FINRA Seeks Comments on Proposed Borrowing and Lending to Clients Finance & Banking

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United States: FINRA Seeks Comments on Proposed Borrowing and Lending to Clients

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FINRA invites comments on proposed amendments at FINRA Rule 3240 (“Borrowing or Lending to Customers”) to extend the prohibitions against outside borrowing and lending agreements between registrants and their customers.

The proposed amendments (i) would extend the general prohibition under the rule to cover loan agreements that may predate new broker-client relationships and may be entered into six months after the client relationship ends, (ii ) extend the application of the rule to agreements involving a client of the registered individual transacting with a family member of the registered individual and (iii) better define the exceptions to the prohibition.

FINRA specifically asked commenters to address the key points of the proposed changes and suggested the ban could be broadened further.

FINRA invites comments on these proposals by February 14, 2022.

Remark

FINRA has generally sought to limit relationships between registered representatives and their clients that are outside the business and supervision of the firm, and that may provide a benefit to the representative. See, for example, FINRA Passes Restrictions on Registered Person Becoming Client Beneficiary or Trustee. These regulatory limitations and prohibitions are particularly important as FINRA and other financial regulators are concerned about any aging client population that may be vulnerable to overreach by their agents.

Primary sources

  1. Proposed Amendments to FINRA Rule 3240 and Retrospective Rules Review Report

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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