Question 1
Does FINRA Rule 3210 impose any requirement as to what specific information or data an employer member must review or monitor upon receiving duplicate copies of confirmations and statements, or the transactional data contained therein, with respect to an account subject to the rule?
Answer
No. FINRA Rule 3210 does not by its terms specify what specific information or data the employer member must review or monitor upon receiving duplicate copies of confirmations and statements, or the transactional data contained therein. However, FINRA noted in SR-FINRA-2015-029, Partial Amendment No. 1 and Regulatory Notice 16-22 that the new rule is designed to work in combination with the transaction review and investigation provisions under FINRA Rule 3110(d). FINRA noted that the review and monitoring conducted by members also could relate to other facets of conduct under FINRA rules, for example, management of conflicts of interest in their businesses. More broadly, FINRA noted that members are responsible for establishing and maintaining systems for the supervision of their associated persons that are reasonably designed to achieve compliance with applicable securities laws and regulations, and with applicable FINRA rules.
Question 2
May members use electronic means to transmit the transactional data required pursuant to FINRA Rule 3210(c)?
Answer
Yes. FINRA noted in SR-FINRA-2015-029, Partial Amendment No. 1 and Regulatory Notice 16-22 that the transmission requirements under FINRA Rule 3210(c) are sufficiently broad by their terms to permit members reasonable flexibility as to the manner of obtaining and reviewing the specified information, whether by hard copy or electronic means. Members may use electronic means for purposes of the transmission requirements under the rule, provided such transmission includes the transactional data as required pursuant to the rule. For purposes of FINRA Rule 3210, FINRA interprets transactional data to mean the data as to the securities transactions that are effected in an account that is subject to the rule. As discussed in Question 1, members should also consider their general supervisory obligations under FINRA Rule 3110 with respect to the activities of their associated persons, including the transaction review and investigation provisions under FINRA Rule 3110(d).
Question 3
Does FINRA Rule 3210 require the executing member to obtain any documentation from the employer member with respect to an account subject to the rule? For example:
- Does Rule 3210 require the executing member to obtain evidence of the employer member’s prior written consent with respect to an account?
- If the employer member determines not to request duplicate copies of confirmations and statements, or the transactional data contained therein, with respect to an account, does Rule 3210 require the executing member to obtain written confirmation from the employer member to that effect?
Answer
No. FINRA Rule 3210 does not require an executing member to obtain any documentation from the employer member. The rule does not require an executing member to obtain evidence of the employer member’s prior written consent with respect to an account, nor does the rule require the executing member to obtain written confirmation from the employer member if the employer member determines not to request duplicate copies of confirmations and statements, or the transactional data contained therein.
Question 4
If an executing member receives written notice in its account set up process of an associated person’s association with an employer member, does FINRA Rule 3210 require the executing member to transmit duplicate copies of confirmations and statements, or the transactional data contained therein, to the employer member if the employer member does not provide a written request for such information with respect to the account?
Answer
No. FINRA Rule 3210 does not require the executing member to transmit duplicate copies of confirmations and statements, or the transactional data contained therein, with respect to an account subject to the rule, to an employer member if the employer member does not make a written request for such information.
Question 5
If an executing member receives a written request from an employer member to transmit duplicate copies of confirmations and statements, or the transactional data contained therein, to the employer member, does FINRA Rule 3210 require the executing member to provide such information with respect to an account subject to the rule if the associated person who establishes the account does not provide written notification of his or her association with the employer member?
Answer
Yes. FINRA Rule 3210 requires an executing member, upon written request by an employer member, to transmit duplicate copies of confirmations and statements, or the transactional data contained therein, with respect to an account subject to the rule. This requirement applies without regard to whether the associated person who establishes the account fulfills his or her obligation under the rule to notify in writing the executing member of his or her association with the employer member. In these situations, as a matter of sound supervisory practice, the executing member should consider contacting the associated person regarding the employer member’s request.
Question 6
Supplementary Material .03 of FINRA Rule 3210 provides that the rule’s requirements shall not apply to transactions in unit investment trusts, municipal fund securities as defined under MSRB Rule D-12,1 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,2 or to Monthly Investment Plan type accounts. If an executing member receives a written request from an employer member to transmit duplicate copies of confirmations and statements, or the transactional data contained therein, for such accounts or transactions, does Rule 3210 require the executing member to provide such information?
Answer
No. The accounts and transactions specified in Supplementary Material .03 are not subject to the requirements of FINRA Rule 3210. As such, an executing member need not provide information with respect to such accounts and transactions to an employer member. FINRA notes, however, that the rule does not preclude an employer member from requiring, for example, that its associated persons obtain the prior written consent of the employer member to open or otherwise establish accounts, or engage in transactions, that are specified in Supplementary Material .03. Rule 3210 does not preclude an employer member from requesting information as to such accounts and transactions from an executing member, and the rule does not preclude an executing member from providing the information, provided that the executing member acts consistent with Regulation S-P and other applicable requirements.
Question 7
Supplementary Material .02 of Rule 3210 provides that, for purposes of Rule 3210, the associated person shall be presumed to have a beneficial interest in, and to have established, any account that is held by: (a) the spouse of the associated person; (b) 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; (c) any other related individual over whose account the associated person has control; or (d) any other individual over whose account the associated person has control and to whose financial support the associated person materially contributes. The Supplementary Material provides that, for purposes of (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. How should an employer member document its determination that an associated person derives no economic benefit from, and exercises no control over, such an account?
Answer
FINRA expects that an employer member, as a matter of sound supervisory practice, will have policies and procedures in place to make determinations as to accounts subject to Supplementary Material .02, and to document such determinations as appropriate. Supplementary Material .02 is not intended to prescribe specific practices or methodologies that members must use to comply with the rule and, as such, is intended to permit members reasonable flexibility to design policies and procedures that are consistent with their business model and potential risks.
Question 8
How should members address situations where both spouses in a marriage are associated persons of separate employer members and each spouse opens or otherwise establishes separate accounts that are subject to FINRA Rule 3210?
Answer
By its terms, the requirements of FINRA Rule 3210 would apply with respect to each spouse vis-à-vis his or her respective employer member and the relevant executing member or other financial institution. As a consequence, among other things, associated persons and employer members should be aware that the presumption of beneficial interest, as set forth in Supplementary Material .02 of the rule, would apply to each spouse with respect to the account or accounts of the other spouse.
1. MSRB Rule D-12 defines municipal fund security to mean “a municipal security issued by an issuer that, but for the application of Section 2(b) of the Investment Company Act of 1940, would constitute an investment company within the meaning of Section 3 of the Investment Company Act of 1940.”
2. FINRA has noted that “limited” means that only transactions as set forth in the Supplementary Material can be effected in the account. See Regulatory Notice 16-22.
