The SEC is seeking comment on a FINRA-proposed modification to its previously proposed rule to amend FINRA Rule 2231 ("Customer Account Statements"). The amendments to the rule would, among other things, "add new supplementary materials, incorporate specified provisions from dual FINRA-NYSE temporary rules," and make other nonsubstantive and technical changes.
In its Order Instituting Proceedings To Determine Whether To Approve or Disapprove the Proposed Rule Change To Amend FINRA Rule 2231, the SEC is soliciting comments on the proposed rule change, as modified by FINRA's Amendment No. 1. Amendment No. 1 would change the term from ''clearing firm'' to ''carrying firm'' in the following places: (i) proposed Rule 2231(a), (ii) proposed Rule 2231.05(a) and (b), (iii) proposed Rule 2231.07 and (iv) proposed Rule 2231.08(d). FINRA stated that this change would provide consistency, given that the supplementary materials are derived from the NYSE provisions, which use the term "carrying organization."
FINRA proposed to add to Rule 2231:
- Supplementary Material .01, which would remind firms of their obligations under FINRA Rule 4311 ("Carrying Agreements") with regard to the fact that it is the clearing firm, not the introducing firm, that is responsible for the custody of customer assets;
- Supplementary Material .02, which would prohibit the transmission of customer account statements to a third party unless the customer approved and the customer also received a statement;
- Supplementary Material .03, which would allow the electronic delivery of statements, subject to SEC-approved procedures;
- Supplementary Material .04, which would permit a firm to hold customer mail pursuant to FINRA Rule 3150 ("Holding of Customer Mail");
- Supplementary Material .05, which would require certain information to be prominently disclosed on a customer account statement, including the identity of the introducing and clearing firm;
- Supplementary Material .06, which would require the separation of assets in a customer account statement that is not carried on behalf of the customer by the member firm and is not included in that member's books and records (sometimes referred to as "hearsay assets");
- Supplementary Material .07, which requires the clear disclosure of the person whose logo or other identification appears on the customer account statement; and
- Supplementary Material .08, which would establish a member firm's obligations in instances in which a member and an affiliate provide a single statement aggregating the assets that each holds.
Comments are due by January 31, 2022, and rebuttals are to be filed by February 14, 2022.
Commentary
While most of these changes are formalizations of existing law or practice, firms should take the opportunity presented by this proposal to review all of their practices with respect to the sending of customer statements.
Primary Sources
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