[Federal Register Volume 86, Number 191 (Wednesday, October 6, 2021)]
[Notices]
[Pages 55641-55656]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-21767]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93215; File No. SR-FINRA-2021-024]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend 
FINRA Rule 2231 (Customer Account Statements)

September 30, 2021.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on September 29, 2021, the Financial Industry Regulatory Authority, 
Inc. (``FINRA'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by FINRA. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to: (1) Amend Rule 2231 (Customer Account 
Statements) to (a) add new supplementary materials pertaining to 
compliance with Rule 4311 (Carrying Agreements), the transmission of 
customer account statements to other persons or entities, the use of 
electronic media to satisfy delivery obligations, and compliance with 
Rule 3150 (Holding of Customer Mail); and (b) incorporate without 
substantive change specified provisions derived from Temporary Dual 
FINRA-NYSE Rule Interpretation 409T (Statements of Accounts to 
Customers) pertaining to information disclosed on customer account 
statements, externally held assets, use of logos and trademarks, and 
use of summary statements; (2) delete Temporary Dual FINRA-NYSE Rule 
409T (Statements of Accounts to Customers) and Temporary Dual FINRA-
NYSE Rule Interpretation 409T; \3\ and (3) make other non-substantive 
and technical changes in Rule 2231 and to other FINRA rules due to this 
proposed rule change.
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    \3\ As part of the process of completing a consolidated FINRA 
rulebook, FINRA adopted, without substantive changes, the remaining 
legacy NASD rules as FINRA rules in the consolidated FINRA rulebook 
and the remaining Incorporated NYSE Rules and Incorporated NYSE Rule 
Interpretations in the consolidated FINRA rulebook as a separate 
Temporary Dual FINRA-NYSE Member Rules Series. These NYSE rules and 
their corresponding interpretations now bear a ``T'' modifier after 
the rule and interpretation number to denote their placement in the 
Temporary Dual FINRA-NYSE Member Rules Series. The Temporary Dual 
FINRA-NYSE Member Rules Series apply only to those members of FINRA 
that are also members of the NYSE (``dual members''). The FINRA 
rules apply to all FINRA members, unless such rules have a more 
limited application by their terms. Among the remaining NASD rules 
was NASD Rule 2340 (Customer Account Statements), which was adopted, 
without substantive changes, as FINRA Rule 2231. Incorporated NYSE 
Rule 409 (Statements of Accounts to Customers) and Incorporated NYSE 
Rule Interpretation 409 (Statements of Accounts to Customers) were 
adopted, without substantive changes, under the Temporary Dual 
FINRA-NYSE Rules Series as Rule 409T and Interpretation 409T, 
respectively. See Securities Exchange Act Release No. 85589 (April 
10, 2019), 84 FR 15646 (April 16, 2019) (Notice of Filing and 
Immediate Effectiveness of File No. SR-FINRA-2019-009). For 
convenience, the rules and interpretations under the Temporary Dual 
FINRA-NYSE Member Rules Series are referred to as ``NYSE Rule'' and 
``NYSE Rule Interpretation,'' as appropriate.
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    The text of the proposed rule change is available on FINRA's 
website at http://www.finra.org, at the principal office of FINRA and 
at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, FINRA included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. FINRA has prepared summaries, set forth in sections A, 
B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
Background
    Rule 2231 and NYSE Rule 409T govern the obligation of members to 
deliver customer account statements to customers. Specifically, Rule 
2231 and NYSE Rule 409T require each ``general securities member'' \4\ 
and each member organization carrying customer accounts, respectively, 
to send account statements to customers at least quarterly showing 
security and money positions or account activity during the preceding 
quarter, except if carried on a Delivery versus Payment/Receive versus 
Payment (``DVP/RVP'') basis.
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    \4\ Rule 2231(d) defines the term ``general securities member'' 
to mean ``any member that conducts a general securities business and 
is required to calculate its net capital pursuant to the provisions 
of SEA Rule 15c3-1(a). Notwithstanding the foregoing definition, a 
member that does not carry customer accounts and does not hold 
customer funds or securities is exempt from the provisions of this 
section.''
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    At the time FINRA adopted Rule 2231, along with NYSE Rule 409T and 
NYSE Rule Interpretation 409T (together, ``NYSE provisions''), among 
others, into the consolidated FINRA rulebook, FINRA noted that it would 
continue to review the substance of such rules and expected to propose 
substantive changes to some or all of the rules as part of future 
rulemakings.\5\ As part of that effort and as described further below, 
FINRA is now proposing to amend Rule 2231 that would incorporate 
several existing provisions from the NYSE provisions. As a result of 
this proposed harmonization, the NYSE provisions would be deleted in 
their entirety.
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    \5\ See supra note 3.
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    Rule 2231 differs from the NYSE provisions in several ways. First, 
Rule 2231(c) sets forth requirements for disclosure of values for 
unlisted or illiquid direct participation programs or real estate 
investment trust securities. Neither NYSE Rule 409T nor NYSE Rule 
Interpretation 409T have a corresponding provision. Second, the NYSE 
provisions address the delivery of confirmations, account statements or 
other communications to third parties subject to specified conditions 
and exceptions. In addition, NYSE Rule 409T(g) provides that members 
carrying margin accounts for customers should send duplicate copies of 
monthly statements of guaranteed accounts to the respective guarantors 
unless such guarantors have specifically provided in writing that they 
do not want such statements sent to them. Rule 2231 does not have 
similar provisions. Third, Rule 2231(d) expressly defines several terms 
(e.g., ``account activity,'' ``DVP/RVP account,'' ``general securities 
member'') and Rule 2231(e) provides for exemptive relief from the rule. 
NYSE Rule 409T expressly defines only one term, ``DVP/RVP account,'' 
and does not provide for exemptive relief from the rule. Finally, 
unlike Rule 2231, NYSE Rule

[[Page 55642]]

Interpretation 409T dictates the disclosures that must be made in a 
customer account statement, including for externally held assets, and 
requirements for use of third party agents, logos and trademarks, 
summary statements, and sets forth the standards for holding mail for a 
customer.
    In light of these differences, FINRA is specifically proposing to: 
(a) Add as new Supplementary Materials .01 (Compliance with Rule 4311 
(Carrying Agreements)), .02 (Transmission of Customer Account 
Statements to Other Persons or Entities), .03 (Use of Electronic Media 
to Satisfy Delivery Obligations), and .04 (Compliance with Rule 3150 
(Holding of Customer Mail)); and (b) incorporate provisions derived 
from NYSE Rule Interpretation 409T, without substantive change, as 
Supplementary Materials .05 (Information to be Disclosed on Statement), 
.06 (Assets Externally Held), .07 (Use of Logos, Trademarks, etc.), and 
.08 (Use of Summary Statements).
Rule Filing History
    In 2009, FINRA had filed with the SEC a proposed rule change to 
adopt then NASD Rule 2340 and legacy NYSE Rule 409, including its 
related interpretations, as Rule 2231 into the consolidated FINRA 
rulebook (``Initial Rule Filing'') as part of the process of developing 
the consolidated FINRA rulebook.\6\ Among other things, the Initial 
Rule Filing had set forth a number of proposed supplementary materials, 
most of which were derived largely from then NYSE Rule Interpretation 
409 to address customer account disclosures, including for externally 
held assets, and requirements for use of third party agents, logos and 
trademarks, summary statements, and holding customer mail.\7\
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    \6\ See Securities Exchange Act Release No. 59921 (May 14, 
2009), 74 FR 23912 (May 21, 2009) (Notice of Filing of File No. SR-
FINRA-2009-028).
    \7\ FINRA had also proposed amending then NASD Rule 2340 to 
change the frequency of the delivery of account statements to a 
customer from quarterly to monthly where the customer had account 
activity during the preceding month, and with a frequency of not 
less than once every calendar quarter to each customer whose account 
had a security position or money balance during the period since the 
last such statement was sent to the customer.
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    Among these proposed supplementary materials was one, based in part 
on legacy NYSE Rule 409(b), which would have required written 
instructions from the customer to address or send customer statements, 
confirmations or other communications relating to the customer's 
account to other persons or entities. However, unlike legacy NYSE Rule 
409(b), the proposed supplementary material was silent on whether a 
firm would have to continue sending account statements to the customer. 
Commenters to the Initial Rule Filing expressed concerns relating to 
the need for written customer consent to transmit customer account 
statements to third parties and sought clarification on whether firms 
would be required to obtain written consent when complying with then 
NASD Rule 3050 (Transactions for or by Associated Persons) and then 
NYSE Rule 407 (Transactions--Employees of Members, Member Organizations 
and the Exchange).\8\ In response to these comments, among others, 
FINRA amended the Initial Rule Filing in 2011 (``Amended Rule 
Filing'').\9\ With respect to the transmission of customer account 
statements to third parties, FINRA had proposed clarifying that member 
firms would not be required to obtain prior written consent from their 
associated persons to send duplicate account statements or other 
communications with respect to such associated persons' accounts that 
were subject to then NASD Rule 3050 and NYSE Rule 407. To address 
concerns regarding potential fraud, especially with senior investors, 
where a third party receives the account statements in lieu of such 
customer, FINRA had also proposed clarifying that firms would have to 
continue to deliver account statements to customers, either in paper 
format or electronically, even when directed by the customer, in 
writing, to send statements to a third party. FINRA made this 
clarification in an effort to remain consistent with any SEC release, 
interpretation, ``no-action'' position or exemption issued by the SEC 
or its staff in the context of SEA Rule 10b-10 (Confirmation of 
transactions) that have established the policy that customers should 
continue to receive periodic account statements when not receiving 
immediate trade confirmations under SEA Rule 10b-10.\10\ Further 
comments were received in response to the Amended Rule Filing. 
Commenters objected to the proposed requirement to deliver account 
statements to customers even when directed by customers, in writing, to 
send the statements to third parties. Some commenters believed that 
members should not be required to continue delivering account 
statements to customers, particularly where there was a power of 
attorney (``POA'') or incapacity. FINRA withdrew the filing to further 
consider the comments.\11\
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    \8\ NASD Rule 3050 and NYSE Rule 407 are the predecessor rules 
to Rule 3210 (Accounts at Other Broker-Dealers and Financial 
Institutions). In 2015, FINRA adopted Rule 3210 in the consolidated 
FINRA rulebook to replace NASD Rule 3050, NYSE Rules 407 and 407A 
(Disclosure of All Member Accounts) and the corresponding NYSE 
interpretations. See Securities Exchange Act Release No. 75655 
(August 10, 2015), 80 FR 48941 (August 14, 2015) (Notice of Filing 
of File No. SR-FINRA-2015-029). Rule 3210 governs accounts that 
associated persons open or establish at firms other than their 
employer and in which they have a beneficial interest. In general, 
the rule requires that the associated person must obtain the prior 
written consent of his or her employer to open or establish the 
account, and provides that the member firm where the account is held 
must transmit duplicate copies of confirmations and statements to 
the employer upon the employer's request.
    \9\ See Securities Exchange Act Release No. 64969 (July 26, 
2011), 76 FR 46340 (August 2, 2011) (Notice of Filing of Amendment 
No. 1 to File No. SR-FINRA-2009-028).
    \10\ 17 CFR 240.10b-10. See also note 9, supra.
    \11\ See Securities Exchange Act Release No. 67588 (August 2, 
2012), 77 FR 47470 (August 8, 2012) (Notice of Withdrawal of File 
No. SR-FINRA-2009-028).
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    To address the concerns raised in the prior filing, FINRA published 
Regulatory Notice 14-35 (September 2014) (``Notice'' or ``Notice 14-35 
Proposal''), seeking comment on a revised proposal to transfer then 
NASD Rule 2340 and Incorporated NYSE Rule 409 and its related 
interpretations, largely unchanged, into the consolidated FINRA 
rulebook as Rule 2231. With respect to the proposed supplementary 
material pertaining to the transmission of customer account statements 
to other persons or entities, the Notice 14-35 Proposal set forth 
changes to that provision that aligned more closely with then NYSE Rule 
409(b) and were intended to help ensure that a customer continues to 
receive the account statement even when such customer directs the firm 
to send the statement to a third party. As described further below, the 
proposed rule change differs in some respects from the terms set forth 
in the Notice 14-35 Proposal as to proposed Supplementary Material .02. 
In all other respects, subject to some technical changes, the proposed 
amendments to Rule 2231 remain substantively unchanged from the Notice 
14-35 Proposal.
Proposed Amendments to Rule 2231
    In 2019, after the publication of the Notice, FINRA adopted the 
remaining legacy NASD rules as FINRA rules in the consolidated FINRA 
rulebook and the remaining Incorporated NYSE Rules and Incorporated 
NYSE Rule Interpretations in the consolidated FINRA rulebook as a 
separate Temporary Dual FINRA-NYSE Member Rules Series.\12\ No 
substantive changes to these rules were made in connection with the 
move into the consolidated FINRA rulebook. NASD Rule 2340 was 
renumbered as Rule 2231 and Incorporated NYSE Rule 409 and Incorporated 
NYSE Rule Interpretation

[[Page 55643]]

409 were renumbered as NYSE Rule 409T and NYSE Rule Interpretation 
409T, respectively.
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    \12\ See supra note 3.
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A. Paragraphs (a) Through (e) Under Rule 2231 To Remain Substantively 
Unchanged
    In general, paragraph (a) (General) under Rule 2231 addresses the 
frequency of the delivery of customer account statements, and the 
requirement for account statements to include a statement advising 
customers to report to the firm (introducing firm and clearing firm, if 
different) inaccuracies in their accounts in writing. Paragraph (b) 
(Delivery Versus Payment/Receive Versus Payment (DVP/RVP) Accounts) 
addresses account statement delivery requirements for DVP/RVP 
arrangements. Paragraph (c) (DPP and Unlisted REIT Securities) 
requires, among other things, general securities members to include in 
customer account statements a per share estimated value for a direct 
participation program (``DPP'') or real estate investment trust 
(``REIT'') security developed in a manner reasonably designed to ensure 
that the per share estimated value is reliable. In addition, paragraph 
(c) provides two methodologies for calculating the per share estimated 
value for a DPP or REIT security that is deemed to have been developed 
in a manner reasonably designed to ensure that it is reliable: the net 
investment methodology and the appraised value methodology. Paragraph 
(d) (Definitions) sets forth several definitions and finally, paragraph 
(e) (Exemptions) permits FINRA to exempt any member firm from the rule 
upon a showing of good cause. Consistent with the Notice 14-35 
Proposal, FINRA is proposing to retain, without substantive changes, 
the existing requirements set forth in paragraphs (a) through (e) under 
Rule 2231.
B. Proposed Supplementary Materials to Rule 2231
    In an effort to harmonize the NYSE provisions with Rule 2231, FINRA 
is proposing to add new supplementary materials relating to compliance 
with Rule 4311, the transmission of customer account statements to 
other persons or entities, the use of electronic media, and compliance 
with Rule 3150. In addition, the proposed change would transfer, with 
clarifying and technical changes, the existing requirements in NYSE 
Rule Interpretation 409T relating to the information to be disclosed on 
statements,\13\ assets externally held and included on statements 
solely as a service to customers,\14\ the use of logos and trademarks, 
etc.,\15\ and the use of summary statements.\16\ As a result of this 
harmonization, some provisions would be new for FINRA members that are 
not also members of the NYSE (or ``non-NYSE members'') and for dual 
members. FINRA believes that harmonizing the NYSE provisions into Rule 
2231 would provide greater clarity and regulatory efficiency to all 
FINRA member firms.
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    \13\ See NYSE Rule Interpretation 409T(a)/02 (Information to be 
Disclosed).
    \14\ See NYSE Rule Interpretation 409T(a)/04 (Assets Externally 
Held and Included in Statements Solely as a Service to Customers).
    \15\ See NYSE Rule Interpretation 409T(a)/05 (Use of Logos, 
Trademarks, etc.).
    \16\ See NYSE Rule Interpretation 409T(a)/06 (Use of Summary 
Statements).
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1. Compliance With Rule 4311 (Carrying Agreements) (Proposed 
Supplementary Material .01)
    FINRA is proposing to add new Supplementary Material .01 to Rule 
2231 that would remind firms of their obligations under Rule 4311, 
including specifically the rights and obligations of the carrying firm 
under Rule 4311(c)(2). Rule 4311 generally governs the requirements 
applicable to member firms when entering into agreements for the 
carrying of any customer accounts in which securities transactions can 
be effected. In general, Rule 4311(c) requires that each carrying 
agreement in which accounts are to be carried on a fully disclosed 
basis must specify the responsibilities of each party to the agreement, 
setting forth the minimum responsibilities that the agreement must 
allocate. Among those responsibilities, outlined in Rule 4311(c)(2), is 
to require each carrying agreement in which accounts are carried on a 
fully disclosed basis to expressly allocate to the carrying firm the 
responsibility for the safeguarding of funds and securities for the 
purposes of SEA Rule 15c3-3 (Customer protection--reserves and custody 
of securities.) and for preparing and transmitting statements of 
account to customers.\17\ To emphasize the importance of ensuring the 
accuracy and integrity of customer account statements, proposed 
Supplementary Material .01 would remind firms of their obligations 
under Rule 4311, including paragraph (c)(2).
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    \17\ 17 CFR 240.15c3-3. Rule 4311(c)(2) also provides that the 
carrying firm may authorize the introducing firm to prepare and/or 
transmit statements of account to customers on the carrying firm's 
behalf with the prior written approval of FINRA.
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2. Transmission of Customer Account Statements to Other Persons or 
Entities (Proposed Supplementary Material .02)
    Unlike NYSE Rule 409T, Rule 2231 does not address the transmission 
of customer account statements to third parties. To harmonize NYSE Rule 
409T with Rule 2231, FINRA is proposing to add new Supplementary 
Material .02 to Rule 2231 to address the transmission of customer 
account statements to other persons or entities in similar fashion as 
NYSE Rule 409T. In general, NYSE Rule 409T(b) prohibits, without the 
NYSE's consent, the delivery of statements, confirmations or other 
communications to a nonmember customer: (1) In care of a person holding 
POA over the customer's account unless either (A) the customer has 
provided written instructions to the member organization to send such 
confirmations, statements or communications in care of such person, or 
(B) duplicate copies are sent to the customer at some other address 
designated in writing by the customer; or (2) at the address of any 
member, member organization, or in care of a partner, stockholder who 
is actively engaged in the member corporation's business or employee of 
any member organization.\18\
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    \18\ NYSE Rule 409T(b) also provides that NYSE may, upon written 
request, waive the requirements therein. NYSE Rule 409T(b)(2) 
waivers are addressed in NYSE Rule Interpretation 409T(b)/01 
(Standards for Holding Mail for Foreign Customers--Rule 409T(b)(2) 
Waivers), discussed below.
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    In the Notice, FINRA had proposed that, except as required to 
comply with Rule 3210 (the successor rule to NASD Rule 3050 and NYSE 
Rule 407), a member may not address or send account statements or other 
communications relating to a customer's account to other persons or 
entities or in care of a person holding POA over the customer's account 
unless (1) the customer provided written instructions to the firm to 
send such statements or other communications to such person or entity 
or in care of a person holding POA over the customer's account; and (2) 
the firm sent duplicates of such statements or other communications, in 
accordance with Rule 2231, directly to the customer either in paper 
format or electronically as provided in proposed Supplementary Material 
.03. FINRA notes that unlike NYSE Rule 409T(b), which provides a firm 
the option (using the disjunctive ``or'') to continue delivering 
account statements to the customer that has an arrangement with the 
firm to deliver account statements to a third party, proposed 
Supplementary Material .02 as described in the Notice 14-35 Proposal 
did not. Omitting this

[[Page 55644]]

option limited a customer's ability to decline receiving statements.
    Commenters to the Notice 14-35 Proposal expressed concerns with 
this limitation, particularly where the customer's health or capacity 
was in question. In consideration of comments received to that 
proposal, FINRA is proposing to adjust the proposed supplementary 
material in several ways. The term ``or other communications'' would be 
deleted from the proposed rule text to clarify that proposed 
Supplementary Material .02 would be confined to only customer account 
statements. The specific reference to ``or in care of a person holding 
power of attorney over the customer's account'' would also be deleted 
from the proposed rule text, leaving the general reference to ``other 
persons or entities'' that could include any third party the customer 
may designate to receive the account statements.
    In addition, while proposed Supplementary Material .02 would retain 
the continuous statement delivery requirement to the customer as 
described in the Notice 14-35 Proposal, the proposed supplementary 
material would be adjusted to create a limited exception to the general 
requirement to continue to deliver account statements to a customer in 
cases where there is a court-appointed fiduciary. Specifically, 
proposed Supplementary Material .02(b) would provide that where a court 
of competent jurisdiction has appointed a guardian, conservator, 
trustee, personal representative or other person with legal authority 
to act on behalf of a customer, a member may cease sending account 
statements to the customer upon written instructions from such court-
appointed fiduciary provided that the court-appointed fiduciary 
furnishes to the member an official copy of the court appointment that 
establishes authority over the customer's account(s). As adjusted, 
proposed Supplementary Material .02(a) would state that, except as 
provided for in proposed paragraph (b) relating to the existence of a 
court-appointed fiduciary, a member may not send account statements 
relating to a customer's account(s) to other persons or entities 
unless: (1) The customer has provided written instructions to the 
member to send the statements to such person or entity; and (2) the 
member continues to send accounts statements directly to the customer 
either in paper format or electronically as provided in Supplementary 
Material. 03 (Use of Electronic Media to Satisfy Delivery Obligations) 
of Rule 2231.
    Finally, proposed Supplementary Material .02(c) would maintain, in 
similar fashion to the Notice 14-35 Proposal, that notwithstanding 
proposed Supplementary Material .02(a), a member may provide duplicate 
customer account statements under Rule 2070 (Transactions Involving 
FINRA Employees), Rule 3210, or other similar applicable federal 
securities laws, rules, and regulations in accordance with the 
requirements of such rule.\19\
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    \19\ See supra note 8.
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    FINRA believes that the proposed supplementary material, as 
adjusted herein, achieves the appropriate balance between ensuring that 
customers continue to receive their account statements in accordance 
with Rule 2231(a) to retain the ability to readily monitor their 
account activity while recognizing that there are special circumstances 
where a firm may stop the delivery of account statements to customers.
3. Use of Electronic Media To Satisfy Delivery Obligations (Proposed 
Supplementary Material .03)
    FINRA is proposing to add new Supplementary Material .03 to Rule 
2231 that would expressly allow a member firm to satisfy its delivery 
obligations under the rule by using electronic media, subject to 
compliance with standards established by the SEC on the use of 
electronic media for delivery purposes.\20\ This provision would be 
consistent with prior guidance FINRA has issued on the use of 
electronic media to satisfy delivery obligations.\21\
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    \20\ SEC guidance to date on the use of electronic media 
generally requires the affirmative consent of the investor or 
customer. See Securities Act Release No. 7233 (October 6, 1995); 60 
FR 53458 (October 13, 1995); Securities Act Release No. 7288 (May 9, 
1996); 61 FR 24644 (May 15, 1996); and Securities Act Release No. 
7856 (April 28, 2000); 65 FR 25843, 25854 (May 4, 2000).
    \21\ See Notice to Members 98-3 (January 1998) (stating in part 
that members are permitted to electronically transmit documents that 
they are required or permitted to furnish to customers under FINRA 
rules, provided they comply with all aspects of the SEC's electronic 
delivery requirements).
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4. Compliance With Rule 3150 (Holding of Customer Mail) (Proposed 
Supplementary Material .04)
    In general, Rule 3150 allows a firm to hold a customer's mail for a 
specific time period in accordance with the customer's written 
instructions if the firm meets specified conditions. FINRA is proposing 
to add new Supplementary Material .04 to Rule 2231 that would permit 
member firms to hold customer mail, including customer account 
statements, subject to the requirements of Rule 3150.
5. Information To Be Disclosed on Statement (Proposed Supplementary 
Material .05)
    NYSE Rule Interpretation 409T(a)/02 describes the information that 
must be disclosed on the front of a customer account statement: The 
identity of the introducing and carrying organizations, and their 
respective phone numbers for service; that the carrying organization is 
a member of Securities Investor Protection Corporation (``SIPC''); and 
the opening and closing account balances. Note 1 to NYSE Rule 
Interpretation 409T(a)/02 provides that ``[t]he SEC has stated that 
under the SEA Rule 15c3-1(a)(2)(iv), certain carrying firms must issue 
customer account statements, and the account statements must contain 
the name and telephone number of a person at the carrying firm who the 
customer can contact with inquiries regarding the account (See SEA 
Release No. 34-31511, dated November 24, 1992). The phone number of the 
carrying organization may appear on the back of the statement. If it 
does, it must be in `bold' or `highlighted' letters.'' Unlike NYSE Rule 
Interpretation 409T(a)/02, Rule 2231 does not detail the information 
that must be clearly and prominently disclosed on the front of an 
account statement. FINRA is proposing to transfer NYSE Rule 
Interpretation 409T(a)/02, inclusive of note 1, without substantive 
changes, as Supplementary Material .05 to Rule 2231. Proposed 
Supplementary Material .05 to Rule 2231 would specify the following 
information to be clearly and prominently disclosed on the front of the 
account statement: (1) The identity of the introducing and clearing 
firm, if different, and their respective contact information for 
customer service, permitting the identity of the clearing firm and its 
contact information to appear on the back of the statement provided 
such information is in ``bold'' or ``highlighted'' letters; (2) that 
the clearing firm is a member of SIPC; and (3) the opening and closing 
balances for the account.
6. Assets Externally Held (Proposed Supplementary Material .06)
    NYSE Rule Interpretation 409T(a)/04 provides that where the account 
statement includes assets for which a member organization does not have 
fiduciary responsibility, does not have access to and which are not 
included on the member organization's books and records, such assets 
must be clearly separated on the statement. In addition, the statement 
must indicate that such externally held assets are included on

[[Page 55645]]

the statement solely as a service to the customer and are not covered 
by SIPC, and that information is derived from the customer or other 
external source for which the member organization is not 
responsible.\22\ Rule 2231 does not contain a similar provision.
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    \22\ See NYSE Information Memo 97-56 (December 1997) (stating, 
``[t]his provision is not intended to cover assets (e.g., stocks or 
mutual funds) to which the member organization has access that may 
be held at a depository or mutual fund.'').
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    FINRA is proposing to transfer the requirements of NYSE Rule 
Interpretation 409T(a)/04, without substantive changes, as proposed 
Supplementary Material .06 to Rule 2231. Under proposed Supplementary 
Material .06, where the account statement includes assets that the 
member firm does not carry on behalf of a customer and that are not 
included on the member firm's books and records, such assets must be 
clearly and distinguishably separated on the statement. In addition, in 
such cases, the statement must: (1) Clearly indicate that such 
externally held assets are included on the statement solely as a 
courtesy to the customer; (2) disclose that information, including 
valuation, for such externally held assets is derived from the customer 
or other external source for which the member firm is not responsible; 
and (3) identify that such externally held assets may not be covered by 
SIPC.
7. Use of Logos, Trademarks, Etc. (Proposed Supplementary Material .07)
    NYSE Rule Interpretation 409T(a)/05 provides that where the logo, 
trademark or other identification of a person (other than the 
introducing firm or clearing firm) appears on an account statement, 
then the identity of such person and the relationship to the 
introducing, carrying or other organization included on the statement 
must be provided and may not be misleading or confusing to customers. 
Rule 2231 does not contain a similar provision. FINRA is proposing to 
transfer, without substantive change, NYSE Rule Interpretation 409T(a)/
05 as proposed Supplementary Material .07. FINRA notes that proposed 
Supplementary Material .07 would be consistent with the general 
requirements of Rule 2210 (Communications with the Public).
8. Use of Summary Statements (Proposed Supplementary Material .08)
    NYSE Rule Interpretation 409T(a)/06 addresses the responsibilities 
associated with the practice of firms, with other related financial 
institutions, to jointly formulate and distribute to their common 
customers their respective customer account statements, together with 
``summary statements.'' \23\ In general, a summary statement reflects 
information from entities that is part of a financial services 
``group'' or ``family'' or where a firm carries accounts for another 
broker-dealer that is part of such group or family. A summary statement 
provides an overview of the customer's accounts at the separate 
entities and is supported by and derived from the detail on the 
separate underlying respective account statements. NYSE Rule 
Interpretation 409T(a)/06 sets forth several requirements for the use 
of summary statements that include: (1) An indication that such summary 
statement is provided for informational purposes and includes assets 
held at different entities; (2) the summary statement identifies each 
entity from which information is provided or assets are being held are 
included, their relationship to each other, and their respective 
functions (e.g., introducing or carrying brokerage firms, fund 
distributor, banking or insurance product providers, etc.); (3) 
relative to services provided for assets included on the summary, the 
summary statement must clearly distinguish between assets held by each 
entity, identify the customer's account numbers at each entity, and 
provide a customer service telephone number at each entity (if the 
account number and customer service numbers are not included on the 
underlying statements); and (4) identify each entity that is a member 
of SIPC. These requirements help ensure that customer account 
statements clearly identify the respective entities involved and 
distinguish brokerage assets from non-brokerage assets.\24\ Rule 2231 
does not have a counterpart provision.\25\ In the Notice, FINRA had 
proposed transferring the requirements of NYSE Rule Interpretation 
409T(a)/06, without substantive changes, as proposed Supplementary 
Material .08 to Rule 2231.
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    \23\ See generally NYSE Information Memo 97-56 (December 1997).
    \24\ NYSE Rule Interpretation 409T(a)/06 also provides that to 
the extent that the summary statement aggregates the values of the 
various accounts summarized or portions thereof, such aggregation 
must be recognizable as having been arithmetically derived from the 
separately stated totals or their components. In addition, the 
summary statement, and the beginning and end of each underlying 
account statement, must be clearly distinguishable from each other 
by using some distinct form of demarcation (e.g., color, pagination 
or columns). Further, there must be a written agreement between the 
parties that are jointly distributing the combined statements with 
the summary, that each entity has developed procedures and controls 
for testing the accuracy of its own information included on the 
customer statement. Finally, NYSE Rule Interpretation 409T(a)/06 
requires that summary statements must comply with NYSE Rule 409T and 
all interpretations thereof.
    \25\ While Rule 2231 does not have a counterpart provision to 
NYSE Rule Interpretation 409T(a)/06, FINRA has issued guidance 
reminding firms of their responsibilities when providing customers 
with consolidated financial account reports or ``consolidated 
reports,'' which offer a broad view of customers' investments, may 
include assets held away from the firm, and may provide not only 
account balances and valuations, but performance data as well. In 
that guidance, FINRA noted that these types of communications ``may 
supplement, but do not replace, the customer account statement 
required pursuant to [Rule 2231] and [NYSE Rule 409T], which is 
prepared and disseminated to the customer through a separate 
process. Consolidated reports may not be represented as a substitute 
for, and must be distinguished from, account statements that are 
required by rule.'' See Regulatory Notice 10-19 (April 2010).
---------------------------------------------------------------------------

    FINRA is proposing to retain this approach, but with some 
clarifying revisions to proposed Supplementary Material .08 to 
expressly state that the summary statement is for a customer's 
convenience and includes assets that may not be held by the broker-
dealer, and does not replace any other statement the customer may 
receive from other financial institutions that may hold the customer's 
assets. Under proposed Supplementary Material .08, as revised, if a 
multi-entity summary statement is sent to customers, it must: (1) 
Indicate that the summary statement is provided for the customer's 
convenience and includes assets that may not be held by the broker-
dealer; (2) indicate that the summary statement does not replace any 
other statement(s) the customer may receive from other financial 
institutions that hold the customer's assets; (3) identify each entity 
from which information is provided or assets being held are included, 
their relationship to each other (e.g., parent, subsidiary or 
affiliated organization), and their respective functions (introducing 
firm, carrying firm, fund distributor, banking or insurance product 
provider, etc.); (4) clearly distinguish between assets held or 
categories of assets held by each entity included in the summary; (5) 
identify the customer's account number at each entity and provide a 
customer service contact information at each entity (if the account 
number and customer service information at each entity are included on 
their respective account statements, then such information need not be 
included on the summary statement); and (6) identify each entity that 
is a member of SIPC. Proposed Supplementary Material .08 would also 
require a member firm to ensure that to the extent that the summary 
statement aggregates the values of the various accounts summarized or 
portions thereof, such

[[Page 55646]]

aggregation is recognizable as having been arithmetically derived from 
the separately stated totals or their components. In addition, proposed 
Supplementary Material .08 would require that a member firm also must 
distinguish the beginning and end of each separate statement by a 
distinct form of demarcation. Finally, the proposed supplementary 
material would require a member firm to ensure that there is a written 
agreement between the parties jointly formulating or distributing the 
combined statements with the summary attesting that each entity has 
developed procedures and controls for testing the accuracy of its own 
information included on the statements, and that the summary statement 
complies with Rule 2231.
C. NYSE Provisions To Be Eliminated and Not Harmonized With Rule 2231
    FINRA is proposing to delete NYSE Rule 409T and NYSE Rule 
Interpretation 409T in their entirety on the basis that the underlying 
concepts in these provisions have been included in Rule 2231, are 
duplicative of other rules, or are outdated. The following describes 
concepts found in the NYSE provisions that would not be incorporated 
into Rule 2231.
1. NYSE Rule 409T Provisions
a. Confirmations or Other Communications (NYSE Rule 409T(b))
    As described above, the proposed rule change would confine proposed 
Supplementary Material .02 to customer account statements to lend 
clarity to the scope of the provision. FINRA notes that the delivery 
requirements of confirmations are governed by SEA Rule 10b-10 
(Confirmation of transactions) and FINRA Rule 2232 (Customer 
Confirmations).
b. Person Holding Power of Attorney (or Attorney-in-Fact) (NYSE Rule 
409T(b) and Paragraphs (1) Through (6) Under NYSE Rule 409T.10 
(Exceptions to Rule 409T(b))
    In addition to eliminating NYSE Rule 409T(b), the proposed rule 
change would eliminate NYSE Rule 409T.10(1) through (6), which provides 
exceptions to the requirements of NYSE Rule 409T(b) for certain 
identified persons or entities, such as persons having powers of 
attorney.\26\ As described above, FINRA is proposing to adopt proposed 
Supplementary Material .02 relating to the transmission of customer 
account statements to other persons or entities, which would provide an 
exception for court-appointed fiduciaries.
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    \26\ See NYSE Rule 409T.10(4): ``Corporations of which partners, 
stockholders or employees are officers or directors, and corporation 
accounts over which such persons have powers of attorney, provided, 
in each such case, the partner, stockholder or employee is duly 
authorized by the corporation to receive communications covering the 
account.''
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c. Legend on Account Statements Pertaining to Firm's Financial 
Statements (NYSE Rule 409T(e)(1))
    In general, NYSE Rule 409T(e)(1) requires the inclusion of a legend 
on all account statements that notifies a customer that the firm's 
financial statements are available for inspection at its offices or a 
copy can be mailed upon request. The proposed rule change would 
eliminate this requirement in light of existing requirements under 
paragraph (c) (Customer Statements) of SEA Rule 17a-5 (Reports to be 
Made by Certain Brokers and Dealers),\27\ which generally requires 
broker-dealers that carry customer accounts to provide statements of 
the broker-dealer's financial condition to their customers, and FINRA 
Rule 2261 (Disclosure of Financial Condition), which requires a member 
to make information relative to a member's financial condition 
available to inspection by customers, upon request.
---------------------------------------------------------------------------

    \27\ 17 CFR 240.17a-5.
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d. Duplicate Copies of Monthly Statements to Guarantors (NYSE Rule 
409T(g))
    NYSE Rule 409T(g) provides that member firms carrying margin 
accounts for customers should send duplicate copies of monthly 
statements of guaranteed accounts to the respective guarantors unless 
such guarantors have specifically provided in writing that they do not 
want such statements sent to them. The proposed rule change would 
eliminate NYSE Rule 409T(g) because this provision, which provides that 
members should send duplicate account statements to guarantors, would 
be addressed by the general requirement in proposed Supplementary 
Material .02 to obtain written instructions from the customer to send 
account statements to a third party.
e. Holding Customer Mail (NYSE Rule 409T.10(7))
    As noted above, the proposed rule change would eliminate the 
concept of holding customer mail set forth in paragraph (7) under NYSE 
Rule 409T.10, as a member's obligations with respect to this activity 
are addressed in Rule 3150, and proposed Supplementary Material .04 
would expressly permit a member to hold customer mail consistent with 
Rule 3150.
2. NYSE Rule Interpretation 409T
a. Use of Third Party Agents (NYSE Rule Interpretation 409T(a)/03)
    In general, NYSE Rule Interpretation 409T(a)/03 requires a written 
representation or undertaking from the member organization to the NYSE, 
representing that certain conditions are satisfied when using third 
party agents (e.g., service bureaus or other independent entities) to 
prepare and transmit customer account statements.\28\ The proposed rule 
change would eliminate NYSE Rule Interpretation 409T(a)/03 because such 
arrangements are addressed under Rule 4311 and other relevant 
guidance.\29\
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    \28\ Under NYSE Rule Interpretation 409T(a)/03, a member 
organization must represent that the third party is acting as agent 
for the member organization, that the member organization retains 
responsibility for compliance with NYSE Rule 409T(a), and that the 
member organization has developed procedures and controls for 
reviewing and testing the accuracy of statements, and will retain 
copies of all such statements in accordance with applicable books 
and records requirements. In addition, NYSE Rule Interpretation 
409T(a)/03 addresses the allocation of responsibilities for 
preparation and transmissions of statements under a carrying 
agreement and provides that an introducing organization that is a 
provider of services included in a member organization's statements 
of accounts may not function as a third party agent and may not 
itself prepare or transmit such statements.
    \29\ See Notice to Members 05-48 (July 2005) (describing a 
member's responsibilities when outsourcing activities to third party 
service providers).
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b. Standards for Holding Mail for Foreign Customers--Rule 409T(b)(2) 
Waivers (NYSE Rule Interpretation 409T(b)/01)
    The proposed rule change would eliminate NYSE Rule Interpretation 
409T(b)/01, which provides guidelines for holding confirmations, 
statements, and broker-dealer financial statements for foreign 
customers. A member's obligations with respect to holding customer mail 
are addressed in Rule 3150, which is referenced in proposed 
Supplementary Material .04.
D. Technical Changes to Other FINRA Rules
    The proposed harmonization of the NYSE provisions with Rule 2231 
would require technical amendments to Interpretative Material (``IM'')-
1013-1 (Membership Waive-In Process for Certain New York Stock Exchange 
Member Organizations) and IM-1013-2 (Membership Waive-In Process for 
Certain NYSE American LLC Member Organizations), which describe a 
waive-in membership application process for some member organizations 
of the

[[Page 55647]]

NYSE and NYSE American LLC. In general, subject to specified terms set 
forth in these interpretative materials, a firm admitted to FINRA 
membership through either of these provisions (i.e., ``waived-in 
firm'') is not subject to the remaining FINRA rules that have yet to be 
harmonized with their corresponding NYSE rules or interpretations under 
the Temporary Dual FINRA-NYSE Member Rule Series. Currently, these 
rules are Rule 2231 and the NYSE provisions. FINRA is proposing to 
amend IM-1013-1 and IM-1013-2 to remove the reference to Rule 2231 as 
all waived-in firms will become subject to Rule 2231, as amended 
herein.
    If the Commission approves the proposed rule change, FINRA will 
announce the effective date of the proposed rule change in a Regulatory 
Notice. The effective date will be no later than 365 days following 
publication of the Regulatory Notice announcing Commission approval of 
the proposed rule change.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\30\ which requires, among 
other things, that FINRA rules must be designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest. FINRA believes that the proposed rule change will 
further the purposes of the Act because the proposed rule change will 
help protect investors and the public interest by largely retaining the 
existing requirements under Rule 2231 that promotes effective 
regulation of account statements. FINRA believes that by proposing 
several new supplementary materials that provide clarity in areas such 
as compliance with other FINRA rules, the use of electronic delivery, 
transmission of account statements to other persons or entities, 
information to be disclosed on statements, assets externally held, the 
use of logos and trademarks, and the use of summary statements, the 
proposed rule change will establish consistent industry standards 
pertaining to the substance and the presentation of customer account 
statements.
---------------------------------------------------------------------------

    \30\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

    In addition, FINRA believes proposed Supplementary Material .02, as 
revised in light of comments received in response to the Notice, 
strikes an appropriate balance to protect investors by ensuring that 
customers continue to receive their account statements while reducing 
the proposed rule change's impact on member firms. As discussed 
previously, these revisions include: (1) Confining the scope only to 
customer account statements; (2) adding a limited exception from the 
general requirement to continue providing account statements to 
customers who have authorized third party delivery by permitting member 
firms to cease sending such statements to customers upon written 
instructions from a court-appointed fiduciary acting on behalf of the 
customer; and (3) clarifying that, notwithstanding the general 
requirement to obtain written instructions from a customer to establish 
third party delivery of account statements, firms may provide duplicate 
customer account statements under Rule 2070, Rule 3210 or other similar 
applicable federal securities laws, rules and regulations in accordance 
with the requirements of such rules.

B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.
Economic Impact Assessment
    FINRA has undertaken an economic impact assessment, as set forth 
below, to analyze the regulatory need for the proposed rule change and 
its potential economic impacts, including anticipated costs and 
benefits, and the alternatives FINRA considered in assessing how to 
meet its regulatory objectives.
1. Regulatory Need
    Rule 2231 and the NYSE provisions have remained substantively 
unchanged since their adoption into the consolidated FINRA rulebook. 
Having two sets of rules with differing application or scope may 
prevent firms from consistently applying the rules and thus create 
uncertainties in compliance and lead to unnecessary costs. In an effort 
to harmonize these rules, FINRA is proposing to amend Rule 2231 to 
incorporate guidance and several provisions that exist under the NYSE 
provisions and in other FINRA rules as supplementary materials. 
Notably, FINRA is proposing to adopt new Supplementary Material .02, 
derived in large part from NYSE Rule 409T(b), but with some adjustments 
from the terms set forth in the Notice that would address a situation 
in which a customer may want to transmit account statements to other 
persons or entities, and stop receiving statements due to particular 
circumstances. As a result of the proposed harmonization, FINRA is 
proposing to eliminate the NYSE provisions in their entirety as they 
are, to some degree, duplicative of Rule 2231 or would become obsolete 
by the proposed rule change.
2. Economic Baseline
    The current provisions governing customer account statements under 
Rule 2231 and the NYSE provisions, and other related rules and current 
industry practices serve as an economic baseline for the proposed rule 
change. While all FINRA members are subject to Rule 2231, dual members 
are also subject to several additional requirements existing only in 
the NYSE provisions. As of December 31, 2020, there are 3,435 FINRA 
members, of which 134 are dual members.
3. Economic Impacts
    The substantive changes to Rule 2231 described in this proposed 
rule change relate to the supplementary materials, most of which are 
derived from the NYSE provisions and for that reason, the economic 
impacts herein focus primarily on the proposed supplementary materials, 
particularly proposed Supplementary Material .02.
Proposed Supplementary Material .02
    In general, proposed Supplementary Material .02 addresses a 
situation where a customer instructs the firm, in writing, to send his 
or her account statements to another person or entity and limits the 
customer's ability to stop receiving them, except where there is a 
court-appointed fiduciary.\31\ One issue some commenters raised was the 
requirement for firms to continue delivering account statements to the 
customer even where the customer directs the firm, in writing, to send 
the customer's account statements to a third party, and does not wish 
to continue receiving them due to health concerns, among other reasons. 
For example, SIFMA expressed the belief that the requirement to 
continue delivering account statements to the customer may result in 
the fraud that will likely arise from identity theft where account 
statements are sent to a customer against his or her request or against 
the request of a person with the legal authority to act on behalf of 
the customer. SIFMA added that proposed Supplementary Material .02 may 
have a

[[Page 55648]]

material negative impact on the client experience and serve to drive 
clients to advocacy models without this requirement.
---------------------------------------------------------------------------

    \31\ Proposed Supplementary Material .02 also provides that 
members are not required to obtain prior written consent to send 
customer account statements in compliance with Rule 2070, Rule 3210, 
or other similar applicable federal securities laws, rules, and 
regulations in accordance with the requirements of such rule.
---------------------------------------------------------------------------

    FINRA believes that the customer's ability to stop receiving his or 
her own account statements when there is a court-appointed fiduciary 
strikes the appropriate balance between the investor protection 
functions of Rule 2231 to ensure that the customer is able to monitor 
and verify the transactions occurring in the customer's account and the 
concerns raised by some commenters about ceasing the delivery of 
account statements to a customer under compelling circumstances. FINRA 
recognizes that some customers may incur supplemental costs to conform 
to the continuous delivery requirement in proposed Supplementary 
Material .02. Customers who do not wish to receive their account 
statements may bear some burden in controlling and destroying them. 
Alternatively, customers may incur costs associated with seeking the 
exception through a court-appointed fiduciary. Customers may incur the 
direct cost of seeking a court-appointed fiduciary as well as the 
indirect cost of giving away other rights not associated with account 
statements when a fiduciary is appointed by the court. To alleviate the 
potential compliance costs associated with continuous statement 
delivery to customers and the concern over possible identity theft and 
fraud, members could encourage, if appropriate, their customers to 
choose to receive their statements electronically in a manner 
consistent with proposed Supplementary Material .03, a further 
discussion of which follows below.
    In addition, firms may also incur costs to conform to proposed 
Supplementary Material .02 including the tracking and retention of each 
customer's written instructions and official documents related to the 
court appointment of a fiduciary, and where statements are delivered in 
paper format, the costs of additional postage, printing, and other 
attendant expenses.\32\ However, FINRA understands that in practice, 
some firms already provide continuous account statement delivery to 
their customers even with third party delivery arrangements in place 
except in special circumstances (e.g., validated medical excuse), and 
that concerns related third party delivery arrangements rarely arise.
---------------------------------------------------------------------------

    \32\ In the Notice, FINRA asked specific questions concerning, 
among other things, the direct and indirect costs that may result 
from proposed Supplementary Material .02. See generally Notice, 
Section C (Request for Comment). SIFMA commented that a firm with 
approximately 7.4 million accounts provided a cost estimate of over 
14 million dollars just for the postage and mailings associated with 
the nearly 2.2 million accounts potentially impacted by the 
prospective application of proposed Supplementary Material .02, 
excluding substantial staffing and technology costs.
---------------------------------------------------------------------------

Other Proposed Supplementary Materials
    Proposed Supplementary Materials .01, .03, and .04, respectively, 
would remind firms of existing requirements under Rule 4311, SEC 
guidance on using electronic media to satisfy delivery obligations, and 
Rule 3150. The NYSE provisions that FINRA is proposing to incorporate 
into Rule 2231 as Supplementary Materials .05, .06, .07, and .08 would 
address, respectively, the information to be disclosed on statements, 
externally held assets, the use of logos and trademarks, etc., and the 
use of summary statements. FINRA does not expect these proposed 
harmonizing amendments to Rule 2231 to impose material burdens on 
member firms as these proposed supplementary materials are 
substantially similar to existing rules or otherwise consistent with 
current guidance.
4. Alternatives Considered
    FINRA considered various suggestions in developing the proposed 
rule change. The proposed rule change reflects the changes that FINRA 
believes at this time to be the most appropriate for the reasons 
discussed herein.
a. Frequency of Delivery of Account Statements to Customer
    In the Initial Rule Filing and Amended Rule Filing, FINRA had 
considered amending then NASD Rule 2340 to change the frequency of the 
delivery of account statements to customers from quarterly to monthly. 
The comments FINRA received in response to these prior filings 
suggested that such a proposed change would result in significant 
compliance costs for the industry without commensurate benefits for 
customers, and could create conflicts with some securities laws and 
regulations, among other things. Based on these comments, FINRA has 
determined to retain the quarterly delivery requirement for customer 
accounts statements currently set forth in Rule 2231(a).\33\
---------------------------------------------------------------------------

    \33\ The account delivery frequency aligns with NYSE Rule 
409T(a).
---------------------------------------------------------------------------

b. Definition of ``General Securities Member''
    Currently, under Rule 2231(d)(2) a ``general securities member'' 
refers to ``any member that conducts a general securities business and 
is required to calculate its net capital pursuant to the provisions of 
SEA Rule 15c3-1(a). Notwithstanding the foregoing definition, a member 
that does not carry customer accounts and does not hold customer funds 
or securities is exempt from the provisions of this section.'' \34\ In 
the Notice, FINRA specifically requested comment on potential 
clarifications to the definition of ``general securities member.'' \35\ 
At this time, FINRA is not proposing to amend Rule 2231(d)(2).
---------------------------------------------------------------------------

    \34\ The NYSE provisions do not have a corresponding definition.
    \35\ FINRA did not receive comments in this area, but FAF noted 
that registered investment advisors (``RIAs'') do not fall under the 
definition.
---------------------------------------------------------------------------

c. Exception From the General Requirement To Send Account Statements to 
Customers
    Proposed Supplementary Material .02 as presented in the Notice did 
not contemplate an exception from the firm's general requirement to 
continue sending account statements to customers. In the Notice, FINRA 
specifically requested comment on whether the proposal should include 
specific exclusions that would allow members not to send account 
statements to customers under identified situations. FINRA also 
specifically sought comment on current industry practices, safeguards, 
or best practices with respect to sending account statements to a 
customer who is disabled or incapacitated, resides in a nursing home, 
has a trusted person to review statements, or where there is a valid 
POA or guardianship established.
    In consideration of the comments to the Notice, FINRA has modified 
proposed Supplementary Material .02 from the terms outlined in the 
Notice. In addition to limiting the scope of the proposed supplementary 
material to only customer account statements and omitting the specific 
reference to POA, the proposed provision would create a limited 
exception from the general requirement for firms to continue to deliver 
account statements to a customer in cases where there is a court-
appointed fiduciary acting on behalf of the customer. The other aspects 
of the proposed supplementary material would remain substantively 
unchanged from the terms set forth in the Notice, including the option 
to send account statements to the customer either in paper format or 
electronically as provided in proposed Supplementary Material. 03.
    FINRA notes that members could request customers that provide 
written instructions to the member to send account statements to other 
persons or entities to authorize the member to

[[Page 55649]]

satisfy the requirement to continue delivering statements to the 
customer through electronic delivery consistent with proposed 
Supplementary Material .03. In this manner, FINRA believes that member 
firms could both mitigate the concerns relating to the costs of 
postage, printing and mailing account statements, and address concerns 
relating to possible identity theft and fraud in circumstances where 
account statements are sent. With respect to the general requirement 
for firms to continue to deliver account statements to the customer 
even when the customer has directed the firm, in writing, to send 
account statements to other persons or entities, FINRA understands that 
even where there is a third party delivery arrangement in place, in 
general, firms continue to send account statements to their customers 
except under extenuating circumstances (e.g., validated medical 
excuse). This industry practice accords with Rule 2231(a), which 
reflects the core principle that customers should be fully informed of 
the status of their accounts.
    FINRA believes that proposed Supplementary Material .02, as 
modified, lends the appropriate balance between ensuring that customers 
continue to receive their account statements in accordance with Rule 
2231(a) to ensure that they have the ability to monitor their account 
activity while recognizing that there may be special circumstances 
where a firm may stop the delivery of account statements to customers.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The proposed rule change was published for comment in the Notice 
14-35 Proposal. FINRA received 14 comment letters in response to the 
Notice 14-35 Proposal. A copy of the Notice 14-35 Proposal is available 
on FINRA's website at http://www.finra.org. A list of the comment 
letters received in response to the Notice 14-35 Proposal is available 
on FINRA's website.\36\ Copies of the comment letters received in 
response to the Notice 14-35 Proposal are also available on FINRA's 
website.
---------------------------------------------------------------------------

    \36\ See SR-FINRA-2021-024 (Form 19b-4, Exhibit 2e) for a list 
of abbreviations assigned to commenters (available on FINRA's 
website at http://www.finra.org).
---------------------------------------------------------------------------

    Several commenters expressed general support for the purpose and 
intent of the Notice 14-35 Proposal.\37\ In addition, several 
commenters noted that the proposed rule change includes meaningful 
changes in response to comments on the Initial Rule Filing.\38\ 
However, as discussed below, commenters to the Notice 14-35 Proposal 
objected to limiting a customer's ability to decline receiving 
statements, particularly where the customer's health or capacity was in 
question. In addition, the commenters raised concerns regarding 
existing customer account relationships with third party delivery 
arrangements in place. FINRA considered the commenters' concerns, 
including the attendant operational aspects of sending account 
statements to customers and third parties. The comments and FINRA's 
responses are set forth below.
---------------------------------------------------------------------------

    \37\ See GSU, PIRC, SIFMA, WFA, and Wulff.
    \38\ See Edward Jones, FSI, PIRC, SIFMA, WFA, and Wulff.
---------------------------------------------------------------------------

1. General (Rule 2231(a))
A. Quarterly Customer Account Statement Delivery Requirement
    Currently, Rule 2231(a) generally requires a general securities 
member to send account statements to customers at least once each 
calendar quarter containing a description of any securities positions, 
money balances or account activity in the accounts since the prior 
account statements were sent, except if carried on a DVP/RVP basis. 
NYSE Rule 409T(a) similarly establishes a quarterly account statement 
delivery requirement.
    Several commenters expressed support for retaining the delivery 
frequency in the current rule, noting that the quarterly delivery 
requirement is consistent with industry practices.\39\ NASAA, however, 
urged FINRA to revert to the monthly delivery frequency as originally 
proposed in the prior rule filings, stating that monthly delivery would 
allow customers to better monitor their accounts and identify any 
potential unauthorized fraudulent activity. PIRC recommended that 
customers should have the option of receiving quarterly or monthly 
statements based on their own individual needs, and also recommended 
that customers be provided with the option to receive account 
statements electronically and to make available to customers a status 
of their accounts via telephone or online at the customer's request.
---------------------------------------------------------------------------

    \39\ See Edward Jones, FSI, SIFMA, and WFA.
---------------------------------------------------------------------------

    FINRA notes that nothing in the rule, in its current form, 
precludes a firm from sending account statements to a customer on a 
more frequent schedule in a particular medium to meet the needs of the 
customer. Consistent with the Notice 14-35 Proposal, FINRA is proposing 
to retain the existing requirement in Rule 2231(a) for members to send 
customer account statements at least once each quarter.
B. Securities Investor Protection Act (``SIPA'') Disclosure Requirement
    Rule 2231(a) requires a general securities member to include in the 
account statement a statement advising a customer to report promptly 
any inaccuracy or discrepancy in that person's account to the member 
firm, and that any oral communication to the member firm should be 
reconfirmed in writing to further protect the customer's rights, 
including rights under SIPA. NYSE Rule 409T(e)(2) similarly requires a 
member organization to include a legend in the account statement with 
the same advice.
    PIRC expressed concerns with the SIPA disclosure requirement in 
Rule 2231(a). PIRC stated that it has encountered firms that have used 
the disclosure as a defense to claims in arbitration, suggesting that 
the disclosure only appears to be intended to protect investors. PIRC 
recommended that FINRA amend this portion of the rule to ensure that 
such disclosure cannot be used against a customer in a dispute.
    In 2001, the then U.S. General Accounting Office, now known as the 
Government Accountability Office (``GAO''), issued a report in which it 
made recommendations to the SEC and SIPC about ways to improve the 
information available to the public about SIPC and SIPA.\40\ Among 
other things, the GAO recommended that self-regulatory organizations, 
such as FINRA, consider requiring firms to include information on 
periodic statements or trade confirmations to advise investors that 
they should document account discrepancies in writing. In response to 
that recommendation, Rule 2231(a) was amended in 2006 to require that 
account statements include a statement advising each customer to report 
promptly any inaccuracy or discrepancy in that person's account to his 
or her brokerage firm and clearing firm (where these are different 
firms), and such statement also must advise the customer that any oral 
communication should be re-confirmed in writing to further protect the 
customer's rights, including rights under SIPA.\41\ Written 
documentation is

[[Page 55650]]

important because in the event a firm goes into SIPC liquidation, SIPC 
and the trustee generally will assume that the firm's records are 
accurate unless the customer is able to prove otherwise.\42\ As FINRA 
noted in the 2006 rule filing to amend Rule 2231(a), the disclosure 
requirement does not impose any limitation whatsoever on a customer's 
right to raise concerns regarding inaccuracies or discrepancies in his 
or her account at any time, either in writing or orally.\43\ Further, a 
customer's failure to promptly raise such concerns, either in writing 
or orally, does not preclude a customer from reporting an inaccuracy or 
discrepancy in his or her account during any SIPC liquidation of his or 
her brokerage or clearing firm.\44\ FINRA believes that the provision 
continues to enhance customer protection in accordance with GAO's 
recommendation and has determined to maintain Rule 2231(a) pertaining 
to SIPA disclosure in its current form.
---------------------------------------------------------------------------

    \40\ See Securities Investor Protection: Steps Needed to Better 
Disclose SIPC Policies to Investors, GAO-01-653 (May 25, 2001), 
https://www.gao.gov/products/gao-01-653.
    \41\ See Securities Exchange Act Release No. 54411 (September 7, 
2006), 71 FR 54105 (September 13, 2006) (Order Approving File No. 
SR-NASD-2004-171), as corrected by Securities Exchange Act Release 
No. 54411A (October 6, 2006), 71 FR 61115 (October 17, 2006). See 
also Notice to Members 06-72 (December 2006).
    \42\ See supra note 41. SIPC advises investors who discover an 
error in a confirmation or statement to immediately bring the error 
to the attention of their brokerage firm in writing and to keep a 
copy of any such writing. See SIPC, How SIPC Protects You: 
Understanding the Securities Investor Protection Corporation (2015), 
https://www.sipc.org/media/brochures/HowSIPCProtectsYou-English-Web.pdf. More recently, FINRA, NASAA, and SIPC jointly issued an 
investor alert discussing the importance of regularly reviewing 
brokerage account statements, and the steps a customer should take 
to document concerns with an error on a brokerage statement or trade 
confirmation. See FINRA Investor Alert, It Pays to Pay Attention to 
Your Brokerage Account Statements (December 18, 2019), https://www.finra.org/investors/alerts/pay-attention-brokerage-account-statements. See also NASAA Investor Advisory, It Pays to Pay 
Attention to Your Brokerage Account Statements'' (December 2019), 
https://www.nasaa.org/53392/53392/?qoid=investor-advisories and SIPC 
News Release, It Pays to Pay Attention to Your Brokerage Account 
Statements, https://www.sipc.org/news-and-media/news-releases/20191218).
    \43\ See supra note 42.
    \44\ See supra note 42.
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2. DVP/RVP Accounts (Rule 2231(b))
    Currently, Rule 2231(b) and NYSE Rule 409T(a) provide that 
quarterly account statements do not need to be sent to a customer if 
the customer's account is carried solely for execution on a DVP/RVP 
basis, subject to specified conditions.\45\
---------------------------------------------------------------------------

    \45\ These rules do not qualify or condition the obligations of 
members under SEA Rule 15c3-3(j)(1) concerning quarterly notices of 
free credit balances on statements.
---------------------------------------------------------------------------

    Auerbach recommended that Rule 2231 provide an exemption from the 
requirement to issue periodic account statements in the case of DVP/RVP 
customers of a member firm that use a third party custodian selected by 
the customer that is required to issue periodic account statements to 
the customer. Auerbach stated that in such cases, periodically issued 
brokerage firm account statements are duplicative, unnecessary and 
increase costs for the broker, the customer, and the third party 
custodian, and such accounts statements will compel the customer and 
its custodian to reconcile their records with the statement from the 
broker and require all three parties to expend additional time, energy, 
and cost on a matter that is already handled through the normal 
clearance and settlement process. SIFMA requested confirmation that 
members may treat an institutional customer trading pursuant to 
discretionary authority in the DVP/RVP account or the authorized person 
or institution that opened the account as the ``customer'' for these 
purposes and collect and maintain the consents from such institutions, 
instead of the underlying customers.
    FINRA believes that the issues raised by the commenters are better 
addressed through FINRA's interpretative guidance process so that FINRA 
has the opportunity to fully consider the relevant facts and 
circumstances. In addition, FINRA emphasizes that the rule in its 
current form allows a DVP/RVP customer to affirmatively elect not to 
receive account statements. By requiring the customer's affirmative 
consent, the customer's ability to receive quarterly statements is 
preserved, and the member is precluded from unilaterally terminating 
delivery of customer statements. Moreover, the customer is able to 
promptly receive particular account statements upon request, and 
promptly reinstate the delivery of account statements upon request.\46\
---------------------------------------------------------------------------

    \46\ See Notice to Members 06-68 (November 2006).
---------------------------------------------------------------------------

3. Definitions (Rule 2231(d))
    Rule 2231(d)(2) provides that a ```general securities member' 
refers to any member that conducts a general securities business and is 
required to calculate its net capital pursuant to the provisions of SEA 
Rule 15c3-1(a). Notwithstanding the foregoing definition, a member that 
does not carry customer accounts and does not hold customer funds or 
securities is exempt from the provisions of [Rule 2231].'' FAF noted 
that RIAs need to have access to customer information in order to 
perform their duties to their customers or clients. FAF expressed 
concern that RIAs are not covered by the definition of ``general 
securities member'' in Rule 2231(d) and consequently, RIAs would not be 
entitled to receive customer or client information.
    The term ``general securities member'' identifies which FINRA 
member firms are required to deliver account statements, not which 
firms are entitled to receive such statements. Moreover, FINRA notes 
that nothing in proposed Supplementary Material .02 would preclude a 
customer from providing written consent to his or her member firm to 
send account statements to an RIA, subject to the conditions set forth 
in the proposed rule.\47\
---------------------------------------------------------------------------

    \47\ RIAs also should consider their obligations under the 
Investment Advisors Act of 1940, including Rule 206(4)-2 (Custody of 
Funds or Securities of Clients by Investment Advisors).
---------------------------------------------------------------------------

4. Compliance With Rule 4311 (Carrying Agreements) (Proposed 
Supplementary Material .01)
    Proposed Supplementary Material .01 to Rule 2231 would remind firms 
that Rule 4311(c)(2) generally requires each carrying agreement, in 
which accounts are carried on a fully disclosed basis, to expressly 
allocate to the carrying firm the responsibility for the safeguarding 
of funds and securities for the purposes of SEA Rule 15c3-3 and for 
preparing and transmitting statements of account to customers.\48\ Rule 
4311(c)(2) provides that the carrying firm may authorize the 
introducing firm to prepare and transmit such statements on the 
carrying firm's behalf with the prior written approval of FINRA.
---------------------------------------------------------------------------

    \48\ See Regulatory Notice 11-26 (May 2011).
---------------------------------------------------------------------------

    SIFMA requested clarification from FINRA regarding the obligation 
to obtain written authorization from a customer regarding the mailing 
of statements to a third party, and the ability of a clearing firm to 
rely on introducing brokers in asserting the authenticity of a written 
approval. SIFMA stated that introducing firms are in the best position 
to know the customer and, as long recognized through contract and in 
practice, and as permitted under Rule 4311, introducing firms are 
typically allocated the responsibility for opening accounts as well as 
maintaining and updating customer addresses, which ultimately drives 
the delivery of account statements.
    FINRA agrees that consistent with guidance on the allocation of 
responsibilities between carrying firms and introducing firms and as 
permitted under Rule 4311, clearing firms may reasonably rely on 
introducing firms with respect to updating and keeping track of 
required consents and addresses for third parties that may receive 
account statements under this rule.

[[Page 55651]]

However, both carrying firms and introducing firms must have policies 
and procedures in place to ensure that their respective 
responsibilities are met.\49\
---------------------------------------------------------------------------

    \49\ See Regulatory Notice 09-64 (November 2009) (stating that 
while firms may allocate responsibility for complying with 
particular requirements between the clearing and the introducing 
firms, both firms must have policies and procedures in place to 
ensure that their respective responsibilities are met).
---------------------------------------------------------------------------

5. Transmission of Customer Account Statements to Other Persons or 
Entities (Proposed Supplementary Material .02)
    Many commenters, while supportive of the Notice 14-35 Proposal 
overall, expressed views on proposed Supplementary Material .02.\50\ 
NAELA expressed doubt that the proposed provision would protect 
vulnerable persons (e.g., persons with disabilities or who are 
incapacitated) in any meaningful way. The views of many other 
commenters generally related to the scope of the proposed provision, 
customer instructions to establish delivery of the customer's account 
statements to a third party, the circumstances that may warrant an 
exception to the general requirement for a firm to continue delivering 
account statements to the customer even where there is a third party 
delivery arrangement in place, operational concerns, and 
implementation.
---------------------------------------------------------------------------

    \50\ See Edward Jones, FAF, Feaver, FSI, GSU, Malecki, NAELA, 
NASAA, PIRC, SIFMA, WFA, and Wulff.
---------------------------------------------------------------------------

A. Scope
    In the Notice 14-35 Proposal, proposed Supplementary Material .02 
pertained to account statements ``or other communications'' relating to 
the customer's account. Commenters expressed concerns and sought 
clarification relating to the scope of the proposed provision.
    SIFMA raised concerns with the inclusion of ``other 
communications,'' stating that the proposed supplementary material 
could include a host of operational communications with third parties 
(e.g., custodians, issue and transfer agents, counterparties to trades, 
banks in connection with disbursements and deposits and a member firm's 
own vendors) where firms need to send ``communications'' about a 
customer's account in order to provide a service requested for the 
customer. SIFMA requested clarity regarding the scope of ``other 
communications'' in the context of the proposed rule. FINRA agrees with 
the concerns raised by SIFMA in this regard and for clarity, has 
adjusted the language by deleting the references to ``or other 
communications'' from proposed Supplementary Material .02 so that the 
scope of the propose provision is limited solely to customer account 
statements.
    SIFMA also sought clarification pertaining to the implications of 
Supplementary Material .02 on a firm's existing obligations under SEA 
Rule 17a-3(a)(17)(B)(2) and FINRA Rule 3110(c)(2) to confirm a 
customer's address change. FINRA notes that proposed Supplementary 
Material .02 is not intended to impose additional requirements that 
would impact a firm's current obligations to validate a change in 
address for a customer under the applicable SEA and FINRA rules.
B. Customer Instructions To Deliver Account Statements to Third Party
    Proposed Supplementary Material .02 provides that in general, a 
member may not send account statements relating to a customer's account 
to other persons or entities unless the customer has provided written 
instructions to the member to send such statements to a designated 
third party. However, in order to comply with Rule 2070, Rule 3210 or 
other similar applicable federal securities laws, rules and 
regulations, proposed Supplementary Material .02 would provide that a 
firm is not required to obtain written instructions from the customer 
to meet the requirements of such applicable rules or regulations.
    Several commenters expressed views on the general requirement for 
firms to obtain written instructions from customers.\51\ PIRC expressed 
its support for the general requirement. NAELA noted that persons with 
disabilities or who are incapacitated are unlikely able to send written 
direction to their financial institution to send account statements to 
a third party. Two commenters questioned the need for written 
instructions, suggesting that oral instructions should suffice.\52\ 
Other commenters recommended imposing additional methods to validate 
customer instructions and the nature of the relationship between the 
customer and third party.\53\
---------------------------------------------------------------------------

    \51\ See Edward Jones, FAF, NASAA, and SIFMA.
    \52\ See Edward Jones and SIFMA.
    \53\ See Malecki and NASAA.
---------------------------------------------------------------------------

a. Oral Instructions
    Two commenters recommended that oral consent of the customer, 
combined with prominent disclosure on the customer's account 
statements, identifying the third party or interested party that is 
also receiving statements or other appropriate documentation of such 
instruction, would lend more flexibility to firms and customers to 
establish third party delivery of account statements.\54\ Edward Jones 
explained that there was a regulatory distinction between adding a 
third party to an account to receive account statements and directing 
all account statements to a third party instead of to the customer, 
noting that when a third party is being added to an account, a more 
effective approach would be to require the oral consent of the 
customer. SIFMA added that oral instructions would prevent the 
operational challenge of obtaining written consent in instances where 
written consent is impracticable. These commenters stated that oral 
consent and disclosure would be consistent with current industry 
practice.
---------------------------------------------------------------------------

    \54\ See Edward Jones and SIFMA.
---------------------------------------------------------------------------

    FINRA notes that similar views were expressed by commenters to the 
prior rule filing,\55\ and FINRA continues to maintain the view that 
instructions from customers with respect to the delivery of account 
statements should be in writing to ensure proper consent is received 
and can be evidenced. FINRA believes that oral instructions are 
insufficient in this context due to several concerns such as identify 
theft and privacy concerns, among others, and that firms must be able 
to document and record a customer's consent to send account statements 
to a third party. FINRA has permitted firms to act on oral instructions 
from customers in other circumstances (e.g., trading instructions) 
largely to allow customer and firms to act expeditiously to execute 
securities transactions that are time sensitive in nature. However, the 
delivery of customer account statements to a third party presents no 
such concerns and therefore must require written customer consent for 
this delivery arrangement.
---------------------------------------------------------------------------

    \55\ See supra note 6.
---------------------------------------------------------------------------

b. Written Instructions From Third Party or Account Holder of Joint 
Account
    Two commenters raised practical concerns with procuring written 
instructions from customers.\56\ FAF noted that some third parties such 
as RIAs or retirement custodians have a need to receive customer 
account statements in order to perform their duties for customers, and 
these third parties that commonly receive customer account statements 
may have their own paperwork or form that a customer completes to 
authorize a designated third party to receive account statements. FAF 
recommended adjusting the language in the proposed supplementary 
material to permit a firm

[[Page 55652]]

to treat a customer's completion of the third party's own paperwork or 
form as the written instructions from the customer, suggesting that 
this adjustment would represent a more practical approach to the 
process by permitting a firm to accept written instructions to 
authorize the transmission of account statements to a third party 
directly from such third party rather than from the customer directly. 
In the alternative, FAF recommended allowing firms to send account 
statements to third parties without customer consent ``by simply 
relying on the nature of the third party[,]'' reasoning that third 
parties such as RIAs or custodians of individual retirement accounts 
``have a need to receive a duplicate statement of the client for the 
client's benefit.'' FINRA believes that FAF's recommendation does not 
assure the goal of limiting provision of customer account information 
to situations where the customer affirmatively instructed or consented 
to delivery of account statements to third parties. Moreover, FINRA 
believes that proposed Supplementary Material .02 in its current form 
would not preclude a customer from using a thirty party's form or other 
template to help a customer convey the written instructions directly to 
the firm to establish the delivery account statements to a third party 
such as an RIA or other custodian of customer assets.
---------------------------------------------------------------------------

    \56\ See FAF and SIFMA.
---------------------------------------------------------------------------

    With respect to accounts that have more than one owner, SIFMA noted 
that there could be significant operational challenges in requiring all 
joint account holders to consent to a third party delivery arrangement 
requested by one of the account holders. SIFMA expressed the belief 
that in such cases, a firm should be able to accept instructions from 
one accountholder to send statements to a third party, provided the 
accountholder making the request would not be seeking to suppress the 
delivery of customer account statements to the other joint 
accountholder(s) in accordance with the rule. FINRA believes that the 
proposed provision would contemplate the situation SIFMA described to 
require a customer, irrespective of the type of account--joint or 
individual--to provide written instructions to the firm to send account 
statements to a third party without affecting the delivery of account 
statements to the other joint accountholders.
c. Validation of Customer Instructions
    Proposed Supplementary Material .02 does not specify the manner in 
which firms must validate a customer's written instructions or the 
nature of the relationship between the customer and third party 
receiving the account statements. Two commenters recommended ways to 
verify a customer's instructions and the nature of the customer's 
relationship to the third party.\57\
---------------------------------------------------------------------------

    \57\ See Malecki and NASAA.
---------------------------------------------------------------------------

    NASAA recommended rigorous verification of a customer's 
instructions by requiring a firm to obtain a medallion signature 
guarantee or notarization to help ensure that a customer in fact wishes 
to have the account statements delivered to a third party. NASAA also 
recommend requiring the firm to provide the customer with notices, 
delivered on the same frequency as account statements, indicating that 
the account statements have been delivered to the third party pursuant 
to the customer's instructions, and directing the customer to contact 
the firm to inform the firm if he or she no longer desires to have the 
account statements delivered to the designated third party. Feaver 
seemed to express support for a customer's ability to send account 
statements to a third party, but also seemed to suggest that some 
verification or confirmation practices as to the identity of the third 
party be imposed. Malecki expressed its support for the ability for a 
customer to elect to have account statement delivered to a third party, 
noting that the ability for a family member, tax professional, estate 
lawyer or trusted friend to be able to obtain copies of statements may 
be important to quickly identify and prevent fraud. However, Malecki 
suggested that the proposed provision go further and require a firm to 
identify the relationship between the customer and the third party 
receiving the account statements in order to clearly delineate the 
roles of the respective parties, noting that a firm should clearly 
understand the third party's relationship to the customer.
    FINRA believes that a firm's obligation to conduct the requisite 
validation pertaining to servicing a customer's account are addressed 
under Rule 2090 (Know Your Customer). Rule 2090 requires a firm to use 
reasonable diligence in regard to the opening and maintenance of every 
account, to know the essential facts concerning every customer and 
concerning the authority of each person acting on behalf of such 
customer. The ``essential facts'' to ``knowing the customer'' include, 
among other things, those facts required to act in accordance with any 
special handling instructions for the account and understand the 
authority of each person acting on behalf of the customer. Thus, under 
Rule 2090, member firms are generally required to know the names of any 
persons authorized to act on behalf of a customer and any limits on 
their authority that the customer establishes and communicates to the 
member firm.
d. Exception to the Requirement To Obtain Instructions From Customer
    As noted above, proposed Supplementary Material .02 would clarify 
that notwithstanding the general requirement for a firm to obtain 
written instructions from the customer to transmit accounts statements 
to a third party, a firm may provide such statements under Rule 2070, 
Rule 3210, or other similar applicable federal securities laws, rules 
and regulations in accordance with the requirements of such rules or 
regulations.
    SIFMA expressed its appreciation for this clarification, but stated 
that the exception should be broadened to permit firms to send customer 
account statements to an employer that is a registered investment 
company or RIA, both of which are also required to obtain this 
information about their associated person's personal securities 
dealings under Rule 17j-1 under the Investment Company Act of 1940 \58\ 
and the provisions of an investment advisor's code of ethics as 
required by Rule 204A-1 under the Investment Advisors Act of 1940,\59\ 
respectively. In response to this comment, FINRA has adjusted the 
language in proposed Supplementary Material .02 to refer, in general 
terms, to other similar applicable federal securities laws, rules and 
regulations in accordance with the requirements of such rule.
---------------------------------------------------------------------------

    \58\ 17 CFR 270.17j-1.
    \59\ 17 CFR 275.204A-1.
---------------------------------------------------------------------------

C. The Requirement To Continue Delivery of Account Statements to 
Customer Even With Third Party Delivery Arrangement in Place
    Consistent with the Notice 14-35 Proposal, the proposed rule change 
would limit a customer's ability to decline receiving account 
statements by requiring a firm to continue sending account statements 
to the customer even where the customer directs the firm, in writing, 
to send the customer's account statements to a third party. This 
general requirement is intended to serve investor protection functions 
by ensuring that the customer is able to monitor and verify the 
transactions occurring in the customer's account. The proposed 
provision accords with

[[Page 55653]]

the Commission's policy view in the context of the delivery of 
transaction confirmations to a third party (e.g., a fiduciary); that 
is, where a customer has duly waived receipt of confirmations, the 
customer may not waive the receipt of periodic account statements.\60\
---------------------------------------------------------------------------

    \60\ In adopting amendments to SEA Rule 10b-10 in 1994, the 
Commission acknowledged that a customer may waive the personal 
receipt of an immediate confirmation in the context of where a 
fiduciary has discretion over the customer's account under the 
following conditions: ``the broker-dealer must (1) obtain from the 
customer a written agreement that the fiduciary receive the 
immediate confirmation; and (2) send to the customer a periodic 
report, not less frequently than quarterly, containing the same 
information that would have been contained in an immediate 
confirmation. [Citation omitted]. The customer may not waive this 
periodic report. [Citation omitted].'' See Securities Exchange Act 
Release No. 34962 (November 10, 1994), 59 FR 59612, 59614 (November 
17, 1994) (``SEA Rule 10b-10 Release''). As indicated in the Amended 
Rule Filing, FINRA reiterates the reminder to members that they 
remain subject to any conditions or requirements specified in any 
release, interpretation, ``no-action'' position or exemption issued 
by the SEC or its staff in the context of SEA Rule 10b-10 that 
members may rely on for relief from certain delivery obligations of 
trade confirmations as specified in such rule (e.g., the manner and 
frequency of delivering periodic account statements in lieu of 
immediate trade confirmations) and Rule 2231, as proposed herein, is 
not intended to alter any such conditions or requirements.
---------------------------------------------------------------------------

    With the exception of GSU favoring the continuous statement 
delivery requirement, several other commenters expressed concerns with 
it, asserting, in general, that the proposed provision would undermine 
a customer's express wishes to decline receiving account statements and 
would not further customer protections by increasing the risk for 
fraudulent activity, particularly for investors who are elderly, 
disabled or incapacitated, or who rely on a caregiver in an assisted 
living facility or at home.\61\ SIFMA offered several suggestions for 
FINRA to consider, including to delete the proposed general continuous 
delivery requirement or in the alternative, follow the existing 
approach under NYSE Rule 409T(b). Other suggestions included creating 
exceptions to the general delivery requirement under specified 
circumstances (e.g., incapacitation) \62\ or permitting a customer to 
opt-out of receiving statements.\63\ The comments to proposed 
Supplementary Material .02 as presented in the Notice 14-35 Proposal 
are set forth below.
---------------------------------------------------------------------------

    \61\ See Edward Jones, FSI, NAELA, NASAA, SIFMA, WFA, and Wulff.
    \62\ See SIFMA and Wulff.
    \63\ See PIRC.
---------------------------------------------------------------------------

a. The Existing Approach Set Forth Under NYSE Rule 409T(b)
    As described above, NYSE Rule 409T(b) currently allows a customer 
to instruct a firm to direct account statements, confirmations or other 
communications to a third party holding a POA over the account where 
the customer either provided the firm written instructions or the firm 
continued to send the customer duplicate copies of the statements, 
confirmations or other communications. Thus, under NYSE Rule 409T(b), a 
customer who has declined or waived the receipt of account statements 
may then effectively forego the opportunity to directly monitor account 
activities.
    SIFMA noted that in the SEA Rule 10b-10 Release, the Commission did 
not invalidate NYSE Rule 409T(b). However, when discussing the 
application of the Commission's policy and its relationship with NYSE 
Rule 409T, the Commission suggested that NYSE Rule 409T was less 
restrictive than the Commission's policy view by noting that under NYSE 
Rule 409T, a customer ``who waived receipt of the immediate 
confirmation would receive more information with his quarterly account 
statement than that currently required under NYSE Rule [409T]. To the 
extent the rule of the NYSE, or any self-regulatory organization, 
conflict with the Commission's stated policy, the more restrictive 
requirement would govern. Thus, an NYSE member wishing to take 
advantage of a waiver would be required to adhere to these Commission 
requirements in addition to any obligations imposed by Rule [409T]'' 
\64\
---------------------------------------------------------------------------

    \64\ See SEA Rule 10b-10 Release, supra note 60, at 59 FR 59614 
n.36.
---------------------------------------------------------------------------

    SIFMA observed that proposed Supplementary Material .02 would be 
more restrictive than NYSE Rule 409T(b), particularly as applied to the 
delivery of account statements in connection with the custody of 
advisory accounts, noting that duplicate account statements are not 
required to be sent to customers when a designee has been appointed 
under Rule 206(4)-2 of the Investment Advisers Act of 1940 (``Advisers 
Act'').\65\ SIFMA expressed the belief that NYSE Rule 409T(b) has 
served both the investing public and the industry well, and that FINRA 
has not established widespread complaints or problems in this area that 
would justify such a substantial, potentially risky, and costly 
expansion of account statement delivery obligations. SIFMA urged FINRA 
to delete the general requirement or alternatively, retain the more 
flexible approach in NYSE Rule 409T(b). By taking the approach in NYSE 
Rule 409T(b), SIFMA expressed the view that firms would then be able to 
honor the requests of customers, and those with appropriate legal 
standing on behalf of their customers, to direct account statements to 
a designated third party and avoid the additional costs and potential 
account security concerns associated with sending account statements to 
the customer's address of record. SIFMA recommended that FINRA amend 
proposed Supplementary Material .02 to model the requirements of NYSE 
Rule 409T(b) by replacing ``and'' with ``or'' in the proposed rule text 
to provide firms with greater flexibility to comply with the proposed 
rule and defining the term ``customer,'' for purposes of proposed 
Supplementary Material .02 to mean a person with the legal authority to 
act on behalf of an accountholder, including an attorney-in-fact, a 
court-appointed fiduciary or person with similar legal authority.
---------------------------------------------------------------------------

    \65\ 17 CFR 275.206(4)-2.
---------------------------------------------------------------------------

    SIFMA also noted that firms are currently subject to rules that 
mitigate concerns that a customer might be financially exploited by an 
individual who has authority over the customer's financial affairs. For 
example, SIFMA stated that Rule 2090 requires a firm to use reasonable 
diligence in regard to the opening and maintenance of every account, to 
know the essential facts concerning every customer, and essential facts 
would include those about anyone who has authority over a customer's 
account. In addition, SIFMA noted that a firm is required to have 
reasonable procedures in place to identify and react to ``red flags'' 
that might indicate the occurrence of potential fraud.
b. Create Exceptions to the General Requirement To Continue Delivery of 
Account Statements to Customer
    In the Notice 14-35 Proposal, FINRA requested comment on the 
situations that would merit an exception from the general requirement 
to continue delivery of account statements to a customer. Several 
commenters expressed views on the general requirement for a firm to 
continue delivering account statements to the customer even where there 
is a third party delivery arrangement in place, stating that imposing 
such a requirement as a matter of course would increase a customer's 
risk of exposure to fraud or other misconduct.\66\ FINRA recognizes 
that in some cases, it may not be in the customer's interest to 
continue receiving account statements when there is an arrangement to 
deliver the statements to a third party. In response to comments, FINRA 
has adjusted

[[Page 55654]]

proposed Supplementary Material .02 as presented in the Notice 14-35 
Proposal by creating an exception that would permit a ``court-appointed 
fiduciary'' (as that term is described in the proposed provision) to 
stop sending account statements to the customer upon written 
instructions from the court-appointed fiduciary, and other specified 
conditions. Absent a court-appointed fiduciary, a firm cannot cease 
delivering account statements to a customer. Further, FINRA believes 
that a customer may authorize the firm to satisfy the requirement to 
continue delivering account statements through electronic delivery 
consistent with proposed Supplementary Material .03, which would 
eliminate the need for delivery of physical statements to the 
customer's home, while still providing the customer the opportunity to 
review their account statements in a timely manner. FINRA believes that 
proposed Supplementary Material .02, as adjusted, creates an 
appropriate balance between investor protection and the concerns raised 
by the commenters. As set forth below, some commenters described a 
variety of circumstances that should warrant an exception to the 
general requirement. These circumstances relate to customers with legal 
representatives and other trusted contacts; customers who are elderly, 
disabled or incapacitated; and foreign and high net worth customers.
---------------------------------------------------------------------------

    \66\ See Edward Jones, FSI, NASAA, SIFMA, WFA, and Wulff.
---------------------------------------------------------------------------

(I) Legal Representative and Other Trusted Contacts
    SIFMA expressed concern that proposed Supplementary Material .02 
could potentially erode the legal authority of the person granted a POA 
and may potentially create a conflict with state laws governing POAs. 
SIFMA noted that 17 states have laws that outline penalties for 
financial institutions that refuse to respect the legal standing of a 
person acting with the authority of a POA. Two commenters expressed 
concern that the proposed provision would also prevent the operability 
of a springing POA or limit its usefulness because a springing POA only 
becomes effective under certain circumstances outlined by the 
customer.\67\ SIFMA added that the proposed provision would create a 
situation where a person with the power to stand in the shoes of the 
incapacitated person, and perform many other aspects of his or her 
legal rights, would not be able to redirect mail away from an address 
at which the incapacitated person once resided. Two commenters 
indicated that an exception should also be made for legal executors of 
a decedent's estate or for a person with legal authority to act on 
behalf of a customer.\68\ FAF expressed concern that the proposed 
provision does not create an exception for certain third parties, such 
as investment advisers, trust departments, custodians and pension plan 
trustees. FAF indicated that these entities need to receive customer 
accounts statements to perform their duties for the customer.
---------------------------------------------------------------------------

    \67\ See SIFMA and WFA.
    \68\ See FSI and Wulff.
---------------------------------------------------------------------------

(II) Elderly, Disabled or Incapacitated Customers
    Several commenters contended that mandating the delivery of account 
statements to a customer who is deemed incapacitated or impaired, 
living in a nursing facility or receives in-home care, or an elderly 
customer who has expressly designated another person or entity to 
receive the statements would increase the risk of unintended or 
involuntary exposure of financially sensitive information to third 
parties.\69\ Wulff noted that these persons would involuntarily have 
their financial affairs and personally identifiable information exposed 
to unvetted third parties. PIRC recommended that a customer be 
permitted to opt-out, in writing, of receiving account statements, 
particularly where the customer is disabled or incapacitated, or a 
customer resides in a nursing home facility. Two commenters stated that 
this class of investors should be able to decline delivery of their 
statements and instead have them delivered to an authorized third 
party.\70\ Edward Jones recommended that FINRA consider an exemption to 
the general requirement where a firm has received written documentation 
from a medical professional verifying the disability or incapacity of 
the customer. Several commenters expressed the view that the preference 
of the customer, as to his or her own best interests, should 
govern.\71\
---------------------------------------------------------------------------

    \69\ See Edward Jones, FSI, NASAA, SIFMA, WFA, and Wulff.
    \70\ See Edward Jones and FSI.
    \71\ See FSI, PIRC, and Wulff.
---------------------------------------------------------------------------

(III) Foreign and High Net Worth Customers
    SIFMA raised similar concerns with respect to foreign or high net 
worth customers who would also be at risk of exposure of their 
financial information since in some foreign jurisdictions, mail 
delivery may not be secure, and a display of wealth may put such 
customers at risk of harm (e.g., kidnapping for ransom). SIFMA noted 
that high net worth customers do not want sensitive information 
contained within statements to be delivered to their homes because of 
unique challenges such as frequent travel or multiple homes and, as 
such, often delegate the handling and review of statements to a trusted 
agent or third party, who may not be a legal representative of the 
customer. While Rule 3150, incorporated under proposed Supplementary 
Material .04, cites safety or security concerns as examples of 
acceptable reasons for a customer's written instruction to ``hold 
mail,'' SIFMA noted that the circumstances described above are not 
``hold mail'' arrangements under Rule 3150. SIFMA indicated that 
arrangements to deliver statements to a third party for similar reasons 
should be permitted with written customer instruction.
D. Operational Concerns and Implementation of Proposed Supplementary 
Material .02
    Two commenters requested prospective application of the 
provision.\72\ Edward Jones stated that requiring remediation of 
existing accounts would impose significant costs and would not provide 
meaningful additional protection to investors. SIFMA emphasized the 
need for prospective application due to material operational 
challenges, which include persons who have become incapacitated since 
providing the original instruction to direct mail to a third party, as 
well as the significant costs associated with remediating hundreds of 
thousands of account relationships. The proposed rule change would 
apply prospectively, and FINRA intends to give member firms sufficient 
time to comply with the proposed rule change.\73\
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    \72\ Edward Jones and SIFMA.
    \73\ A member firm with a customer having a pre-existing 
arrangement to deliver account statements to a third party that was 
established before the effective date of proposed Rule 2231.02 would 
not be subject to the requirements of the proposed new rule solely 
with respect to such account until that pre-existing third party 
delivery arrangement is modified in any manner. Where any existing 
or new customer of the firm seeks to establish a third party 
delivery arrangement on or after the effective date of proposed Rule 
2231.02, the firm would be subject to the terms of the new rule. 
Relatedly, in connection with its support for the proposed rule 
change to eliminate NYSE Rule Interpretation 409T(a)/03, SIFMA 
requested that FINRA confirm in a rule release commentary or an 
adopting Regulatory Notice that though the conditions in NYSE Rule 
Interpretation 409T(a)/03 would no longer apply, firms may continue 
to rely on this NYSE interpretation for preexisting agreements that 
use third party agents. The proposed rule change is not intended to 
impact preexisting agreements that use third party agents if they 
comport with applicable FINRA rules and guidance.

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[[Page 55655]]

6. Proposed Supplementary Material .03 (Use of Electronic Media To 
Satisfy Delivery Obligations)
    Proposed Supplementary Material .03 would allow a firm to satisfy 
its account statement delivery obligations under Rule 2231 by using 
electronic media, subject to compliance with standards established by 
the SEC on the use of electronic media for delivery purposes. As stated 
above, this provision is consistent with prior guidance FINRA has 
issued on the use of electronic media to satisfy delivery 
obligations.\74\
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    \74\ See supra note 20.
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    SIFMA asserted that the cost burden associated with this new 
requirement would be particularly severe for members where customers 
have not elected to receive electronic account communications. GSU 
supported the use of electronic delivery of account statements only if 
the customer affirmatively elects that option on the basis that a 
customer who is not technologically savvy might not know how to 
electronically opt-out of an electronic statement policy, creating 
confusion as well as the possibility of a customer not being able to 
access his or her statements. The Center for Copyright Integrity urged 
that customer account statements should be delivered in paper form only 
on the belief that paper format will keep customers better informed on 
the contents of their files.
    Proposed Supplementary Material .03 does not mandate the use of 
electronic media to deliver account statements, but permits a firm to 
do so subject to the standards established by the SEC. A firm may be 
able to evidence satisfaction of delivery obligations, for example, by 
obtaining the intended recipient's informed consent to deliver through 
a specified electronic medium and ensuring that the recipient has 
appropriate notice and access. SEC guidance describes ``informed 
consent'' as one that specifies the electronic medium or source through 
which the information will be delivered and the period during which the 
consent will be effective, and describes the information that will be 
delivered using such means.\75\ FINRA notes that proposed Supplementary 
Material .03 is not intended to impose any new delivery obligations 
beyond existing requirements.
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    \75\ See supra note 20.
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7. Proposed Supplementary Material .05 (Information To Be Disclosed on 
Statement)
    Proposed Supplementary Material .05, derived largely from NYSE Rule 
Interpretation 409T(a)/02, including note 1, would specify the 
information that must be clearly and prominently disclosed on the front 
of a customer account statement, i.e., the identity of the introducing 
and carrying organizations, that the carrying organization is a member 
of SIPC, and the opening and closing account balances for the 
customer's account.
    Two commenters expressed views on the appearance of SIPA 
disclosures on account statements.\76\ GSU indicated its support for 
the requirement to provide the SIPA disclosure on the front of an 
account statement because doing so would aid smaller investors to seek 
the help they might need in order to better understand their statements 
and monitor their accounts. PIRC recommended that FINRA provide 
guidelines with respect to how the SIPA disclosure should appear on an 
account statement, citing as an example, that FINRA should consider 
requiring firms clearly highlight the SIPA disclosure to prevent firms 
from ``burying SIPA disclosures in the back of accounts statements or 
in the fine print, which customers may not be able to locate easily.''
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    \76\ See GSU and PIRC.
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    FINRA believes that proposed Supplementary Material .05 gives 
member firms adequate guidance and allows flexibility in providing this 
information while also ensuring that the SIPC status of the clearing 
firm is disclosed on the front of the statement.\77\
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    \77\ Rule 2266 (SIPC Information) requires all member firms, 
unless they are excluded from SIPC membership and are not SIPC 
members, or whose business consists exclusively of the sale of 
investments that are ineligible for SIPC protection, to advise all 
new customers, in writing, at the opening of an account, that they 
may obtain information about SIPC, including the SIPC brochure, by 
contacting SIPC. Such member firms also must provide SIPC's website 
address and telephone number, and provide all customers with the 
same information, in writing, at least once each year.
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8. Use of Logos, Trademarks, etc. (Proposed Supplementary Material .07)
    Proposed Supplementary Material. 07 incorporates, without 
substantive change, NYSE Rule Interpretation 409(a)/05, which governs 
the use of trademarks and logos of other persons on account statements 
by requiring that firms not use the logo, trademark or other similar 
identification of a person (other than the introducing firm or clearing 
firm) on a customer account statement in a manner that is misleading or 
causes customer confusion. SIFMA requested clarification as to what 
logos, trademarks, and other similar identification would be 
``misleading'' to customers or cause ``customer confusion.'' To the 
extent commenters have questions about the application of the proposed 
rule to particular facts and circumstances, FINRA will work with the 
industry to address interpretive issues as needed.
9. Other Comments
    SIFMA requested confirmation that unless a customer requests 
otherwise, a firm may combine account statements for accounts of two or 
more customers sharing the same address in the same envelope addressed 
to one member of the household. In the SEC Householding Release, the 
SEC stated that it was adopting the ``householding'' rules because 
``the distribution of multiple copies of the same document to security 
holders who share the same address often inundates security holders 
with unwanted mail and causes the company to incur higher than 
necessary printing and mailing costs.'' \78\ To avoid duplication, the 
SEC rule allows funds to deliver a single copy of the same document to 
investors who share the same address.\79\ FINRA has not formally 
provided guidance on the issue of ``householding'' customer account 
statements and believes that the commenter raises an issue that is 
outside the scope of this proposed rule change. As such, FINRA believes 
that the questions raised by SIFMA requires further discussion with the 
industry and investors to better understand the relevant facts and 
circumstances.
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    \78\ See Securities Act Release No. 7912 (October 27, 2000), 65 
FR 65736 (November 2, 2000) (``SEC Householding Release'').
    \79\ See Rule 154 (Delivery of prospectuses to investors at the 
same address) under the Securities Act of 1933. 17 CFR 230.154. See 
also SEA Rule 14a-3 (Information to be furnished to security 
holders). 17 CFR 240.14a-3. Rules 154 and 14a-3 permit the 
``householding'' of prospectuses, annual reports, investment company 
semi-annual reports, and proxy statements or information statements 
to investors who share an address. Firms must obtain affirmative 
consent from investors or may rely on a finding of implied consent, 
subject to the conditions outlined in the Rule.
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III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or

[[Page 55656]]

    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-FINRA-2021-024 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-FINRA-2021-024. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10 a.m. and 3 
p.m. Copies of such filing also will be available for inspection and 
copying at the principal office of FINRA. All comments received will be 
posted without change. Persons submitting comments are cautioned that 
we do not redact or edit personal identifying information from comment 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
FINRA-2021-024 and should be submitted on or before October 27, 2021.
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    \80\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\80\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-21767 Filed 10-5-21; 8:45 am]
BILLING CODE 8011-01-P


