December 4, 2020

Volume X, Number 339

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FINRA Adopts Rule to Restrict Registered Person’s Ability to be a Beneficiary or Hold Position of Trust

On October 29, the Financial Industry Regulatory Authority (FINRA) issued Regulatory Notice 20-38, announcing FINRA’s adoption of a new rule to limit any associated person of a member who is registered with FINRA (a “registered person”) from being named a beneficiary, executor or trustee, or having a power of attorney or similar position of trust on behalf of a customer. New FINRA Rule 3241 (Registered Person Being Named a Customer’s Beneficiary or Holding a Position of Trust for a Customer) is designed to protect investors from undue and inappropriate influence over important financial decisions by requiring members to review its registered persons who are beneficiaries or hold positions of trust for customers.

Upon learning of his or her status as a customer’s beneficiary or a position of trust for a customer, a registered person must provide written notice to and receive written approval from the relevant member firm (or decline the bequest or appointment). Notably, the rule does not apply to scenarios in which the customer is a member of the registered person’s “immediate family.”

Rule 3241 will require members to establish and maintain written procedures to comply with the rule’s requirements. Members must also maintain the written notice and approval for at least three years after the date the beneficiary status or position of trust has terminated or the bequest received or for at least three years (whichever is earlier) after the registered person’s association with the firm has terminated.

Rule 3241 becomes effective February 15, 2021. Regulatory Notice 20-38 is available here.

©2020 Katten Muchin Rosenman LLPNational Law Review, Volume X, Number 304
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About this Author

Susan Light, Katten Law Firm, Finance Law Attorney, New York
Partner

Susan Light focuses her practice on financial services regulatory matters. She counsels broker-dealers, hedge funds, investment banks and financial services clients on enforcement issues involving the Securities and Exchange Commission (SEC), Financial Industry Regulatory Authority (FINRA), other self-regulatory organizations (SROs) and state and federal regulatory authorities. She has particular experience related to sales practice issues, financial and operational issues, anti-money laundering, crowdfunding, cybersecurity, and cryptocurrencies.

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212-940-8599
Laura Krcmaric, Financial Services Attorney, Katten Law Firm
Associate

Laura Krcmaric represents clients in the financial services industry, focusing on regulatory and compliance work. Prior to joining Katten, Laura served as counsel for Credit Suisse, where she provided advice to the private banking and wealth management division. She also was an honors intern with the Securities and Exchange Commission.

While in law school, Laura served as a staff member and symposium editor for the North Carolina Law Review. She also was a member of the Community Development Law Clinic, representing nonprofit organizations.

312.902.5437
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