Series 28: Material Inadequacies Or Material Weakness

Material Inadequacies or Material Weakness

Whenever any broker-dealer discovers or is notified by an independent public accountant of the existence of any material inadequacy or weakness, the broker-dealer must:

• • Give notice of the material inadequacy or weakness within 24 hours of its discovery or notification to the SEC and to the appropriate designated examining authority (DEA); the DEA is FINRA for most firms
• • Transmit a follow-up report within 48 hours, stating what the broker-dealer has done (or is doing) to correct the situation

SEC Rule 17a-11(e)

A material inadequacy is any condition that has contributed to or could cause material financial loss or violate the SEC’s financial responsibility rules. Recall that a material weakness is a deficiency in a broker-dealer’s supervisory controls that could reasonably prevent the discovery of inaccuracies in its reporting