The SEC has approved new FINRA Rule 3210 (Accounts at Other Broker-Dealers and Financial Institutions) which is a consolidated rule governing accounts opened or established by associated persons at firms other than the firm at which they are employed. The goal of the new rule is to help facilitate effective oversight of such accounts by member firms. New FINRA Rule 3210 replaces NASD Rule 3050, Incorporated NYSE Rules 407 and 407A and Incorporated NYSE Rule Interpretations 407/01 and 407/02.
Requirement for Prior Written Consent
FINRA Rule 3210 requires that associated persons obtain the prior written consent of his or her employer when opening an account, at another member or other financial institution.
Presumption of Beneficial Interest
The rule specifies that accounts in which an associated person is presumed to have a beneficial interest in, and to have established, include any account that is held by:
- the spouse of the associated person;
- a child of the associated person or of the associated person’s spouse, provided that the child resides in the same household as or is financially dependent upon the associated person;
- any other related individual over whose account the associated person has control; or
- any other individual over whose account the associated person has control and to whose financial support the associated person materially contributes.
Rebutting the Presumption
However, the rule makes allowance for rebutting the presumption as to specified accounts. Specifically, Supplementary Material .02 provides that, for purposes of spouse and child accounts as set forth in (a) and (b) above, an associated person need not be presumed to have a beneficial interest in, or to have established, an account if the associated person demonstrates, to the reasonable satisfaction of the employer member, that the associated person derives no economic benefit from, and exercises no control over the account.
FINRA notes that, because the accounts specified in (c) and (d) above involve control by the associated person, there would be no meaningful purpose in attempting to rebut the presumption of the associated person’s beneficial interest in such accounts. As such, the rule’s requirements would apply to these accounts.
Notification Requirement
As with the prior rules, associated persons still have notification obligations under the new FINRA Rule 3210. To this end, the rule provides that any associated person, prior to opening or otherwise establishing an account subject to the rule, must notify in writing the executing member, or other financial institution, of his or her association with the employer member.
Accounts Established Prior to Association with the Member
The rule makes allowance for accounts opened by an associated person prior to his or her association with the employer member. Specifically, if the account was opened or otherwise established prior to the person’s association with the employer member, the associated person, within 30 calendar days of becoming so associated, must obtain the written consent of the employer member to maintain the account and must notify in writing the executing member or other financial institution of his or her association with the employer member.
Accounts at Non-Member Financial Institutions
With respect to an account subject to the rule at a financial institution other than a FINRA member firm, the employer member must consider the extent to which it will be able to obtain, upon written request, duplicate copies of confirmations and statements, or the transactional data contained therein, directly from the non-member financial institution in determining whether to provideits written consent to an associated person to open or maintain such account.
Obligations of FINRA Employers
FINRA member firms have specified obligations with respect to accounts held by associated persons that are consistent with the prior rule. Specifically, upon written request by the employer member, other member firms holding accounts of associated persons of another member firm, are required to transmit duplicate copies of confirmations and statements, or the transactional data contained therein, with respect to an account subject to the rule.
Transactions and Accounts Not Subject to the Rule
As with the prior rule, FINRA Rule 3210 requirements shall not apply to transactions in unit investment trusts, certain municipal fund securities as defined under MSRB Rule D-12,14 qualified tuition programs pursuant to Section 529 of the Internal Revenue Code and variable contracts or redeemable securities of companies registered under the Investment Company Act, as amended, or to accounts that are limited to transactions in such securities, or to Monthly Investment Plan type accounts.
Action Items
The effective date of the rule is April 3, 2017 and as such FINRA member firms need start planning on the revisions necessary to their processes and procedures related to out side brokerage accounts. This action should include obtaining an updated list of outside accounts that are now covered by the rule, and documenting whether the employee can overcome the presumption that the account should bye covered by the rule.
For more information, see Regulatory Notice 16-22