September 2015 Board Update
September 17, 2015
Dear Executive Representative:
The FINRA Board of Governors met this week to discuss a number of issues, including several rulemaking items (detailed below). You can also get an update on the meeting by watching this brief video report, where lead Governor Jack Brennan and I provide some highlights from the meeting.
I wanted to bring to your attention one rulemaking area that may be of particular interest. It relates to senior and other potentially vulnerable investors, and is intended to provide firms with tools to better protect customers when there is reasonable belief of financial exploitation. The proposed rules would go out for comment in a Regulatory Notice, so we look forward to your feedback.
Sincerely,
Richard G. Ketchum
Chairman and CEO
Rulemaking Items Discussed at the September 2015 Board Meeting
Financial Exploitation of Seniors and Other Vulnerable Adults
The Board authorized FINRA to publish a Regulatory Notice soliciting comment on proposed rules regarding financial exploitation of seniors and other vulnerable adults. Specifically, the proposed rules would include: (1) amendments to FINRA Rule 4512 (Customer Account Information) to require member firms to make reasonable efforts to obtain the name of and contact information for a trusted contact person for a customer’s account; and (2) adoption of FINRA Rule 2160 (Financial Exploitation of Eligible Adults) to permit firms to place a temporary hold on a disbursement of funds or securities from a customer’s account where there is a reasonable belief of financial exploitation, and notify the trusted contact person (or, if unavailable, immediate family member) of the firm’s decision to place the temporary hold.
FOCUS Report Supplementary Schedule for Derivatives and Other Off-Balance Sheet Items
The Board authorized FINRA to file with the SEC proposed amendments to the FOCUS report supplementary schedule for derivatives and other off-balance sheet items (OBS). The proposed amendments will expand the application of the OBS beyond clearing firms to include non-carrying/non-clearing firms that have, pursuant to the SEC’s Net Capital Rule, a minimum dollar net capital requirement equal to or greater than $100,000, and at least $10 million in reportable items pursuant to the OBS. The proposal will not otherwise change the OBS or its instructions, including the de minimis exception.
OTC Bulletin Board
The Board authorized FINRA to file with the SEC proposed amendments to the FINRA Rule 6500 Series to establish a back-up quotation display facility for OTC equity securities.
Securities Trader Exam Fee
The Board authorized FINRA to file with the SEC proposed amendments to Schedule A to the FINRA By-Laws to establish a fee of $120 for the new Securities Trader Qualification Examination (the Series 57 examination). Consistent with FINRA’s practice, the fee covers the cost of developing, maintaining and delivering the Series 57 examination.
Dispute Resolution Party Portal
The Board authorized FINRA to file with the SEC proposed amendments to the Code of Arbitration Procedure for Customer Disputes and the Code of Arbitration Procedure for Industry Disputes to require all parties, except customers who are not represented by an attorney or other person (pro se customers), to use the Dispute Resolution Party Portal. Specifically, the amendments would: (1) define the party portal to mean the Office of Dispute Resolution’s online claim filing system and the DR Portal that is accessible by arbitration and mediation parties and their representatives; (2) exempt pro se customers if they opt out of the party portal; (3) require parties, except pro se customers who opt out, to exchange pleadings and other documents through the party portal; and (4) require all parties, except pro se customers who opt out, to use the party portal to file with FINRA all pleadings and other documents, except documents and information produced in response to discovery requests, which the forum does not currently receive. The amendments would also add a Ground Rule to the Code of Mediation Procedure to permit the mediator and the parties to agree to use the party portal to submit all documents and other communications to each other, retrieve all documents and other communications, and view mediation case information.
Expungement of Customer Information
The Board authorized FINRA to file with the SEC proposed amendments to Rules 12805 and 13805 (Expungement of Customer Dispute Information under Rule 2080) of the Codes of Arbitration Procedure. The proposed amendments would codify the best practices from the Expanded Expungement Guidance document that was issued as a notice to parties and arbitrators in 2013.