As recognized by new guidance from the Financial Industry Regulatory Authority (FINRA), the departure of a registered representative often prompts customer questions about the departing representative and the continued servicing of a customer’s account. In light of the continued frequency of movement of registered representatives from, or among, member firms, FINRA issued guidance on April 5, 2019, regarding what information it expects member firms to communicate to customers upon the departure of a registered representative.

Pursuant to FINRA Regulatory Notice 19-10, FINRA expects member firms to: (1) promptly and clearly communicate to affected customers how their accounts will continue to be serviced; and (2) subject to privacy and other legal requirements, provide customers with timely and complete answers, if known, to questions about a departing representative.

Under this new guidance, FINRA expects member firms to implement policies and procedures that “assure that the customers serviced by that registered representative are aware of how their account will be serviced at the member firm, including how and to whom the customer may direct questions and trade instructions following the representative’s departure and, if and when assigned, the representative to whom the customer is now assigned at the member firm.” As with all customer communications, FINRA expects that the information provided by member firms about a departing registered representative to be fair, balanced and not misleading.

Practical Considerations

As with any new guidance, firms should review their existing policies and procedures in order to assess the need for potential enhancements. With respect to FINRA’s expectation that firms will have policies and procedures designed to promptly provide information to customers related to the continued servicing of their accounts, a firm’s existing communications program should be reviewed to ensure that all of the necessary information listed above is in fact promptly communicated to customers. Furthermore, firms should also review their policies and procedures (as well as their training programs) regarding how to respond to customer inquiries relating to a departed registered representative. In light of this new guidance, as well as a matter of risk management, firms should consider practices and procedures that ensure consistent and timely responses to customer inquiries concerning a departed registered representative and that take into account applicable privacy and other legal requirements.

While FINRA’s recent guidance will likely become a new point of contention in arbitration and litigation involving departing registered representatives, a firm’s implementation of appropriate policies and procedures will help to mitigate litigation risk, as well as related regulatory inquiries and exposure.

Should you wish to discuss the requirements and/or implications of FINRA Regulatory Notice 19-10, please contact any of the authors or any of McGuireWoods’ securities enforcement and regulatory attorneys.

View Original Source
Photo of William E. Goydan William E. Goydan

Bill represents clients in complex securities matters, focusing on internal investigations, regulatory enforcement and litigation. In addition to handling investigations and litigation, Bill counsels companies and individuals on compliance with securities industry rules, reporting requirements, best practices, enhancements to policies and procedures, regulatory developments and enforcement trends. Bill also assists clients in training business, compliance and legal department personnel. Bill’s extensive experience includes serving as outside counsel for various national and regional securities firms in the areas of regulatory enforcement, internal investigations, customer arbitrations and employment litigation.

Photo of Drew Austria Drew Austria

Drew’s practice focuses on representing corporate and individual clients in connection with government investigations, internal investigations, civil litigation, and white collar defense.