Here's What BDs Should Do After SVB, Signature Failures

The Financial Industry Regulatory Authority has issued a regulatory notice to broker-dealers that have deposits at the failed Silicon Valley Bank and Signature Bank.

For broker-dealers with deposits at SVB and Signature, FINRA states in the just-released regulatory notice that:

• All bank deposits at SVB and Signature may continue to be treated as allowable assets for net capital purposes.
• Balances in Customer and PAB Reserve Bank Accounts [proprietary accounts of broker-dealers] at SVB and Signature may continue to be treated as qualified reserve bank account deposits for purposes of SEA Rule 15c3-3(e), the customer protection, reserves and custody of securities rule.
• Any withdrawals of funds from accounts held at SVB and Signature must comply with the requirements of all applicable rules, e.g., SEA Rule 15c3-1(e) and SEA Rule 15c3-3(e)(1).

Peter Hong, partner at Stradley Ronon in Washington, told ThinkAdvisor Thursday in an email that FINRA’s guidance “is in response to statements from President Biden that depositors in the two failed banks will be protected and that their funds will be guaranteed by a special fund set up by the nation’s banks and from the sale of the banks’ assets.”

The FINRA guidance states “that funds held in those banks by registered broker-dealers would still count towards net capital requirements and any withdrawals are still subject to applicable regulations,” Hong explained.

Patrick Burns of the Law Office of Patrick J. Burns in Los Angeles, added in another email that FINRA’s guidance is “a big deal for the SVB Investment Services, Inc. broker-dealer and Signature Securities Group Corporation — the other bank’s BD.”

This guidance, “probably helps these two entities not collapse due to net capital violations,” Burns opined.