1.4 Heightened Supervision, Interim Plans, and the Taping Rule

Investment Company and Variable Contracts Products Principal Series 26

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1 Chapter 1: Registration of the Broker-Dealer and Its Associated Persons

1.1 Broker-Dealer Registration, FINRA Membership, and Firm Filings 1.2 Individual Registration: Forms U4 and U5, Registration Categories, and Exempt Persons 1.3 Pre-Hire Screening, Fingerprinting, and Statutory Disqualification 1.4 Heightened Supervision, Interim Plans, and the Taping Rule 1.5 Broker-Dealers, Investment Advisers, Dual Registrants, and Unregistered Entities

2 Chapter 2: Training, Continuing Education, and Product Knowledge

2.1 Continuing Education (Rule 1240), the Maintaining Qualifications Program, and the Annual Compliance Meeting 2.2 The Investment Company Act of 1940: Classifications, Registration, and Fund Governance 2.3 Mutual Fund Pricing, Redemption, Exchanges, Sales Charges, and Share Classes 2.4 Variable Annuities and Variable Life Insurance: Structure, Charges, and Rule 2320 2.5 Closed-End and Interval Funds, UITs, Money Market Funds, 529 Plans, and Investment Risks

3 Chapter 3: Supervisory System, Conduct Standards, Insider Trading, and Discipline

3.1 The Supervisory System, Written Supervisory Procedures, and Standards of Conduct 3.2 Insider Trading, Information Barriers, and Personal Trading Supervision 3.3 FINRA Investigations, Disciplinary Proceedings, Sanctions, and Exemptions

4 Chapter 4: Communications with the Public

4.1 Communications Categories, Principal Approval, Filing, and Recordkeeping (Rule 2210) 4.2 Content Standards, Investment Company Advertising, and Professional Designations 4.3 Variable Contract Communications, Fund Rankings, Bond Fund Volatility Ratings, and Investment Analysis Tools 4.4 Correspondence and Internal Communications, Social Media, Public Appearances, and Telemarketing

5 Chapter 5: Recommendations, Customer Accounts, and Product Sales Supervision

5.1 Regulation Best Interest, Conflicts, and Form CRS 5.2 Know Your Customer, FINRA Suitability, and Institutional Accounts 5.3 New Accounts, Customer Authority, Discretion, and Order Handling 5.4 Mutual Fund Breakpoints, Share Classes, and Switching Supervision 5.5 Deferred Variable Annuities and the Seven-Business-Day Principal Review 5.6 Prospectuses, Summary Prospectuses, SAIs, and Ongoing Disclosures

6 Chapter 6: Compensation, Outside Activities, and Personal Conduct

6.1 Cash Compensation, Distribution Arrangements, and Conflicts 6.2 Gifts, Gratuities, and Business Entertainment (Rule 3220) 6.3 Training Meetings, Sales Contests, and Non-Cash Compensation 6.4 Referral Payments, Bank Networking, and Unregistered Persons 6.5 Outside Business Activities, Private Securities Transactions, and Rule 3290 Transition 6.6 Outside Accounts, Borrowing and Lending, Account Sharing, and Guarantees

7 Chapter 7: Customer Account Operations, Transfers, and Privacy

7.1 Account Records, Trusted Contacts, Confirmations, and Statements 7.2 Cash Accounts, T+1 Settlement, Regulation T, Extensions, and Freeriding 7.3 ACATS Transfers, Transfer-on-Death Accounts, and Account Changes 7.4 Regulation S-P, Incident Response, Service Providers, and Identity Theft

8 Chapter 8: Anti-Money Laundering, Customer Identification, and Sanctions

8.1 AML Program, Independent Testing, Training, and Governance 8.2 Customer Identification, Due Diligence, and Beneficial Ownership 8.3 SARs, CTRs, OFAC, Information Sharing, and AML Red Flags

9 Chapter 9: Supervisory Controls, Business Continuity, and Regulatory Reporting

9.1 Supervisory Controls, Annual Testing, and CEO Certification 9.2 Business Continuity, Systems Resilience, Cybersecurity, and Vendors 9.3 Rule 4530, FOCUS and Annual Reports, and Customer-Asset Events

10 Chapter 10: Office Classifications, Inspections, and Records

10.1 OSJs, Branches, RSLs, and Inspection Cycles 10.2 Inspection Reports, Independent Review, Signage, and Office Files 10.3 Broker-Dealer Books and Records, Electronic Storage, and Correspondence

11 Chapter 11: Complaints, Arbitration, Mediation, and Expungement

11.1 Customer Complaints, Investigation, Retention, and Reporting 11.2 Predispute Agreements, Arbitration Codes, Eligibility, Panels, and Awards 11.3 Mediation and Customer-Dispute Expungement

12 Chapter 12: Financial Responsibility, Membership Changes, and Investor Protection

12.1 Net Capital, Minimum Tiers, Haircuts, and Early Warning 12.2 Customer Protection, Possession or Control, Reserve Formula, and Exemptions 12.3 New-Product Review and Continuing Membership Applications 12.4 SIPC, Fidelity Bonds, Proxy Materials, and Financial Reports

1.4 Heightened Supervision, Interim Plans, and the Taping Rule

Key Takeaways Explain This Topic AI

FINRA Regulatory Notice 18-15 expects firms to adopt tailored heightened supervisory procedures for associated persons with a history of misconduct, even when no rule specifically requires a plan.

A firm that applies to associate with a statutorily disqualified person must keep an interim plan of heightened supervision in place while FINRA reviews the application (Rule 9522).

Under Rule 9285, a firm must adopt a written heightened supervision plan for an associated person found to have violated a rule while that disciplinary decision is on appeal or under NAC review.

A firm with 20 or more registered persons becomes a taping firm under Rule 3170 when 20% or more of them came from disciplined firms within the last three years, and must then record all calls with existing and potential customers.

Taping-firm recordings must be kept for at least three years, the first two in an easily accessible place, and the firm reports to FINRA by the 30th day after each calendar quarter.

Last updated: September 2026

The outline lists "requirements for heightened supervision" as a separate knowledge item under Task 1.1. The idea is simple: when a person's history or a firm's staffing creates elevated risk, ordinary supervision is not reasonable. FINRA's framework has several layers.

Heightened Supervision as a Rule 3110 Expectation

Regulatory Notice 18-15 reminds firms that Rule 3110 requires supervision reasonably designed for the risks each person presents. When a firm hires or retains someone with a history of customer complaints, regulatory actions, terminations for cause or similar red flags, it should consider a tailored heightened supervision plan . Effective plans, according to FINRA, typically include:

a designated, qualified supervisor with the time and authority to carry out the plan, who has acknowledged the plan in writing;

controls tailored to the specific misconduct . For example, a person with switching complaints might need principal pre-approval of every exchange, while a person with misrepresentation complaints might need closer correspondence review;

restrictions on activities where appropriate, such as no discretionary authority, no handling of customer funds, or limits on product types;

regular documented reviews and a defined duration with criteria for ending the plan; and

consequences if the plan is not followed.

The plan is the firm's own control, not a FINRA filing in ordinary cases. Its quality will be judged after the fact if the person causes customer harm.

Required Plans

Three situations require a written plan by rule rather than by expectation:

Situation Requirement

Firm seeks approval to associate with a statutorily disqualified person The Form MC-400 application proposes a heightened supervision plan, and Rule 9522 requires an interim plan of heightened supervision while FINRA reviews it

A Hearing Panel or Hearing Officer finds a person violated a rule, and the decision is appealed or called for NAC review Rule 9285 requires the firm to adopt a written heightened supervision plan tailored to the violations found, with a designated principal, until FINRA's final decision takes effect

Same appeal period Rule 9285 also allows the Hearing Officer to impose conditions and restrictions on the respondent's activities to prevent customer harm, because sanctions are generally stayed on appeal (Section 3.3)

FINRA approvals of disqualified persons usually require supervision such as an on-site supervisor in the same office, pre-approval of transactions or correspondence, and periodic certifications. These are conditions of the particular approval, so a principal must follow the approved plan's exact terms.

Hiring People with Significant Disclosure Histories

Rule 1017(a)(7) requires a member to request a materiality consultation with FINRA's Membership Application Program staff before it brings on a natural person as an owner, control person, principal or registered person when that person has, in the prior five years, one or more final criminal matters or two or more "specified risk events" (such as certain final arbitration awards or settlements, or regulatory actions). FINRA then decides whether a Continuing Membership Application is required before the hire can proceed. This consultation does not apply when the firm must instead file an eligibility application under Rule 9522 for the same association.

The Taping Rule (FINRA Rule 3170)

The taping rule addresses firms that hire many people from disciplined firms , meaning firms expelled by an SRO or whose registration the SEC revoked for sales practice violations. A member is a taping firm if, among its registered persons who were associated in a registered capacity with a disciplined firm within the last three years :

Firm size Taping threshold
At least 5 but fewer than 10 registered persons 40% or more
At least 10 but fewer than 20 registered persons 4 or more persons
20 or more registered persons 20% or more

People who spent 90 days or less in total at disciplined firms within the past three years and have no disciplinary history are excluded from the count.

A taping firm must, within 60 days of being notified or learning that it qualifies, establish special written procedures to supervise the telemarketing activities of all its registered persons. Those procedures include tape recording all telephone conversations between registered persons and existing and potential customers and reviewing the recordings. Taping firms must:

keep the procedures in place for three years ;

retain recordings for at least three years , the first two in an easily accessible place , catalogued by registered person and date; and

report to FINRA on their supervision of telemarketing by the 30th day after each calendar quarter .

A firm that becomes a taping firm for the first time may avoid the rule by reducing staff below the threshold within a short window (Rule 3170(c)). FINRA also discloses a firm's taping-firm status on BrokerCheck.

Supervisory Application for a Series 26 Principal

Suppose a branch hires a variable annuity specialist whose U4 shows three exchange-related complaints in four years. No rule bars the hire. Two of those complaints may still be "specified risk events" that trigger a Rule 1017(a)(7) materiality consultation before the hire is final. Even without one, Regulatory Notice 18-15 points toward a written plan with these elements:

pre-approval by the principal of every annuity exchange;
a documented comparison of old and new contract features for each exchange;

monthly review of the representative's exchange rates against the firm's surveillance thresholds under Rule 2330(d); and

quarterly sign-off by the supervisor.