New FINRA Rule 3210 - Accounts at Other Broker-Dealers and Financial Institutions

Author

ACA

Publish Date

Type

Compliance Alert

Topics

  • Compliance

FINRA has received approval to update the requirement for disclosure and review of employee brokerage accounts. On April 13, 2016, the U.S. Securities and Exchange Commission (“SEC”) approved Financial Industry Regulatory Authority (“FINRA”) Rule 3210 (Accounts At Other Broker-Dealers and Financial Institutions) to replace current National Association of Securities Dealers (“NASD”) Rule 3050 (Transactions for or by Associated Persons). The effective date for this rule has not yet been determined.

Scope of Accounts Covered

Before an associated person can establish an account at another financial institution, Rule 3210 requires that he or she notify the firm of any accounts in which securities transactions can be effected and in which the associated person has a beneficial interest. NASD Rule 3050 had required reporting of accounts in which an associated person had a financial interest, or with respect to which such person had discretionary authority.

New Supplementary Material 3210.02 (Related and Other Persons) indicates that the rule would deem an associated person to have a beneficial interest in accounts held by the following:

  • 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; and
  • Any other individual over whose account the associated person has control and to whose financial support the associated person materially contributes

Actions Required by Associated Persons Regarding Accounts Opened Prior to Association with a Member Firm

Per NASD Rule 3050, an associated person who opened accounts prior to association with a firm must notify both the firm and the executing member in writing promptly after becoming associated. FINRA Rule 3210 now requires an associated person wishing to maintain such accounts to obtain written consent from the firm within 30 days of becoming associated. Additionally, the associated person must also notify the executing member regarding his or her association with the firm.

External Accounts at a Non-Member Firm Held by Associated Persons Employed at a Member Firm

Under both NASD Rule 3050 and FINRA Rule 3210, associated persons must notify their employer of their intent to open an account or place an order at a non-member firm prior to executing any initial transactions. However, FINRA Rule 3210 added Supplementary Material .04 (Accounts at a Financial Institution Other Than a Member), which states, "The employer member shall 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 provide its written consent to an associated person to open or maintain such account."

Additionally, Supplementary Material 3210.05 (Other Financial Institution) has been added to define “Other Financial Institutions," which include but are not limited to:

  • Any broker-dealer that is registered pursuant to Section 15(b)(11) of the Exchange Act;
  • Domestic or foreign non-member broker-dealers;
  • Investment advisers;
  • Banks;
  • Insurance companies;
  • Trust companies;
  • Credit unions; and
  • Investment companies.

Accounts and Transactions that do not fall under FINRA Rule 3210

Part (f) of NASD Rule 3050 provides the exemption for accounts and transactions with specific securities, such as unit investment trusts, variable contracts, or redeemable securities of companies registered under the Investment Company Act of 1940. Rule 3210 includes the exemptions for the above accounts, but also adds the following new transaction types:

  • Municipal fund securities transactions;
  • Qualified tuition programs pursuant to Section 529 of the Internal Revenue Code; and
  • Accounts that are limited to transactions in such securities, or to Monthly Investment Plan type accounts.

As mentioned above, the effective date of Rule 3210 has not been announced yet. 

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