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January 03, 2024 at 02:19 PM
What You Need to Know
- FINRA's proposed rule change is intended to make clear that borrowing to or lending from clients is generally prohibited.
- The plan would narrow some exceptions to the prohibition.
- It would also broaden the immediate-family exception to include domestic partners, step and adoptive relationships.
The Financial Industry Regulatory Authority wants to further restrict a broker’s ability to borrow from or lend money to their clients.
The broker-dealer self-regulator has filed a rule change with the Securities and Exchange Commission seeking to amend Rule 3240, which generally prohibits, with exceptions, registered persons from borrowing money from or lending money to their customers.
As FINRA explains, Rule 3240 “has five tailored exceptions” to borrowing or lending money from customers.
FINRA states that its plan would “strengthen the general prohibition against borrowing and lending arrangements, narrow some of the existing exceptions to that general prohibition, modernize the immediate family exception, and enhance the requirements for giving notice to members and obtaining members’ approval of such arrangements.”
The proposed rule change, according to FINRA, would amend the rule’s title from “Borrowing From or Lending to Customers” to “Prohibition on Borrowing From or Lending to Customers,” and change the title of Rule 3240(a) from “Permissible Lending Arrangements; Conditions” to “General Prohibition; Permissible Borrowing or Lending Arrangements; Conditions.”
These changes, FINRA states, “would emphasize that the rule is, first and foremost, a general prohibition.”
The plan seeks to strengthen the general prohibition in three ways.
First, Rule 3240(a) would be amended “to clarify that the rule’s general requirements concerning borrowing and lending arrangements — including the general prohibition — apply to arrangements that pre-exist a new broker-customer relationship,” FINRA states.
