Navigating the complex landscape of financial regulations is a critical challenge for brokers and dealers in the financial industry. Compliance with FINRA and SEC regulations is not only mandatory but also essential for maintaining trust and integrity in financial markets. Loffa, with its robust suite of products, is dedicated to helping financial firms meet these stringent regulatory requirements efficiently and effectively.

Loffa’s product lines, including Freefunds Verified Direct (FVD), Prime Broker Interactive Network (PBIN), and the Quarterly Broker Statement (QBS) program, are specifically designed to address key regulatory mandates. Each product is tailored to ensure that brokers and dealers can adhere to the rules governing their operations, from the creation and maintenance of comprehensive financial records to the secure storage and verification of client assets.

Freefunds Verified Direct (FVD) offers unparalleled capabilities in managing Letters of Free Funds, ensuring compliance with Regulation T and other credit extension requirements. It also supports SEC Rule 17a-3 and 17a-4 by providing secure electronic storage and efficient retrieval of financial records. FVD’s features include automated verification processes that align with SEC Rule 17a-13, helping brokers verify securities positions electronically, thus enhancing accuracy and reducing reliance on paper records.

Prime Broker Interactive Network (PBIN) facilitates compliance with several critical regulations, including FINRA Rule 4511 for books and records, and SEC Rule 15c3-3 for customer protection. PBIN ensures the creation, maintenance, and retention of transaction records, while also managing client assets and ensuring their segregation and safeguarding. It supports supervisory requirements as outlined in FINRA Rule 3110 and 3120, providing comprehensive oversight and control mechanisms to ensure adherence to compliance policies and procedures.

Quarterly Broker Statement (QBS) program addresses the requirements of FINRA Rule 2231 by generating and distributing detailed quarterly statements to clients. This program ensures that clients receive regular updates on their account activity, positions, and any unresolved inquiries, thus maintaining transparency and fostering trust.

Regulatory Mapping for Financial Products

Letters of Free Funds (LFF or LOFF)

Prime Broker Agreements (PBA)

Quarterly Broker Statements (QBS)

Cross-Product Requirements

Key System Requirements

1. Document Management:
   • Version control
   • Audit trails
   • Electronic storage compliance
   • Access controls
2. Retention Periods:
   • LOFF: 6 years minimum
   • PBA: Life of agreement + 6 years
   • QBS: 6 years minimum
3. Accessibility:
   • Immediate retrieval capability
   • Backup systems
   • Disaster recovery compliance
   • Regulatory examination readiness

Applicable Rules:

Key FINRA and SEC rules that apply to Loffa’s client operations are:

1. SEC Rule 17a-4: Electronic storage of financial records.
2. FINRA Rule 4511: Books and records.
3. FINRA Rule 2232: Customer confirmations.
4. Regulation T: Credit by brokers and dealers.
5. SEC Rule 15c3-3: Customer protection.
6. FINRA Rule 3110: Supervision.
7. FINRA Rule 3120: Supervisory control system.
8. SEC Rule 17a-3: Creation and maintenance of comprehensive financial records.
9. SEC Rule 17a-5: Annual financial reporting.
10. SEC Rule 17a-13: Quarterly securities counts.
11. SEC Rule 17a-13(b)(3): Electronic verification of securities positions.
12. FINRA Rule 2231: Quarterly Broker Statements.
13. Prime Brokerage Agreements: Terms and services for prime brokers.
14. SEC No-Action Letter: Conduct of prime brokerage transactions.
15. ECB Supervisory Expectations: Risk management and capital requirements.

Map Rules to Loffa’s Products

1. SEC Rule 17a-4: Electronic Storage of Financial Records
   • Loffa Product: Freefunds Verified Direct (FVD)
     • Features: Ensures secure and compliant electronic storage of Letters of Free Funds, supporting the long-term retention and retrieval of electronic records as required.
     • Summary: SEC Rule 17a-4 requires broker-dealers to maintain and preserve records, such as electronic communications and transaction records, in a secure and accessible manner for specified retention periods. This rule ensures that records are available for regulatory review and audit, supporting transparency and accountability in the financial industry​ (SEC.gov)​​ (Lowenstein Sandler)​.
2. FINRA Rule 4511: Books and Records
   • Loffa Product: Prime Broker Interactive Network (PBIN)
     • Features: Facilitates the creation, maintenance, and retention of records for broker transactions, ensuring compliance with recordkeeping requirements.
     • Summary: FINRA Rule 4511 mandates that broker-dealers create and maintain comprehensive records of their business activities, financial condition, and internal supervision in compliance with SEC requirements. This rule ensures that all necessary documentation is accurate, complete, and readily available for regulatory inspection​ (Lowenstein Sandler)​.
3. FINRA Rule 2231: Quarterly Broker Statements
   • Loffa Product: Quarterly Broker Statement (QBS) Program
     • Features: The QBS program generates and distributes quarterly statements to clients, detailing account activity and positions, which aligns with the requirement to provide periodic account summaries. It includes notifications about any unanswered letters, ensuring ongoing communication with clients about the status of their inquiries.
     • Summary: FINRA Rule 2231 requires broker-dealers to send quarterly account statements to customers, detailing securities positions, money balances, and account activity. This rule ensures that customers receive regular updates on their accounts and can monitor their investments​ (SEC.gov)​.
4. Regulation T: Credit by Brokers and Dealers
   • Loffa Product: Freefunds Verified Direct (FVD)
     • Features: Streamlines the management of Letters of Free Funds, ensuring compliance with credit extension requirements and margin regulations.
     • Summary: Regulation T governs the extension of credit by brokers and dealers, setting limits on the amount of credit that can be extended for purchasing securities. It ensures that credit practices in the securities market are consistent with financial stability and investor protection​ (SEC.gov)​.
5. SEC Rule 15c3-3: Customer Protection
   • Loffa Product: PBIN
     • Features: Manages client assets and ensures segregation and safeguarding of customer funds and securities, supporting compliance with customer protection rules.
     • Summary: SEC Rule 15c3-3, known as the Customer Protection Rule, requires broker-dealers to segregate customer funds and securities from their own, ensuring that client assets are protected in case of the broker-dealer’s insolvency. This rule aims to safeguard customer assets and maintain trust in the securities market​ (SEC.gov)​.
6. FINRA Rule 3110: Supervision
   • Loffa Product: Both FVD and PBIN
     • Features: Provides comprehensive oversight and control mechanisms for supervisory personnel to ensure adherence to compliance policies and procedures.
     • Summary: FINRA Rule 3110 requires broker-dealers to establish and maintain a system to supervise the activities of their personnel to ensure compliance with securities laws and regulations. This rule mandates the creation of written supervisory procedures and regular reviews of supervisory systems​ (SEC.gov)​.
7. FINRA Rule 3120: Supervisory Control System
   • Loffa Product: Both FVD and PBIN
     • Features: Offers tools and reports that help firms implement effective supervisory controls and testing, ensuring continuous compliance with regulatory requirements.
     • Summary: FINRA Rule 3120 requires broker-dealers to implement a supervisory control system that tests and verifies the effectiveness of their supervisory procedures. This rule ensures that firms have robust internal controls to detect and prevent regulatory violations​ (SEC.gov)​.
8. SEC Rule 17a-3: Creation and Maintenance of Comprehensive Financial Records
   • Loffa Product: Freefunds Verified Direct (FVD)
     • Features: Maintains detailed transaction records, ensuring compliance.
     • Summary: SEC Rule 17a-3 requires brokers and dealers to create and maintain comprehensive records of all financial transactions, including daily transaction blotters and customer account records. This rule ensures accurate and complete documentation of financial activities for regulatory compliance and audit purposes​ (SEC.gov)​.
9. SEC Rule 17a-5: Annual Financial Reporting
   • Loffa Product: Freefunds Verified Direct (FVD)
     • Features: Facilitates preparation and filing of Form X-17A-5 reports.
     • Summary: SEC Rule 17a-5 mandates that broker-dealers file annual financial reports using Form X-17A-5, which includes audited financial statements reviewed by an independent public accountant. This ensures transparency and accuracy in the financial reporting of broker-dealers​ (SEC.gov)​.
10. SEC Rule 17a-13: Quarterly Securities Counts
    • Loffa Product: Freefunds Verified Direct (FVD)
      • Features: Verifies securities positions, ensuring record accuracy.
      • Summary: SEC Rule 17a-13 requires broker-dealers to conduct quarterly securities counts to verify that their records accurately reflect the securities they possess or control. This rule aims to safeguard customer assets and ensure the accuracy of securities positions​ (SEC.gov)​.
11. SEC Rule 17a-13(b)(3): Electronic Verification of Securities Positions
    • Loffa Product: Freefunds Verified Direct (FVD)
      • Features: Supports paperless verification, enhancing efficiency.
      • Summary: This subsection allows brokers to verify securities positions electronically, reducing reliance on paper records and enhancing the efficiency of the verification process. This promotes accuracy and reduces the risk of errors in securities verification​ (SEC.gov)​.
12. Prime Brokerage Agreements: Terms and Services for Prime Brokers
    • Loffa Product: Prime Broker Interactive Network (PBIN)
      • Features: Establishes clear terms and operational compliance.
      • Summary: These agreements outline the services, terms, and conditions between a prime broker and their client, including fees, margin requirements, and account maintenance procedures. They ensure clear communication and understanding of the operational and regulatory framework for prime brokerage services​ (SEC.gov)​.
13. SEC No-Action Letter: Conduct of Prime Brokerage Transactions
    • Loffa Product: Prime Broker Interactive Network (PBIN)
      • Features: Ensures transactions comply with SEC guidance.
      • Summary: The SEC No-Action Letter provides guidance on the conduct of prime brokerage transactions to ensure they comply with SEC regulations and do not pose conflicts of interest. Adhering to this guidance helps maintain regulatory standards and mitigate risks associated with prime brokerage services​ (SEC.gov)​.
14. ECB Supervisory Expectations: Risk Management and Capital Requirements
    • Loffa Product: Prime Broker Interactive Network (PBIN)
      • Features: Ensures prime brokers manage risks and protect assets.
      • Summary: The ECB’s supervisory expectations for prime brokerage services include maintaining sufficient capital to cover risks and implementing robust risk management practices. These expectations ensure prime brokers are prepared to handle market disruptions and protect client assets​ (SEC.gov)​.

Framework Mapping

In addition to these products, Loffa ensures that prime brokerage services comply with industry standards through Prime Brokerage Agreements and adherence to the SEC No-Action Letter guidelines. These agreements establish clear terms and operational compliance, ensuring that all transactions are conducted within the regulatory framework.

By leveraging Loffa’s comprehensive product suite, brokers and dealers can confidently navigate the regulatory landscape, ensuring compliance with critical FINRA and SEC rules while enhancing operational efficiency and client trust.