Investor Advocacy Clinic Comments on FINRA Regulatory Notice 14-35

By: Brittany DeDiego, Fall 2014 Student Intern

LAW_IACThe GSU Investor Advocacy Clinic is committed to protecting the interests of individual investors. Therefore, in addition to providing legal services and participating in investor education and outreach, the clinic is also actively involved in the public comment process relating to rule changes proposed by FINRA.

The Proposal: Regulatory Notice 14-35

FINRA’s recent Regulatory Notice 14-35, would maintain the quarterly statement delivery requirement, but would allow investors to direct the transmission of customer account statements and other documents to third parties. The change would also allow for statements to be delivered electronically and would require investment firms to include a statement advising customers to report promptly any inaccuracy or discrepancy in their account. This rule will require that the firm, clearing firm and their respective contact information for customer service be clearly and prominently placed on the front of the statement. The contact information for the clearing house, however, can be located on the back of the statement if the information is in bold or highlighted letters.

The Clinic’s Comment

On October 31, 2014, the clinic submitted a comment letter, expressing its support for adopting this rule change. Although agreeing with FINRA that third parties should be able to receive quarterly statements electronically and that SIPA disclosures should be prominently displayed on statements, the rule could go further to protect investors. The clinic recommended investors must affirmatively elect to receive electronic quarterly statements. We do not think that an electronic statement should be a default rule because investors who are not technologically savvy might not know how to electronically opt-out of an electronic statement.

The clinic also recommended that if an investor has statements sent to a third party, the investor should also continue to receive his own statements so the investor can continue to monitor his own account.

Finally, the clinic recommended that FIRNA require the contract information for the clearing firm for customer concerns to be located on the front of the statement, or ideally on the envelope to alert investors to the importance of reviewing their statements.

The primary student author of the comment letter, Brittany DeDiego, was assisted student intern Chris Pugh.