource the FinOp function to a qualified third party. That party should hold the required Series 27 license and assume full responsibility for the FinOp obligations. Outsourcing offers an option for smaller or limited-purpose broker-dealers whose volume of financial activity does not justify the cost of a full-time hire.
When a firm outsources the FinOp role, the provider assumes all aspects of the function, and this includes managing financial duties and preparing and submitting FINRA filings. They also maintain net capital monitoring and provide technical assistance as needed. Working with an outsourced FinOp provider that operates as a team rather than a single contractor involves consistency.
The firm also gains access to professionals who work across multiple broker-dealer contexts. They have current, applied knowledge of FINRA’s expectations and common examination focus areas. The combined depth of expertise available through an established provider makes outsourcing an ideal option for various firms.
Work With a FinOp
Understanding what the FinOp role requires gives firm owners the information they need to structure their operations correctly. Outsourcing the role allows firms to maintain compliance. Contact a team to learn more about the role of a Financial and Operations Principal and how their expertise supports a firm.
