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Most firms must conduct annual independent AML testing, though some low-risk firms may test biennially. Options A, B, and D misstate requirements. Supervisors must document test results and corrective actions.

Rule 3260 prohibits churning, or excessive trading in customer accounts to generate commissions. Rule 2111 addresses suitability, while 3110 concerns supervision. Supervisors must review account activity for signs of churning.

FINRA Rule 2111 requires disclosure of all material risks, costs, and features of a recommended product. Failure to explain surrender charges violates suitability obligations. Supervisors must ensure training and disclosure compliance for complex products like variable annuities.

The USA PATRIOT Act mandates a Customer Identification Program requiring firms to collect and verify name, DOB, address, and government ID number. Credit checks and minimum balances are not required. Option C is related to Reg BI but not CIP. Supervisors must ensure CIP procedures prevent money laundering and comply with AML regulations.

An arrest for securities fraud is a material disclosure event and must be reported via Form U4 within 30 days. Options A and B are not official timelines, and D is incorrect because reporting is required even at the arrest stage.