At a US brokerage firm, understanding the intersection of corporate law and SEC and FINRA regulatory requirements is essential to effective corporate governance. Kathy Rocklen, senior adviser at FTI Consulting, provides a practical guide to governing a broker-dealer firm. Get these basics right, and you’re on a good trading trajectory.
Governance of a US brokerage firm requires understanding of law and regulation. In the exercise of their fiduciary duties, including their oversight obligation, directors should be familiar with applicable securities regulations, and also be mindful of the limits on outside directors’ active engagement in the firm’s business. Where the US broker is part of a global organization, the parent company’s protocols may also come into consideration.
Each of these factors impacts what good governance requires in practice.
Fiduciary responsibilities
Under Delaware law, and the laws of many other jurisdictions, directors have fiduciary duties to protect the interests of the corporation and to act in the stockholders’ best interests.
Directors owe fiduciary duties of loyalty and care to these stakeholders. The duty of care requires directors to act on an informed basis and with the care that an ordinarily prudent person would reasonably be expected to use under similar circumstances.
The duty of loyalty requires directors to act in good faith, in the corporation’s best interests and not use their position of trust and confidence to further their personal interests.
Oversight responsibilities may implicate both the duties of care and loyalty. A 2026 Delaware decision highlights a director’s obligation to make a good faith effort to ensure that reasonably designed information and reporting systems are in place. When red flags are identified, a board must respond appropriately and take meaningful action.
These principles of fiduciary duty and oversight responsibilities have been established and reinforced by Delaware case law.
Broker-dealer regulation and limitations on outside directors
A board’s oversight of its firm’s risk management and compliance protocols, particularly in the highly regulated environment in which brokerage firms operate, is critical. Among other matters, US brokerage firms have the following obligations:
- Register with the SEC, become a FINRA member and meet applicable state registration requirements prior to conducting business, and assure employees do the same.
- Adhere to all capital and liquidity obligations.
- Safeguard customer funds and securities.
- Comply with books, records and reporting obligations.
- Assure compliance with all conduct rules, anti-money laundering (AML) requirements, cybersecurity, privacy and data protection requirements.
- Maintain compliance and supervisory procedures reasonably designed to assure compliance with all applicable laws and rules, and keep a control system to test those procedures.
In order for directors at a brokerage firm to discharge their oversight responsibilities effectively, they need an appreciation of this regulatory environment. But, the board cannot step into management’s shoes here. FINRA Rule 1021 requires persons who are actively engaged in the management of a firm’s investment banking or securities business, including supervision, the conduct of business or training, to be registered as principals. Actively engaged in management means day-to-day conduct of the firm’s securities business and the implementation of corporate policies related to such business.
Inside directors — registered employees who sit on a firm’s board — are presumed to be involved in the day-to-day management of the firm’s business, But, outside directors — directors who are not officers or employees — are not required to be registered if they are not actively engaged in the management of the firm’s business. Nor are officers of the firm’s parent company who sit on the board, so long as they’re not actively engaged in the management of the firm’s business.
However, because these outside directors and parent company board members are not registered, their activities cannot cross into active management. Regular participation in board meetings during which corporate policies are developed or adopted would not, by itself, rise to the level of being engaged in the firm’s management. But if a director actively participates in a management or operations committee that may trigger a registration requirement. Even activities like developing and managing the firm’s budget or supervising risk-control functions may be problematic. But, while outside directors cannot actively participate in management or on management committees, they must still discharge their oversight responsibilities effectively.
The Convergence of TradFi, DeFi & AI
‘Trustless’ does not mean unaccountable
Read moreDetailsGuidance for oversight
For all directors — whether inside or outside directors — effective oversight necessitates ensuring robust information and control systems are in place, recognizing central compliance risks and responding in good faith. Some concrete actions board members can take include the following in addition to documenting the firm’s governance structure:
Become educated
Arrange board training sessions on directors’ fiduciary obligations, the rules governing brokerage and investment banking operations and the limitations on the role of outside directors.
Actively engage with experts
This includes a careful review of the reports provided to the board, such as:
- Annual audited financial statements.
- Annual compliance report.
- Annual AML program independent review.
- Periodic business and finance reports from the firm’s CEO and its financial and operations principal.
Ensure adequacy of information flows
Information and reporting systems should be reasonably designed to provide senior management and the board timely and accurate information that’s sufficient to allow management and the board, within the scope of their respective responsibilities, to reach informed judgements.
Resolve red flags
- Respond comprehensively to red flags by taking timely, documented and reasonable action:
- Assure a robust fact-finding process is in place.
- Retain outside experts as appropriate.
- Engage with fact-finders and experts throughout the investigative process.
- Ensure a reasonable plan of remediation is proposed and timely implemented, including any applicable disclosure obligations.
Governance structure
Developing an overarching governance structure can help assure that directors meet their oversight obligations, consistent with the limitations on the role of outside directors. Consider documenting how management identifies, assesses, manages and reports to the board on the effective discharge of their regulatory responsibilities.
Kathy H. Rocklen, a senior adviser at FTI Consulting, is a corporate and securities attorney and strategic consultant with four decades of experience advising on broker-dealer regulatory compliance and enterprise risk management. She has led high-profile engagements for major US and foreign financial institutions, offering trusted legal counsel and crisis management support. 
