Useful Information on a Rainy Day

I walked to my NEW office this morning without drowning in a puddle. High of 61 today with downpours. Feel sorry for us, here in coastal NH. We deserve your pity.

Few things:

1. Remember the FTC Red Flags Rule? FINRA released its brand new written ID Theft Prevention Program template!--and it has an acronym: ITPP! This is great. Thank-you, FINRA. Now all you small firms that have no idea what this rule is all about, and believe that it is completely duplicative with AML and unnecessary, given that you are a tiny shop that does not use credit reports, does not provide debit cards or checkwriting, and does not extend credit (but wait, you have a clearing firm and your clients may open margin accounts through your firm), can create an ITPP without much effort. And the better news is, if FINRA examines for compliance with this rule like it did with AML, you will have years before your written program actually has to be fully customized and implemented. FTC enforcement of the Red Flags Rule begins August 1, 2009. So get going. Here is the link to the template, courtesy of FINRA:
www.finra.org/customerprotection/redflags.

2. As of August 17 you have to provide a new disclosure to customers. New FINRA Rule 2267 is based on old NASD Rule 2280 (Investor Education and Protection). The old rule applied only to firms carrying customer accounts. Now it applies to everyone. BUT: if your firm has an clearing firm that will make the disclosures for you, you're all set (confirm this with them, ok?). If you have other (or only) customers that aren't serviced by a clearing firm and that don't, for instance, receive statements or confirms, then your firm will have to make the disclosures. An example would be an 'application-way' shop that processes MF/VA applications and does not have brokerage accounts. I'm guessing PP/M&A firms are in this category, too, but let's not expect FINRA to be clear on that (you know how I feel about this subject, right?).

So, if all your customers are receiving statements, etc. from the clearing firm, make sure they'll include the disclosures annually to your customers.

Otherwise, you have to provide the disclosures (annually if you carry accounts). If you don't carry accounts, as I desdcribed above, or have some customers not receiving statements, you have to provide the disclosures at or prior to the time of the customer’s initial purchase, in lieu of once every calendar year.

Disclosures may be provided electronically (yahoo).

Here is what you have to disclose:

1. FINRA Broker Check Hotline Number -- (800) 289-9999;
2. FINRA Web site address -- www.finra.org; and
3. A statement as to the availability to the customer of an investor brochure that includes information describing FINRA Broker Check. ...Harder than it sounds. Here's what I recommend: "You may find information about Broker Check online by visiting this link http://www.finra.org/web/groups/industry/@inv/@tools/documents/industry/p009888.pdf or by calling the Hotline number and requesting a hard copy via mail."

Here's what FINRA says about the due date: "Any firm subject to NASD Rule 2280 that complies with its annual (calendar year) mailing requirement on or after January 1, 2009 but prior to the August 17, 2009 effective date of FINRA Rule 2267 will be deemed to have complied with FINRA Rule 2267 for the 2009 calendar year."

So check with your clearing firm to see it they will have complied with old 2280 by 8-17; if not, you're not in compliance. For other firms (see above), start making the disclosures for new accounts. And what the heck, if you send out an annual disclosure notice with other things, like privacy policy and SIPC info, why not include this one, too?

3. Rule 2821 on Variable Annuities--they FINALLY finalized the rule. And the great news is, they took out that requirement to consider ALL deferred V/A purchases and exchanges as 'recommended.' The rule changes also clarify the 7-day review/approval process and funds transfers in that 7-day period. It's good, and the Notice is written well. Look it up: Notice 09-32 is at http://www.finra.org/Industry/Regulation/Notices/2009/P118955. BUT DON'T start enforcing the rule yet. It's effective 2-8-10. I have a call into FINRA about whether optional compliance before then is okay, but I haven't heard back yet :( . In the mean time, you have the usual 24 hour turnaround period to move funds out and approve the business.

Looking out my window: still raining.