FINRA Rule 3240

On September 17, 2024, the Securities and Exchange Commission (SEC) approved a proposed rule change to amend Financial Industry Regulatory Authority, Inc.’s (FINRA) Rule 3240, citing Malecki Law in their approval order.

Rule 3240 previously prohibited registered persons from borrowing from or lending money to their customers, with the five exceptions of immediate family members, a financial institution that regularly provides credit, both the customer and broker are registered representatives for the same brokerage firm, a personal relationship outside of the broker-customer relationship, or a business relationship outside of the broker-customer relationship. If your broker proposed a borrowing or lending arrangement, you should contact a Securities Fraud law firm, like Malecki law in New York, to consult whether the arrangement is proper under FINRA Rule 3240.

FINRA’s proposal aimed to amend the rule to “strengthen the general prohibition against borrowing and lending arrangements,” narrow the five exceptions above, modernize the first exception of “immediate family member,” and improve the notice requirements. In addition, FINRA proposed Rule 3240 to include pre-existing borrowing or lending arrangements, arrangements entered six months after the broker-customer relationship terminates, indirect arrangements with parties related to the registered person or customer, and owner-financing arrangements.

FINRA has recently proposed changes to its Rule 3240, which allows for scenarios where brokers can borrow from or lend to their clients. FINRA’s rule proposal would strengthen and clarify the general prohibition against these types of arrangements and would narrow the exceptions that fall under the prohibition. In its request for comments, the SEC cited Malecki Law’s previous comment addressed to FINRA, dated February 14, 2022 (see Footnote 32 on page 23).

The current comment period closed last week, on February 12, 2024. Malecki Law submitted its public comment on the proposal last week, along with three other organizations. If your broker requests that you lend them money or borrow money from them, you may need to contact a Securities Fraud law firm in New York, like Malecki Law, to analyze whether that arrangement is allowed under FINRA Rule 3240.

This is not the first time FINRA attempted to make Rule 3240 more stringent. FINRA made a similar proposal in December 2021, and that comment period ended on February 14, 2022. Malecki Law also submitted on public comment on that proposal. Click here for the related Malecki Law firm blog post and click here for the related Regulatory Notice 21-43.

Articles Posted in FINRA Rule 3240

SEC Approves FINRA’s Proposed Rule 3240 Change and Cites Malecki Law’s Public Comment

Malecki Law Files a Public Comment in Response to FINRA’s Latest Proposal to Modify Rule 3240 to Strengthen the General Prohibition on Borrowing and Lending Arrangements Between Brokers and Their Customers