What Obligations are Imposed by FINRA on Transactions by Associated Persons?

In addition to the requirements imposed on registered investment advisers by the United States Securities and Exchange Commission (SEC), persons who are also registered broker-dealers with the Financial Industry Regulatory Authority (FINRA) are subject to additional regulation.  FINRA strictly regulates securities transactions with, or between advisory clients, through Rule 3210.  This rule replaces Rule 3050.

Under Rule 3210, before opening an account or having a beneficial interest in an account at another member firm or other financial institution, an associated person must obtain the prior written consent of his or her member firm.  The rule provides:

No person associated with a member (“employer member”) shall, without the prior written consent of the member, open or otherwise establish at a member other than the employer member (“executing member”), or at any other financial institution, any account in which securities transactions can be effected and in which the associated person has a beneficial interest.

Any associated person, prior to opening or otherwise establishing an account subject to this Rule, shall notify in writing the executing member, or other financial institution, of his or her association with the employer member.

An executing member shall, upon written request by an employer member, transmit duplicate copies of confirmations and statements, or the transactional data contained therein, with respect to an account subject to this Rule.

In determining whether to grant written consent to an associated person opening an account or having a beneficial interest in another member firm, an employer should consider the extent to which it would 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.   Certain transactions and accounts are exempted from this rule, including transactions in unit investment trusts, municipal fund securities as defined under MSRB Rule D-12, 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 of 1940, as amended, or to accounts that are limited to transactions in such securities, or to Monthly Investment Plan type accounts.

An associated person is said to have a beneficial interest in an account when the account is held by

(1) his or her spouse;

(2) his or her child; (3) a related individual over whose account the associated person has control; or (4) an individual over whose account the associated person has control and to whom the associated person contributes financially

An associated person can rebut the presumption of beneficial interest in an account if it can be demonstrated that he or she derives no economic benefit from the account and exercises no control over it.

If the associated person opened the account prior to his or her association with the employer firm, then the associated person will be required to seek written consent to maintain the account within 30 calendar days of becoming associated, and shall notify in writing the executing member of the other financial institution of his or her association with the employer member.