There are a host of new and amended rules promulgated by the Financial Industry Regulatory Authority (“FINRA”) that will be going into effect throughout 2018. This Alert summarizes these impending rule changes.
FINRA Qualification and Registration Rules
In our November 16, 2017 Alert, we discussed the new consolidated registration rules which appear in FINRA Rules 1210, 1220, 1230 and 1240. They become effective on October 1, 2018. Beginning on this date, registered representatives and principals, and individuals desiring to register as such, will be subject to a new regime.
Financial Exploitation of Specified Adults (new FINRA Rule 2165) and Customer Account Information ( amended FINRA Rule 4512)
New rule 2165 and amended rule 4512 became effective on February 5, 2018. Together they provide member firms with the tools to take action if they reasonably suspect that financial exploitation has occurred or will occur, not only with respect to those age 65 and older, but also those who may be impaired regardless of their age. As a result, firms can contact an account holder’s “trusted contact person” and/or place a temporary hold on disbursements from the account. Rule 4512 requires that the name and contact information for a trusted contact person must be obtained for each non-institutional account, not only with respect to the account of a “Specified Adult.” Under Rule 4512, a trusted contact person must be a natural person age 18 or older. FINRA also released Frequently Asked Questions (the “FAQs”) on these rules.
FinCEN Customer Due Diligence Rule (CDD Rule)
Firms have until May 11, 2018, to comply with the Financial Crimes Enforcement Network’s (FinCEN’s) CDD Rule. The CDD Rule enhances customer due diligence for financial institutions, including broker-dealers. The rule identifies four components of customer due diligence: (1) customer identification and verification; (2) beneficial ownership identification and verification; (3) understanding the nature and purpose of customer relationships; and (4) ongoing monitoring for reporting suspicious transactions and, on a risk basis, maintaining and updating customer information.
Customer Confirmation (Amendments to FINRA Rule 2232)
Amended FINRA Rule 2232 goes into effect on May 14, 2018. The rule requires a member firm to disclose mark-ups or mark-downs with respect to trades with retail customers in corporate or agency debt securities if the member also executes offsetting principal trades in the same security on the same trading day. The amended rule also mandates the disclosure of two additional pieces of information: (1) a reference, and a hyperlink, if applicable, to a web page hosted by FINRA that contains publicly available trading data for the specific security that was traded; and (2) the execution time of the transaction, expressed to the second.
Margin Requirements (Amendments to FINRA Rule 4210)
The new margin requirements for covered agency transactions will become effective on June 25, 2018. Covered agency transactions include: (1) To Be Announced (TBA) transactions, inclusive of adjustable rate mortgage (ARM) transactions; (2) Specified Pool Transactions; and (3) transactions in Collateralized Mortgage Obligations (CMOs), issued in conformity with a program of an agency or Government-Sponsored Enterprise (GSE), with forward settlement dates. Note that the risk limit determination requirements under the amendments to Rule 4210 were effective on December 15, 2016.