Transparency is key in the financial industry. It leads to trust, which in turn translates to positive client relationships, business growth and (of course) successful compliance.
Many regulatory rules are focused on increasing transparency for advisers and registered representatives. That includes setting proper guidelines and procedures for personal interests that could lead to potential conflicts of interest.
Enter: The Financial Industry Regulatory Authority’s (FINRA) Rule 3210.
In today’s blog, we’re exploring the nuances of FINRA Rule 3210 – including steps registered representatives and firms must take to avoid costly penalties. We’ll also explore how ComplySci’s Undisclosed Account Alerts can automate your organization’s compliance processes to save time and money.
What is FINRA Rule 3210?
While firms and brokerages can easily track employee accounts held within their own organization, it’s much tougher to track data held in a different brokerage. Moreover, if not properly identified, those accounts can cause compliance issues for your firm due to FINRA Rule 3210’s account disclosure requirements.
FINRA’s Rule 3210 was adopted in 2016 and states that all registered representatives of an broker-dealer firm must receive written consent before opening or establishing a brokerage account with another FINRA member firm.
The rule states that:
- 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.
Perhaps most essential to the above is that registered representatives have to both give and receive written notice before opening a new account.
Rule 3210 was established in an attempt to lend further transparency to personal interests of registered representative, and applies to “associated persons” as well, including family members. It replaces National Association of Securities Dealers’ (NASD) Rule 3050.
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Exceptions to the Rule FINRA does note some exceptions to Rule 3210: “The requirements of this Rule shall not apply to 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, as amended, or to accounts that are limited to transactions in such securities, or to Monthly Investment Plan type accounts.” |
The Cost of non-compliance with FINRA Rule 3210
Like all compliance regulations, failure to comply may result in hefty fines.
If a registered representative within your firm fails to properly disclose these brokerage accounts prior to their opening, your organization is at significant risk for hefty regulatory fines (FINRA already fined one firm $300,000 for undisclosed accounts).
That’s where ComplySci’s Undisclosed Account Alerts come into play, offering protection against regulatory infractions in this area. With the alerts, your firm can stay informed and avoid the potential risk of not knowing what you don’t know.
Related: Does your investment firm need a regulatory compliance consultant?
How to maintain compliance using Undisclosed Account Alerts
Undisclosed Account Alerts is a new compliance capability offered by ComplySci. It works by collecting data directly from brokers and reconciling that account information against data within your organization’s system. ComplySci’s system scours more than 300 broker feeds in this process.
If an undisclosed account does appear, you’ll be able to address it directly in the software system, assigning it to the correlating employee.
You can also historically report on accounts that have been disclosed and/or dismissed previously. Additionally, custom alerts for your compliance team ensure that they are aware whenever a new account is picked up by the system.
Click “Play” on the quick explainer video below to learn more about the functionality of Undisclosed Account Alerts.
FINRA Rule 3210 aims to reduce conflicts of interest and provide further transparency between firms and their employees. And while compliance processes are notoriously time-consuming and costly, software systems like ComplySci’s Undisclosed Account Alerts work to mitigate those costs and deliver an efficient solution.
Stay compliant with ComplySci
Interested in learning more about Undisclosed Account Alerts? Looking for a effective, efficient and money-saving compliance solution for your business? Schedule a free demo of ComplySci today, or get in touch with our customer service representatives to learn more.