Every broker dealer needs designated leaders who take ultimate responsibility for the firm business operations, customer interactions, and regulatory compliance. In the securities industry, these individuals are known as principals. From approving new accounts and initialing trade tickets to reviewing outgoing correspondence and handling written customer complaints, principals serve as the primary operational and supervisory backbone of a member firm.
Definition and Registration of a Principal
FINRA defines a principal as any associated person actively engaged in managing the investment banking or securities business of a member firm. This management authority includes direct supervision, business solicitation, operational conduct, or training other associated persons in any of these functions.
Because of the significant authority carried by this role, anyone acting as a principal must formally register with FINRA in the specific registration category matching their assigned duties. Before a principal registration becomes effective, the individual must first pass an appropriate qualification examination for principals, such as the Series 24 exam.
The Two Principal Requirement and Core Supervisory Duties
To ensure proper internal governance, FINRA generally requires each member firm to maintain at least two registered principals. These individuals oversee critical supervisory functions across the firm, including:
- Final approval of new customer accounts.
- Endorsement and review of trades and transactions.
- Oversight of all public and retail communications.
- Investigation and resolution of written customer complaints.
- Regular updates to the written supervisory procedures of the firm.
By assigning these responsibilities to registered principals, a firm creates a clear chain of accountability for its day-to-day operations.
Research Analysts and Supervisory Oversight
Research analysts play a critical role in evaluating equity securities, individual companies, and broader industry sectors to produce research reports for firm clients.
Because research reports can influence investor sentiment and market pricing, FINRA enforces strict registration standards for analysts:
- Mandatory Licensing: Any associated person who functions as a research analyst must register with FINRA. To qualify, an analyst typically earns a general securities representative license, such as the Series 7, and passes specialized research analyst qualification exams, specifically the Series 86 and Series 87.
- Supervisory Approval: Research reports cannot be published or distributed to clients without prior review and approval by a designated supervisory analyst.
Requiring specialized testing and supervisory sign-off ensures that published research remains objective, accurate, and compliant with industry standards.