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Expanding Leviathan’s Reach (with apologies to Thomas Hobbes)

On Friday, January 25, 2013, FINRA posted Regulatory Notice 13-06 (the “Notice”), which serves as official notice to the broker-dealer community that effective, February 25, 2013, under amended Rule 8210, FINRA examination staff may now request, inspect, and copy books and records about the outside non-investment related business activities of a firm’s associated persons or of the firm itself.  The operative phrase in the amended rule is any information in the “possession, custody or control” of the firm or any of its associated persons.  This would appear to include any records related to such outside endeavors as real estate, accountancy, insurance, or investment advisory activities of representatives doing such business away from their member firms.

In the adopting Notice, FINRA stated that the word “control” requires firms, associated persons, and other persons subject to FINRA’s jurisdiction to provide records that they have the legal right, authority, or ability to obtain upon demand even though the records are not in the immediate possession of the person subject to the request.

The extent of FINRA’s access to records is found in the catch-all phrase “possible violations of just and equitable principles of trade” and not only violations of FINRA rules, MSRB rules, and other federal securities laws. 

Noteworthy, too, is the term, “associated persons” as used in the amended Rule. An associated person is not just a registered representative of a firm, but includes a director, partner, officer, LLC member, or any other person occupying a similar status or performing similar functions.  This also includes any natural person involved in the investment banking or securities business that is directly or indirectly controlling or controlled by a member firm, whether or not that person is registered or exempt from registration.

It’s not too soon to amend your written policies and procedures to include the wider scope of the amended rule and/or send informational notices to senior management and registered representatives of the impending change related to FINRA’s expanded authority to access records of any of their outside business activities.