Exam Alert: SEC changes broker-dealer financial responsibility rules

On October 21, 2013, the SEC will put into effect amendments to its financial responsibility rules for broker-dealers. These amendments include changes to the customer protection rule, net capital rule, books and records rules, and notification rule. Continue reading

On October 21, 2013, the SEC will put into effect amendments to its financial responsibility rules for broker-dealers. These amendments include the following changes:

Customer Protection Rule (Rule 15c-3-3)

-Carrying broker-deals that maintain customer securities and funds will be required to maintain a new segregated reserve account for broker-dealer accounts.

-The reserve requirement to protect customer cash will exclude cash deposits at affiliated banks and limit cash held at non-affiliated banks to no more than 15% of the bank’s equity capital.

-The rule will require disclosure, notice, and affirmative consent from the customer when their cash is “swept” to a money market or bank deposit product.

Net Capital Rule (Rule 15c3-1)

-The rule will require a broker-dealer to include liabilities assumed by a third party in the broker-dealer’s net worth if the third party is reliant on the broker-dealer to pay the liabilities.

-The rule will require a broker-dealer to count as a liability any contributed capital that may be withdrawn by an investor. Contributed capital that is withdrawn within a year of contribution must also be treated as a liability, unless the broker-dealer receives written permission for the withdrawal from its designated examining authority.

-Broker-dealers will be required to deduct from net capital the excess of any deductible amount over the amount permitted by SRO rules.

-Insolvent broker-dealers will be required to cease conducting a securities business.

Books and Records Rules (Rules 17a-3 and 17a-4)

-Large broker-dealers will be required to document their risk management controls.

Notification Rule (Rule 17a-11)

-The rule will establish new notification requirements for when a broker-dealer’s repurchase and securities lending activities exceed a certain threshold. Alternatively, a broker-dealer may instead report such activity monthly to its designated examining authority.

 

Source: SEC Release 2013-140: SEC Adopts Amendments to Financial Responsibility Rules for Broker-Dealers

 

This alert applies to the Series 24, Series 26, Series 7, Series 99, Series 82, Series 79, and Series 55.

Exam Alert: FINRA revises inspection rule

Effective February 25, 2013, FINRA will modify its rule that covers its ability to request information and inspect books and records. Continue reading

Effective February 25, 2013, FINRA will modify its rule that covers its ability to request information and inspect books and records. The rule will:

-specify that FINRA may inspect and copy information that is in a person’s “possession, custody, or control” if the person is subject to FINRA’s jurisdiction

-identify that books and records are subject the rule if they relate to a broker-dealer’s business or to a person’s association with a member

-describe how FINRA will contact unregistered associated persons at either a business or home address

-permit FINRA to provide an inspection request to a person’s attorney, assuming the person is being represented by the attorney in responding to the request

Source: Regulatory Notice 13-06: SEC Approves Amendments to Rule 8210

This alert applies to the Series 6, Series 7, Series 24, Series 26, Series 62, Series 79, and Series 82.

Exam Alert: SEC approves consolidated FINRA rules on books and records

The SEC has approved a new set of FINRA Rules governing books and records. These rules will be effective December 5, 2011. The rules state that records Continue reading

The SEC has approved a new set of FINRA Rules governing books and records.  These rules will be effective December 5, 2011.  The rules state that records for which no retention period is given under FINRA or Securities Exchange Act rules must be kept for six years.  Firms must now record the name of the agent(s), if any, responsible for an account.  Relevant to the Series 6, 7, 62, 24 and 26. Additional changes can be found here: http://www.finra.org/Industry/Regulation/Notices/2011/P123549.