The National Association of Securities Dealers is warning member firms against trying to outsource responsibility for tasks such as preparing for disasters and supervising sales representatives.[@@]
In most cases, when NASD member firms hire outside companies that are not NASD members to manage compliance, supply data, handle disaster recovery services or serve as transfer agents, the outside companies will be “considered associated persons of the member,” NASD officials write in NASD Notice To Members 2005-48.
Members of the NASD, Washington, a self-regulatory organization, can continue to use contracts to turn some responsibility, for tasks such as maintaining books and taking custody of funds, over to registered clearing broker-dealers, officials write in the guidance.
But the NASD officials note that NASD members now are asking outside companies to handle many tasks not covered by traditional clearing agreements.
Investigators at the NASD and the New York Stock Exchange conducted a survey of broker-dealers in October 2004 to study the broker-dealers’ use of outsourcing arrangements.
Most participating broker-dealers had some mechanisms in place to monitor the quality and accuracy of the outside vendors’ services, but some broker-dealers did not have written quality control procedures in place, investigators found.