On June 19, 2015, FINRA released regulatory notice 15-23. This notice provides firms with more flexibility for advisors to send in third party checks based on new rules. Prior to the release of this notice, the short holding period for third party checks had been a concern for the industry. This notice follows SEC’s lead from their recent no-action letter, which allows firms to hold a customer check payable to an issuer for up to seven business days if certain conditions are met, as outlined in the letter.
Under the previous standard, a firm was required to send a check, received in connection with a sale of securities, by the noon on the next business day. This original time frame was very short and posed compliance challenges to FSI member firms.
In its no-action letters, the SEC laid out five specific conditions that firms must comply with to obtain relief. Complying with these conditions would provide firms up to seven days to send a third party check without losing exemption from the SEC’s Customer Protection Rule (Rule 15c3-3 of the Securities Exchange Act). A firm will be able to hold customer checks payable to product providers for the purpose of principal suitability review without losing the broker-dealer’s exemption from Rule 15c3-3.
In its notice, FINRA similarly states that a firm may hold a customer check for up to seven days if they comply with seven specific conditions outlined in the letter. If any of these conditions are not present, FINRA’s limited relief will not apply and it will enforce FINRA Rule 2150(a) and NASD Rule 2830(m) as appropriate.
FSI commends both FINRA and the SEC for providing relief to the securities industry. If you have any questions please contact Robin Traxler, Vice President, Regulatory Affairs at (202) 393-0022 or firstname.lastname@example.org.