FINRA seeks comment on borrowing and lending proposal from clients – Finance and Banking

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United States: FINRA seeks feedback on borrowing and lending proposal from clients

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FINRA invites comments on proposed changes at FINRA Rule 3240 (“Borrow or lend to customers”) to expand the prohibitions against outside borrowing and lending agreements between registrants and their customers.

The proposed changes (i) would expand the general prohibition under the rule to cover loan agreements that may predate a new broker-client relationship and that may be entered into six months after the end of the client relationship, (ii ) extend the application of the rule to arrangements involving a client of the registered natural person carrying out a transaction with a family member of the registered natural person and (iii) better define the exceptions to the prohibition.

FINRA specifically requested that commentators address key points of the proposed changes and suggested the ban could be expanded further.

FINRA is seeking comments on these proposals by February 14, 2022.

Remark

FINRA has generally sought to limit the relationships between registered representatives and their clients that are outside the business and supervision of the firm, and which may be of benefit to the representative. See, for example, FINRA Adopts Restrictions on Registrants Who Become Client Beneficiaries or Trustees. These regulatory limitations and prohibitions are particularly important because FINRA and other financial regulators are concerned about any aging client populations who may be vulnerable to the excesses of their agents.

Primary sources

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

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