How do I find other firms who are interested in partnering with me?
Contact your clearing firm—they should be able to help you find an appropriate partner firm. You can also meet other firms at industry conferences, such as the FINRA Small Firm Conference, the FINRA Fall Securities Conference, and other industry events.
Why do we have to share the same clearing firm?
In order for this partnership to work, partners must have ready access to the other firm's customer information, which can be facilitated through a common clearing firm.
How far away should my partner firm be?
In the event of a significant business disruption, firms will want a partner who is geographically far away enough to not suffer from the same impairment, as a greater geographic distance will increase the chances that the partner firm will be able to help during the disruption.
What is considered a "significant business disruption" for the purpose of this program?
The program is intended to cover significant business disruptions caused by natural disasters, war or terrorist acts, or other similar disruptions. It is not contemplated that the partnership will be used to cover capital deficiencies, vacation schedules, or other similar situations. The two partner firms can decide together what will be considered significant enough to trigger a hand-off.
Are transactions limited to liquidating transactions only?
The intent of this program is to help customers access to their funds during an emergency. If firms desire, they can agree to expand their program to include limited categories of purchases, such as money market funds.
Why should my clearing firm agree to participate in this program? Can't they handle my customers' calls in an emergency?
Many clearing firm business models do not contemplate providing advice to investors. Those that do may find it particularly challenging to be of assistance when a large number of customers are calling in a short time frame. This program allows the clearing firm to provide a service to support its correspondent firms without having to alter its general business model.
Does this program comply with Regulation S-P?
Section 8 of the template provides relevant language you should include in your privacy notice that will help you comply with your Regulation S-P obligations with respect to the partnership.
How do I sign up?
Once you have located a partner firm, the two introducing firms and the shared clearing firm should enter a contractual relationship. To assist you in drafting a contract, we have provided a template for this contract on our Web site available at www.finra.org/sfepp. This template is intended to be used as a guide to facilitate the creation of your contract; the parties should personalize the template according to their specific needs. Since each partnership is unique, the template should be modified to fit your partnership's particular situation. The agreement should be legally executed by all parties involved and should be signed by persons authorized to sign on behalf of each firm.
Once all parties have signed the contract, the parties to the agreement must notify FINRA that they have entered into a partnership agreement. This is necessary so that FINRA is aware of who is servicing the affected firm's customers in the event of an emergency. FINRA will notify the North American Securities Administrators Association (NASAA) of the partnership, and NASAA will in turn notify the affected states.
It is important to note that firms need only notify FINRA; FINRA will notify NASAA that a partnership has been entered.
Do I have to modify my Business Continuity Plan's Disclosure Statement?
Yes. When a partnership is established, firms are obligated to disclose this relationship to its customers. Also, in order to best serve your customers, it would be helpful to share this information periodically and in different formats so that they will know who to call in the event of an emergency.
Once a Significant Business Disruption Occurs
What happens if there is an emergency and I need my partner to cover my business?
First, the agreement signed by the partner firms and clearing firm will dictate how to handle an emergency. If possible, the affected firm should contact its clearing firm and support firm as soon as possible to convey the level of support needed. The affected firm should then notify FINRA that a hand-off has occurred. If possible, phones should be forwarded to the supporting firm, and a notation on the affected firm's Web site should provide customers with important contact information for the duration of the emergency.
If the affected firm is unable to make such a communication with FINRA or its partner firm, the parties may agree in their contract that after a certain amount of time passes with no contact, the supporting firm can invoke the hand-off. In this instance, the supporting firm will notify FINRA that a hand-off has occurred.
Please note that in the event an emergency occurs and the partnership is invoked, firms retain their obligation to notify directly the SEC of the emergency situation. You can contact the SEC by email.
What happens during the hand-off?
Once the hand-off has been invoked, the supporting firm is responsible for providing support to the affected firm's customers. This can include handling phone calls and inquiries, as well as assisting customers with liquidating transactions. If the parties have agreed, the supporting firm can also assist the affected firm's customers with limited purchases, such as money market funds.
What kinds of records should the supporting firm retain?
Both firms should document when the hand-off occurred, and how long it lasted. Supporting firms should maintain records on the affected firm's behalf in the same manner and method it would for its own customers.
Who is responsible for filing a customer complaint about a transaction that transpired during the hand-off period?
In general, the support firm will only be responsible for filing customer complaints against its own firm and firm representatives.
For the purpose of NASD Rule 3070 (Reporting Requirements), does the supporting firm have an obligation to report to FINRA written customer complaints the supporting firm receives during the course of the emergency that involve only the affected firm or its associated persons?
No. The supporting firm does not have an obligation to report to FINRA such customer complaints, since the complaints only involve the affected firm and its associated persons. However, the supporting firm should promptly notify the affected firm of such complaints so that the affected firm can report the complaint as soon as it is able to do so.
If the supporting firm has previously agreed to report or file Rule 3070 matters on the affected firm's behalf, this must be included in the contract, and the supporting firm should indicate in the report that the matter involves the affected firm or its associated person.
In addition, regulators may consider providing reporting relief to an affected firm on a case-by-case basis.
After the business disruption has abated, what happens if the formerly affected firm receives a customer complaint about a transaction the supporting firm handled?
In this instance, the affected firm is responsible for filing the complaint pursuant to NASD Rule 3070 (Reporting Requirements), and for submitting a duplicate of the complaint to the supporting firm.
During the course of the emergency, is the supporting firm considered a branch office of the affected firm? Does the supporting firm have to register as a branch office of the affected firm?
No. The affected firms' customers remain customers of the original firm. Moreover, the branch office definition in Rule 3010(g)(2) contains an express exception from registration for a "temporary location established in response to the implementation of a business continuity plan." Since the Small Firm Emergency Partner Program is an extension of your BCP, this exemption applies.
During the course of an emergency, do the affected firm's customers become customers of the supporting firm?
No. During a hand-off situation, the affected firm's customers remain that firm's customers. The accounts are not transferred to the supporting firm. Rather, the supporting firm is merely assisting the affected firm in servicing the affected firm's customers.
Is there a limit for how long temporary support can last?
Temporary support by the partner firm should last no more than 90 days. Within that time period, the affected firm should be able to reestablish its office or set up an alternative location to work with customers directly. Based on facts and circumstances, an extension may be granted by FINRA and the State commissioners on an as needed basis.
After the Business Disruption is Abated
How does the affected firm stop the hand-off once the emergency has abated?
As soon as the affected firm is able to conduct business again (either because the emergency has abated or because it is able to conduct business from an alternative location), it should notify the clearing and supporting firms. The clearing firm will then terminate the supporting firm's access to the customer information.
The affected firm should notify its customers that it is able to conduct business again, and should post such information on its Web site.
The affected firm must also notify FINRA that it is conducting business as usual. FINRA will contact NASAA, who in turn will notify all relevant state regulators. Firms should also notify the SEC that they have returned to normal business operating procedures.
Termination of Agreement
What happens if the parties' agreement is terminated?
If the parties terminate their agreement to support each other in the event of a significant business disruption, they should notify FINRA.
What happens if an introducing firm changes clearing firms?
If one of the partnered introducing firms leaves the shared clearing firm, the agreement under this program should be terminated. The parties should notify FINRA that the agreement has terminated in the same manner as listed above.