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.