What Advisors Need to Know About Rule 3210

If you're new to the investing and finance world, there are a few organizations you should be aware of including those that act as financial regulators. One of these groups is the Financial Industry Regulatory Authority (FINRA).

FINRA is a non-government, independent organization that helps protects investors and helps maintain integrity in the markets. In short, FINRA keeps financial markets fair by overseeing more than 624,000 broker-dealer firms across the United States. It does this by adopting and implementing a series of rules and regulations. Firms and their employees must adhere to these rules. If not, they may face fines, sanctions, and other disciplinary actions. This article looks at Rule 3210 and its importance to both advisors and brokers.

Key Takeaways

  • The Financial Industry Regulatory Authority is a nongovernment, independent body that protects investors and helps maintain integrity in the markets through a series of rules and regulations.
  • FINRA Rule 3210 was adopted in 2016 and rolled out the following year.
  • Rule 3210 governs accounts opened by members at firms other than where they work.
  • All employees must declare their intent and obtain their employers' consent if they wish to open or maintain an investment account at any other financial institution.
  • Members must also notify their employer of any accounts opened by associated persons with other financial institutions other than their employer.

What Is Rule 3210?

(Accounts at Other Broker-Dealers and Financial Institutions) was approved by the Securities and Exchange Commission (SEC) in April 2016. It was rolled out in April the following year to ensure that member companies, brokers, and advisors maintain ethical standards during their employment.

The purpose of Rule 3210 is to govern accounts opened or established by advisors and brokers at firms other than the member firm where they are employed or registered. Accounts that financial advisors and brokers have with their employers are easily monitored. It also puts conditions on accounts opened and maintained by anyone associated with members. Associated persons include people who are related to the employee such as spouses, children, and other family members.

The rule superseded NYSE Rule 407, a conduct rule which put conditions on the personal investment accounts of FINRA members. Under the rule, they were required to report any and all investment holdings to the New York Stock Exchange (NYSE) or Nasdaq in order to eliminate any and all instances of fraud and/or insider trading.

Rule 3210 also replaced NASD Rule 3050 (Incorporated NYSE Rules 407 and 407A and Incorporated NYSE Rule Interpretations 407/01 and 407/02), which stated that anyone associated with a FINRA member was required to report that relationship prior to opening an account or executing any investment activity within their accounts.

With the adoption of Rule 3210, the environment in the investment industry has changed when it comes to declaring a personal interest in newly opened accounts at financial institutions other than where you may be employed or registered.

Requirements Under the New Rule

This rule replaced Rule 3050 which was enforced by the National Association of Securities Dealers (NASD), as well as similar rules administered by the NYSE. The former rules referred to transactions for or by associated persons, while the new rule expands on the existing policies.

The new rule focuses on external accounts with other broker-dealer firms. It requires all licensed employees to declare investment accounts held with other financial institutions. Under the new rule, advisors and brokers are also required to notify their employer in writing of their intent to open a new account as well as declare all accounts where they have a financial or beneficial interest.

All employees must now declare their intent and obtain prior written consent from their employer if they wish to open or maintain an investment account at any other financial institution where securities transactions take place. This must also be done if the employee has a beneficial interest in the opening and maintenance of the account.

Advisors and brokers are also required to notify their employer in writing of any accounts opened by associated persons with other financial institutions other than their employer.

Employees must get written consent from their employers about their own accounts or those owned by associated individuals at other institutions.

What Does Rule 3210 Mean for Advisors and Brokers?

The new rule works in conjunction with standard transaction review and investigation practices as per existing FINRA Rule 3110. FINRA member firms are already responsible for managing conflicts of interest in their businesses and maintaining the supervision of accounts in compliance with existing FINRA rules.

Member firms can request that employees provide copies of account documentation, such as transaction confirmations and account statements, at any time. Therefore, advisors and brokers should keep records of all account information and transactions.

It is not only newly-established accounts that are governed under the new rule. If an employee has existing accounts and becomes a new employee of a member firm, they will be required to declare such accounts. Within 30 calendar days of becoming employed with a FINRA-member firm, the employee must obtain written consent from their employer to maintain the accounts. The new employee is also required to notify the financial institution where the accounts are held of their new association and employment with the member firm.

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