Frequently Asked Questions

 

Transmittals of Funds or Securities from Customers to Third Parties, Changes of Address and Investment Objectives

 

Q: What must a firm do to demonstrate compliance with Rule 3012's requirement to have a means or method to document customer confirmation, notification or follow-up for transmittals of funds or securities from customers to third parties and changes of address and/or investment objectives?

A. Although Rule 3012 does not prescribe the means or method of customer notification, the rule does require "a means/method of customer confirmation, notification, or follow-up that can be documented." Accordingly, any customer contact to confirm or follow-up as required must be memorialized and retained for review. Factors to be considered with respect to the documentation of customer contact would include:

  • The date of notification;
  • The means/method of contact (e.g., telephone number, email address, etc.);
  • Identification of the account(s) in question;
  • Whether there was a response from the customer; and, if so, a brief summary of the customer's response and any follow-up action taken.
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    In the case of electronic transactions made by the customer or a customer's legal representative or agent (e.g., a registered investment adviser or agent acting pursuant to legal written authorization) via secure electronic means that are subject solely to the customer's control, it would be sufficient under Rule 3012 for the system itself, as part of its functions, to generate an electronic notification to the customer evidencing the completed transaction. Whatever the means/method of customer notification used, an informed determination must be made that any persons responsible for following up with a customer be independent of the customer's registered representative and be subject to appropriate supervision.

Q: Are securities transfers that are done through ACATS covered by the "customer notification" requirements of Rule 3012(a)(2)?

A. No. The "customer notification" requirements do not apply to transfers of customer account assets conducted through ACATS; such transfers are governed by NASD Rule 11870. However, it is noted that Rule 11870 allows a customer to transfer a portion of his or her account assets outside of ACATS pursuant to "authorized alternate instructions," such as Letters of Authorization transmitted to the carrying (i.e., delivering) organization. Any such "ex-ACATS" transfers are subject to the provisions of Rule 3012(a)(2).