FINRA Requests Comments on Revised Proposal Regarding Discretionary Accounts

FINRA is requesting comments in Regulatory Notice 15-22 on a revised proposal to adopt the NASD and Incorporated NYSE rules regarding discretionary accounts and transactions as FINRA Rule 3260 (Discretionary Accounts and Transactions by Persons Other Than the Customer) in the consolidated FINRA rulebook. In addition, the revised proposal addresses the treatment of customers’ free credit balances, sweep programs, bulk transfers of customers’ accounts and change of broker-dealer of record. The revised proposal also reflects the comments received on the initial proposal.

The initial proposal required: (i)  that firms and their associated persons obtain the customer’s “dated” prior written authorization to identify the date that discretionary authority was granted; (ii) that a customer’s written authorization be provided to a named natural person or persons, instead of a stated individual or individuals as currently required; and (iii)  that the account be accepted in writing by a designated partner, officer or manager of a firm denoting that the account has been accepted in accordance with the firm’s policies and procedures for acceptance of discretionary accounts.  Additionally, the  initial proposal clarified that (i) the requirements apply to all associated persons of a firm, not just agents, employees and registered representatives; and (ii)  the designated partner, officer or manager responsible for denoting acceptance of discretionary accounts, approving discretionary orders and reviewing such accounts has to be someone other than the associated person vested with discretionary power.

The revised proposal maintains the requirements of the initial proposal subject to a few clarifications and changes. The revised proposal clarifies that the customer must sign the written authorization;  that a customer’s written authorization be provided to a named associated person or associated persons, rather than a named natural person or persons as required under the initial proposal, and that the account documentation be “signed” by a partner, officer or manager designated by the firm.  The revised proposal also requires that the associated person and the firm exercise discretionary power in such account only in the manner, and under the terms and conditions, specified in the customer’s prior written authorization.