FINRA proposes to amend FINRA Rule 4512, Customer Account Information, to carve out institutional accounts from the requirements of FINRA Rule 4512(a)(1)(C).  FINRA Rule 4512, based in large part on existing requirements in NASD Rule 3110(c), requires firms to maintain certain information relating to customer accounts - as described in Regulatory Notice 11-19.   Given the fact that the rule was approved by the SEC on 1/27/11, and set for implementation on 12/5/11, FINRA asked the SEC to approve the current changes with an effective date of 12/5/11. During the year, firms questioned FINRA about how they should apply the requirements of FINRA Rule 4512(a)(1)(C) to institutional accounts.  This section of the rule requires firms to maintain the name of the associated person, if any, responsible for the account, rather than requiring firms to maintain the signature of the RR introducing the account.

Where a member designates multiple individuals as being responsible for an account, the firm is required to maintain each of their names and a record indicating the scope of their responsibilities with respect to the account.  For purposes of the rule, it is the member’s obligation to determine whether a particular individual is responsible for the account based on the scope of the individual’s activities with respect to that account.

However, during these discussions, it came to light that numerous sales and trading associated persons often interact with institutional accounts - depending on such factors as the scope of the relationship with the institutional account and the products involved - and that would make it difficult for firms to comply with the recordkeeping requirements of FINRA Rule 4512(a)(1)(C) as it relates to institutional accounts, only - i.e., cause significant operational challenges. FINRA agreed with the above points ... and decided to submit the current rule filing so as to amend the rule, excepting institutional accounts from the recordkeeping requirements of FINRA Rule 4512(a)(1)(C). At the same time, FINRA would add Supplementary Material .05, Supervision of Accounts, so as to to clarify that nothing in paragraph (a)(1)(C) of the rule obviates a member’s obligation to supervise an  account that it services, including determining the associated persons responsible for the account and ensuring that such persons are appropriately qualified and registered, and to comply with the requirements of Rule 2090 (Know Your Customer) - which goes into effect 7/9/12. Further, the Supplementary Material states that, with respect  to a member’s obligation to supervise an account, it is incumbent upon the member to design appropriate mechanisms to determine the associated persons responsible for the account, ensure that such persons are appropriately qualified and registered, and have the ability to provide such information to FINRA or SEC staff upon request. For further details, go to:   [FINRA Rule Filing 11-70, 12/2/11]