By: Esmat Hanano, IAC Intern Spring 2018
This is the second post in a series of blog posts on the 2018 Regulatory and Examination Priorities Letter (“Letter”) published by the Financial Industry Regulatory Authority (“FINRA”). One of the most important parts of the Letter is the New Rules section. In this section, FINRA alerts firms to rules that will take effect in 2018. This year’s Letter includes six new rules that address a wide array of topics within FINRA. This post will focus on the three rules that impact retail investors the most.
First, an amendment to FINRA Rule 2165 will take effect this year which allows firms to place holds on disbursements from accounts of certain customers that are reasonably believed to have been defrauded. The type of customers to which this rule applies are adults over the age of sixty-five, and adults over the age of eighteen with mental or physical impairments that render them unable to protect their own interests. This amendment gives firms a powerful new tool to protect an already vulnerable group of customers. If a firm applies this rule to an account, then they must also give notice to all interested parties in the account as to the reason for the hold on disbursement. This rule is a welcome addition to the other protections that FINRA offers customers.
Second, FINRA Rule 4512’s amendment takes affect this year as well. Rule 4512 sets out the type of information that firms must maintain regarding individual customer accounts. The amendment requires firms to obtain the name and contact information “. . . for a trusted contact person. . . ” for a customer’s account. This amendment will increase the firm’s ability to notify interested parties in an account that fraud might have occurred. For example, the amendment to Rule 4512 and Rule 2165 will work in conjunction to protect customers who might be defrauded.
Lastly, an amendment to FINRA Rule 2232 takes effect on May 14, 2018. This amendment will require member firms to inform retail investors of the mark-ups and mark-downs on certain trades. The rule will also require further disclosures about other industry-specific trades. This amendment rounds out the above-mentioned rules by giving investors a full picture of how much money the brokerages are making off trades they recommend. With this information, investors can make smarter decisions about which transactions they approve.
These rules are an important part of this year’s Letter, and they help to further protect investors from deceptive tactics that some firms might engage in. Check back with the blog for our next post about FINRA’s Letter.