Promptly transmitting customer funds
FINANCIAL REPORTING INSIGHTS |
The term “promptly transmit” as used in SEC rule 15c3-3 requires a broker-dealer to transmit customer funds and securities no later than noon of the next business day after the receipt of such funds or securities. It has come to the attention of the SEC staff that there are situations in which a broker-dealer is unable to transmit to a carrying broker-dealer a customer’s check payable to the carrying broker-dealer by noon of the next business day after receipt because of the need to complete the broker-dealer’s account opening process in compliance with applicable Financial Industry Regulatory Authority (FINRA) rules. The SEC staff recently issued a no-action letter in which it agreed not to recommend enforcement action in such situations if the broker-dealer:
- Establishes policies and procedures reasonably designed to ensure that customer checks are safeguarded;
- Ensures that a registered representative of the member who takes possession of a check made payable to the carrying broker-dealer promptly transmits such checks to an Office of Supervisory Jurisdiction (OSJ) of the member for processing;
- Causes a registered principal to perform a review in accordance with FINRA Rule 2090 and determine whether to approve the account for opening within seven business days after an OSJ of the member receives a complete and correct application to open an account with the carrying broker-dealer, including a check made payable to the carrying broker-dealer;
- Transmits the check to the carrying broker-dealer no later than noon of the business day following the date the registered principal determines whether to approve the opening of an account with a carrying broker-dealer;
- Maintains a copy of each such check and creates a record of the date the check was received from the customer and the date the check was transmitted to the carrying broker-dealer if the customer's account opening request is approved, or returned to the customer if rejected; and
- Discloses to customers its process for handling customer checks payable to a carrying broker-dealer in conjunction with the requested opening of a new account with the firm and the firm's carrying broker-dealer.
Further details are available in the no-action letter. This letter represents a staff position with respect to enforcement only and does not purport to express any legal conclusions regarding the application of the federal securities laws. Factual variations from those described in the letter could warrant a different response, and the position may be withdrawn or modified if the SEC staff determines that such action is necessary for the protection of investors, in the public interest or otherwise in furtherance of the securities laws.