Targeted Examination Letters
Re: Bank Broker-Dealer Services
The Strategic Initiatives Group of FINRA’s Enforcement Department is conducting an inquiry regarding broker-dealer services involving customers of a financial institution.1 In connection with our review, and pursuant to FINRA Rule 8210, please provide the following documents and information for the period from January 1, 2008 to April 15, 2010 (“the review period”), unless otherwise specified:
- Provide copies of all networking and brokerage affiliate arrangements for the Firm.2
- A detailed description of all sales contests, cash and non-cash incentives, other promotions, programs and initiatives directed at obtaining securities business from financial institution customers that affected the compensation of the sales force and/or management of the Firm or bank associates. Your response should include, but not be limited to, a description of all criteria, processes, and procedures followed, as well as a detailed breakdown of any compensation paid to either bank or brokerage personnel as part of the program. In addition, be sure to indicate if any of the products involved were proprietary products.
- A detailed description of methods used to solicit securities business from existing customers of financial institutions, including, but not limited to, a description of those methods and/or practices that relate to recommendations arising from or relating to maturation of any cash equivalent products held by existing or prospective customers of financial institutions.3 Specify any parties involved in identifying or soliciting said customers and any association between these parties and the Firm, its affiliates, subsidiaries, registered representatives, and other associated persons. Indicate how said parties are compensated for their services.
- Describe all customer information sharing arrangements between the Firm and financial institutions.
- Describe all training and educational programs conducted by the Firm that were given to bank and Firm employees regarding broker-dealer services conducted on the premises of a financial institution.
- Copies of all advertising, sales literature, and institutional sales material concerning or referring to “cash alternatives,” including but not limited to, documents available on the Firm’s website.4
- Copies of all presentation material, marketing material, and training material concerning or referring to “cash alternatives” that were provided to registered representatives of the Firm;
- Sample copies of communications sent to financial institution customers soliciting, promoting, or providing information on securities services of the Firm.
- Sample copies of disclosures to financial institution customers and written acknowledgment from these customers regarding their understanding that broker-dealer products offered are not products of the financial institution.
- For financial institution customers who opened accounts at the Firm, provide an electronic list of all customer complaints and arbitration / litigation claims received during the review period, including, but not limited to, the following:
- Date of activity;
- Date of complaint;
- Customer name;
- Name of registered representative of record for the customer;
- Product type(s);
- Amount in dispute; and
- Status of complaint (pending, settled, denied).
- A copy of the Firm’s written supervisory procedures, compliance manuals and branch manuals in effect during the review period regarding securities services on the premises of financial institutions and financial institution customer solicitation activities.
- A list of each type of exception, surveillance or risk monitoring report used by the Firm to monitor financial institution customer solicitation activity. Provide a detailed explanation of the report, including information on the frequency with which the report is run, the activity the report is designed to monitor, and the manner in which the data is gathered, interpreted and used by the Firm. In addition, provide a sample copy of each type of exception report identified above for the month of December 2009.
- If no exception or surveillance reports are utilized, provide a detailed explanation of the reviews conducted to monitor financial institution customer solicitation activities.
- A copy of the Firm’s internal audit procedures, modules, and checklists as they relate to the Firm’s review of branch offices located on the premises of a financial institution and copies of the most recent financial institution branch office audits for the top three offices (ranked by total commissions).
1 For the purposes of this letter, the term “financial institution” shall include federal and state-chartered banks, savings and loan associations, savings banks, credit unions, and the service corporations of such institutions.
2 The term “networking and brokerage affiliate arrangements” follows the definition provided in NASD Conduct Rule 2350 (“…a contractual or other arrangement between a member and a financial institution pursuant to which the member conducts broker/dealer services for customers of the financial institution and the general public on the premises of such financial institution where retail deposits are taken.”).
3 For the purposes of this letter, soliciting activities include but are not limited to, contact with existing customers of financial institutions for the purpose of: opening securities accounts, requesting or encouraging securities purchases or services, qualifying customers for accounts, extending invitations to securities-related presentations, inquiring whether the person wishes to discuss investments with a registered representative, and determining whether prospective securities customers wish to receive securities literature from the firm.
4 Items responsive to this request would include any material which uses the term “alternative to cash”, “cash alternative” or similar wording, or any material which in any manner compares an instrument to cash or indicates a likeness to cash (e.g. liquidity, price stability).