3968 Federal Register / Vol. 89, No. 14 / Monday, January 22, 2024 / Notices 

26 17 CFR 200.30–3(a)(85). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Rule 3240(a)(2)(A) (the ‘‘immediate family 

exception’’); Rule 3240(a)(2)(B) (the ‘‘financial 

institution exception’’); Rule 3240(a)(2)(C) (the 

‘‘registered persons exception’’); Rule 3240(a)(2)(D) 

(the ‘‘personal relationship exception’’); Rule 

3240(a)(2)(E) (the ‘‘business relationship 

exception’’). 

purposes of this clause (A), ‘‘consolidated 

Options Information’’ means consolidated 

Last Sale Reports combined with either 

consolidated Quotation Information or the 

BBO furnished by OPRA, and access to 

consolidated Options Information and access 

to Proprietary Information are deemed 

‘‘equivalent’’ if Proprietary Information and 

consolidated Options Information, whether 

disseminated on a streaming- or per usagebasis, [both kinds of information] are equally 

accessible on the same terminal or work 

station; [and] 

(B) a Member may not disseminate its 

Proprietary Information on any more timely 

basis than the same information is furnished 

to the OPRA System for inclusion in OPRA’s 

consolidated dissemination of Options 

Information;[.] and 

(C) dissemination of consolidated Options 

Information for the same classes or series of 

options that are included in the Proprietary 

Information must be displayed in a context 

in which a trading or order-routing decision 

can be implemented (i.e., the point of order 

entry or modification). Consolidated Options 

Information must also be provided if a 

registered representative of a broker-dealer 

provides a quotation to a customer that can 

be used to assess the current market or the 

quality of trade execution. 

* * * * * 

III. Solicitation of Comments 

The Commission seeks comment on 

the Amendment. Interested persons are 

invited to submit written data, views 

and arguments concerning the 

foregoing, including whether the 

proposed amendment is necessary or 

appropriate in the public interest, for 

the protection of investors and the 

maintenance of fair and orderly markets, 

to remove impediments to, and perfect 

the mechanisms of, a national market 

system, or otherwise in furtherance of 

the purposes of the Act. Comments may 

be submitted by any of the following 

methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (https://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include file number 4– 

820 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 4–820. 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 (https://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 the filing also 

will be available for inspection and 

copying at the principal offices of the 

Sponsors. Do not include personal 

identifiable information in submissions; 

you should submit only information 

that you wish to make available 

publicly. We may redact in part or 

withhold entirely from publication 

submitted material that is obscene or 

subject to copyright protection. All 

submissions should refer to file number 

4–820 and should be submitted on or 

before February 12, 2024. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.26

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2024–01071 Filed 1–19–24; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–99351; File No. SR–FINRA– 

2024–001] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing of a 

Proposed Rule Change To Amend 

FINRA Rule 3240 (Borrowing From or 

Lending to Customers) 

January 16, 2024. 

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 January 2, 

2024, 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. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

FINRA is proposing to amend Rule 

3240 (Borrowing From or Lending to 

Customers) to strengthen the general 

prohibition against borrowing and 

lending arrangements, narrow some of 

the existing exceptions to that general 

prohibition, modernize the immediate 

family exception, and enhance the 

requirements for giving notice to 

members and obtaining members’ 

approval of such arrangements. 

The text of the proposed rule change 

is available on FINRA’s website at 

https://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 3240 generally prohibits, with 

exceptions, registered persons from 

borrowing money from or lending 

money to their customers. The rule has 

five tailored exceptions, available only 

when the registered person’s member 

firm has written procedures allowing 

the borrowing and lending of money 

between such registered persons and 

customers of the member, the borrowing 

or lending arrangements meet the 

conditions in one of the exceptions 3

and, when required, the registered 

person notifies the member of a 

borrowing or lending arrangement, prior 

to entering into such arrangement, and 


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4See Regulatory Notice 10–21 (April 2010). 

5See Regulatory Notice 19–27 (August 2019). In 

October 2020, FINRA published a report that 

summarized other aspects of that retrospective rule 

review. See Regulatory Notice 20–34 (October 

2020). 

6 In Notice 21–43, FINRA also discussed some 

similarities and differences between Rule 3240 and 

the federal and state regulatory approaches for 

investment advisers and their supervised persons, 

and encouraged a broader dialogue about whether 

a more uniform regulatory approach would enhance 

investor protection. 

7Where appropriate in context, FINRA refers 

herein to ‘‘borrowing and lending’’ rather than 

‘‘borrowing or lending.’’ No references to 

‘‘borrowing and lending,’’ however, should be 

interpreted to mean that Rule 3240 only applies to 

arrangements that have both a borrowing 

component and a separate lending component. Rule 

3240 generally prohibits registered persons from 

borrowing money from or lending money to a 

customer. 8See Rule 3241.01 (Customer). 

9The conditions in Rule 3240(a)(1), (2) and (3) are 

that the member has written procedures allowing 

the borrowing or lending of money between 

registered persons and customers; the borrowing or 

lending arrangement meets one of the conditions; 

and the notification and approval requirements are 

satisfied. 

10Proposed Rule 3240.05 is based, in part, on 

feedback received during the retrospective review 

that some registered persons attempt to circumvent 

Rule 3240 by structuring arrangements with persons 

related to the registered person or the customer. 

11See, e.g., James K. Breeze, Letter of 

Acknowledgment, Waiver and Consent, Case ID 

2008012846501 (June 30, 2009); Vincenzo G. 

Covino, Letter of Acknowledgment, Waiver and 

Consent, Case ID 2009020793901 (Feb. 9, 2012). 

12See Rule 3240(a)(2)(A). 

obtains the member’s pre-approval in 

writing. The exceptions are for limited 

situations where the likelihood that the 

registered person and customer entered 

into the borrowing or lending 

arrangement by virtue of the brokercustomer relationship is reduced, and 

the potential risks are outweighed by 

the potential benefits of allowing 

registered persons to enter into 

arrangements with such customers. 

Rule 3240 was last amended in 2010, 

when it became part of the consolidated 

FINRA rulebook.4 In August 2019, 

FINRA launched a retrospective review 

of Rule 3240, as part of a larger 

retrospective review of FINRA’s rules 

and administrative processes that help 

protect senior investors from financial 

exploitation.5 In December 2021, FINRA 

published Regulatory Notice 21–43 

(‘‘Notice 21–43’’), which (1) 

summarized the predominant themes 

that emerged during the retrospective 

review of Rule 3240; (2) issued guidance 

concerning approvals of permissible 

borrowing or lending arrangements; and 

(3) based on feedback received during 

the retrospective rule review, sought 

comment on proposed amendments to 

Rule 3240.6

Proposed Rule Change 

FINRA is proposing to amend Rule 

3240 to strengthen the general 

prohibition against borrowing and 

lending arrangements, narrow some of 

the existing exceptions to that general 

prohibition, modernize the immediate 

family exception, and enhance the 

requirements for giving notice to 

members and obtaining members’ 

approval of such arrangements.7

The General Prohibition on Borrowing 

From or Lending to Customers 

Rule 3240 generally prohibits 

registered persons from borrowing from 

or lending to their customers. To make 

this regulatory purpose more prominent, 

the proposed rule change would amend 

the rule’s title from ‘‘Borrowing From or 

Lending to Customers’’ to ‘‘Prohibition 

on Borrowing From or Lending to 

Customers,’’ and change the title of Rule 

3240(a) from ‘‘Permissible Lending 

Arrangements; Conditions’’ to ‘‘General 

Prohibition; Permissible Borrowing or 

Lending Arrangements; Conditions.’’ 

These changes would emphasize that 

the rule is, first and foremost, a general 

prohibition. 

In addition, the proposed rule change 

would strengthen this general 

prohibition in three ways. First, Rule 

3240(a) would be amended to clarify 

that the rule’s general requirements 

concerning borrowing and lending 

arrangements—including the general 

prohibition—apply to arrangements that 

pre-exist a new broker-customer 

relationship. Currently, Rule 3240(a) 

begins, ‘‘[n]o person associated with a 

member in any registered capacity may 

borrow money from or lend money to 

any customer of such person . . . .’’ 

FINRA is proposing to amend this 

introductory clause in Rule 3240(a) to 

also prohibit registered persons from 

initiating a broker-customer relationship 

with a person with whom the registered 

person has an existing borrowing or 

lending arrangement. 

Second, FINRA is proposing to add 

Rule 3240.02 (Customer). Proposed Rule 

3240.02 would define ‘‘customer’’ to 

include, for purposes of Rule 3240, any 

customer that has, or in the previous six 

months had, a securities account 

assigned to the registered person at any 

member. This would extend the rule’s 

limitations to borrowing or lending 

arrangements entered into within six 

months after a broker-customer 

relationship terminates. This proposed 

definition would align with the 

definition of ‘‘customer’’ in FINRA Rule 

3241 (Registered Person Being Named a 

Customer’s Beneficiary or Holding a 

Position of Trust for a Customer), a rule 

that addresses similar types of 

conflicts.8

Third, FINRA is proposing to add 

Rule 3240.05 (Arrangements with 

Persons Related to Either the Registered 

Person or the Customer). Proposed Rule 

3240.05 would extend the rule’s 

requirements to borrowing or lending 

arrangements that involve similar 

conflicts as ones presented by 

arrangements directly between 

registered persons and their customers. 

Specifically, proposed Rule 3240.05 

would provide that ‘‘[a] registered 

person instructing or asking a customer 

to enter into a borrowing or lending 

arrangement with a person related to the 

registered person (e.g., the registered 

person’s immediate family member or 

outside business) or to have a person 

related to the customer (e.g., the 

customer’s immediate family member or 

business) enter into a borrowing or 

lending arrangement with the registered 

person would present similar conflict of 

interest concerns as borrowing or 

lending arrangements between the 

registered person and the customer and 

would not be consistent with this Rule 

[3240] unless the conditions set forth in 

[Rule 3240(a)(1), (2), and (3)] are 

satisfied.’’ 9 This would address the 

potential for customer abuse that arises 

when a registered person induces a 

customer to enter into a borrowing or 

lending arrangement with a person or 

entity related to the registered person or, 

likewise, induces a customer to have a 

person or entity related to the customer 

enter into an arrangement with the 

registered person.10

In addition, FINRA is proposing to 

add Rule 3240.03 (Owner-Financing 

Arrangements) to expressly state that, 

for purposes of Rule 3240, borrowing or 

lending arrangements include ownerfinancing arrangements. For example, 

Rule 3240 would apply to situations 

where a registered person purchases real 

estate from his customer, the customer 

agrees to finance the purchase, and the 

registered person provides a promissory 

note for the entire purchase price or 

arranges to pay in installments.11

The ‘‘Immediate Family’’ Definition 

One of the few exceptions to Rule 

3240’s general prohibition is for 

borrowing or lending arrangements with 

a customer who is a member of the 

registered person’s immediate family.12

Currently, Rule 3240(c) defines 

‘‘immediate family’’ to mean ‘‘parents, 

grandparents, mother-in-law or fatherin-law, husband or wife, brother or 

sister, brother-in-law or sister-in-law, 

son-in-law or daughter-in-law, children, 

grandchildren, cousin, aunt or uncle, or 

niece or nephew, and any other person 


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13See Rule 3241(a)(1)(A) and (a)(2)(A) and (c). 

14See Rule 3240(a)(2)(D) and (E). Although Rule 

3240(a)(2)(D) and (E) refer to ‘‘the lending 

arrangement,’’ and do not explicitly mention a 

‘‘borrowing arrangement,’’ these exceptions are not 

intended to exclude borrowing arrangements. 

FINRA therefore proposes a technical amendment 

to make clear that those exceptions apply to 

‘‘borrowing or lending’’ arrangements based on a 

personal relationship or a business relationship. 

15Where appropriate in context, FINRA refers 

herein to proposed Rule 3240(a)(2)(D) as the ‘‘close 

personal relationship exception.’’ See also supra 

note 3 (defining current Rule 3240(a)(2)(D) as the 

‘‘personal relationship exception’’). 

16The term ‘‘bona fide’’ in the close personal 

relationship and business relationship exceptions 

was not included in the proposal in Notice 21–43. 

FINRA proposes to add the term ‘‘bona fide’’ to 

emphasize that for either of these exceptions to 

apply, the close personal relationship or business 

relationship must be legitimate. Adding the term 

‘‘bona fide’’ would also align with language in 

proposed Rule 3240.04, discussed below. 

17The proposal in Notice 21–43 did not include 

an illustrative example of a business relationship in 

proposed Rule 3240.04. It has been added in 

response to comments to Notice 21–43 requesting 

examples of relationships within that exception. 

18Rule 3240(b)(1) contains similar notification 

and approval requirements for modifications to 

borrowing or lending arrangements. 

whom the registered person supports, 

directly or indirectly, to a material 

extent.’’ 

During the retrospective review of 

Rule 3240, FINRA received feedback 

that the definition of ‘‘immediate 

family’’ should be modernized. The 

proposed rule change would modernize 

the ‘‘immediate family’’ definition to 

match the definition of the same term in 

Rule 3241, which also has exceptions 

for situations in which the customer is 

a member of the registered person’s 

immediate family.13 Specifically, the 

proposed rule change to Rule 3240(c) 

would replace ‘‘husband or wife’’ with 

‘‘spouse or domestic partner’’ and 

amend the definition so that it 

‘‘includes step and adoptive 

relationships.’’ In addition, the ‘‘any 

other person’’ clause would be revised 

to be limited to ‘‘any other person who 

resides in the same household as the 

registered person and the registered 

person financially supports, directly or 

indirectly, to a material extent.’’ 

The Personal Relationship and Business 

Relationship Exceptions 

Currently, two exceptions to the rule’s 

general prohibition are for arrangements 

based on (1) a ‘‘personal relationship 

with the customer, such that the loan 

would not have been solicited, offered, 

or given had the customer and the 

registered person not maintained a 

relationship outside of the brokercustomer relationship’’; and (2) a 

‘‘business relationship outside of the 

broker-customer relationship.’’ 14 Due to 

concerns expressed during the 

retrospective review of Rule 3240 that 

the personal relationship exception may 

be exploited—and to make more clear 

what kinds of personal relationships 

would be within the exception—FINRA 

proposes to narrow the personal 

relationship exception to arrangements 

that are based on a ‘‘bona fide, close 

personal relationship between the 

registered person and the customer 

maintained outside of, and formed prior 

to, the broker-customer relationship.’’ 15

This language would replace the 

requirement that ‘‘the loan would not 

have been solicited, offered, or given 

had the customer and the registered 

person not maintained a relationship 

outside of the broker-customer 

relationship’’ to narrow the scope of the 

exception and clarify the types of 

relationships that would be within the 

exception. For similar reasons, FINRA 

proposes to amend the business 

relationship exception to be limited to 

arrangements that are based on a ‘‘bona 

fide business relationship outside of the 

broker-customer relationship.’’ 16

In addition to narrowing the personal 

relationship and business relationship 

exceptions, FINRA is proposing to add 

Rule 3240.04 (Close Personal 

Relationships; Business Relationships), 

which would provide factors for 

evaluating whether a borrowing or 

lending arrangement is based on a close 

personal relationship or a business 

relationship. The proposed factors 

would include, but would not be 

limited to, when the relationship began, 

its duration and nature, and any facts 

suggesting that the relationship is not 

bona fide or was formed with the 

purpose of circumventing the purpose 

of Rule 3240. Proposed Rule 3240.04 is 

intended to help establish the scope of 

the close personal relationship and 

business relationship exceptions, focus 

on the most relevant factors when 

evaluating whether a close personal 

relationship or business relationship 

exists, and ensure that members 

consider meaningfully the potential 

issues involved in the proposed 

arrangement. 

To provide even more guidance about 

the scope of the close personal 

relationship and business relationship 

exceptions, proposed Rule 3240.04 

would also provide illustrative 

examples of these relationships. 

Specifically, it would provide that 

examples of relationships that are close 

personal relationships include, but are 

not limited to, a childhood or long-term 

friend, a godparent, and other similarly 

close relationships. Additionally, 

proposed Rule 3240.04 would provide 

that an example of a business 

relationship includes, but is not limited 

to, a loan from a registered person to a 

small outside business that the 

registered person co-owned for years for 

the sole purpose of providing the 

business with additional operating 

capital.17

Notification and Approval 

Requirements 

The proposed rule change would also 

amend Rule 3240’s notification and 

approval requirements. Currently, Rule 

3240(b) contains notification and 

approval requirements for borrowing or 

lending arrangements within the five 

exceptions, which vary depending on 

which exception applies. With respect 

to the personal relationship, business 

relationship, and registered persons 

exceptions, Rule 3240(b)(1) provides 

that a registered person shall notify the 

member of borrowing or lending 

arrangements prior to entering into such 

arrangements, and that the member 

shall pre-approve in writing such 

arrangements.18 With respect to the 

immediate family member exception, 

Rule 3240(b)(2) provides, in pertinent 

part, that a member’s written procedures 

may indicate that registered persons are 

not required to notify the member or 

receive member approval. With respect 

to the financial institution exception, 

Rule 3240(b)(3) provides, in pertinent 

part, that a member’s written procedures 

may indicate that registered persons are 

not required to notify the member or 

receive member approval, provided that 

‘‘the loan has been made on commercial 

terms that the customer generally makes 

available to members of the general 

public similarly situated as to need, 

purpose and creditworthiness.’’ 

FINRA is proposing several 

amendments to all these notification 

and approval requirements. First, 

FINRA is proposing to amend Rule 

3240(b)(1) to clarify that, although 

registered persons are required to obtain 

the member’s prior approval of 

arrangements within the close personal 

relationship, business relationship, or 

registered persons exceptions, the 

member is not required to approve such 

arrangements. As explained above, Rule 

3240(b)(1) currently provides that the 

member ‘‘shall pre-approve’’ such 

arrangements, which could imply 

incorrectly that the member must 

approve the arrangement or 

modification and may not disapprove it. 

To preclude this incorrect 

interpretation, the proposed rule change 

would delete the ‘‘shall pre-approve’’ 

language and instead require the 


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19See proposed Rule 3240(b)(1)(A). 

20 In such situations, if the member does not 

approve the formation of a broker-customer 

relationship with the registered person who 

provided such notice, the customer would still be 

permitted to seek to initiate a broker-customer 

relationship with another registered person at the 

same member. 

21See proposed amendments to Rule 

3240(b)(1)(A) and (b)(1)(B) and Rule 3240.01. Rule 

3240.01 would also be amended to provide that the 

record-retention requirements are for purposes of 

Rule 3240(b), not just Rule 3240(b)(1). As explained 

above, Rule 3240(b)(1) requires notice and approval 

of arrangements that are within the personal 

relationship, business relationship, and registered 

persons exceptions. While Rule 3240(b)(2) and (3) 

do not expressly require notice and approval of 

arrangements within the immediate family member 

and financial institution exceptions, those 

subparagraphs imply that members may choose to 

require such notice and approval of those 

arrangements. 

22See Rule 3270.01 (Obligations of Member 

Receiving Notice). 

23FINRA has explained that this guidance was 

similar to general guidance that FINRA had 

published concerning the ‘‘reasonable assessment’’ 

and ‘‘reasonable determination’’ requirements in 

Rule 3241. See Notice 21–43, at n.21 (citing Rule 

3241(b)(1), Regulatory Notice 20–38 (October 2020), 

and Securities Exchange Act Release No. 89218 

(July 2, 2020), 85 FR 41249, 41251 (July 9, 2020) 

(Notice of Filing of File No. SR–FINRA–2020–020)). 

registered person to provide the member 

with notice of the arrangements or 

modifications ‘‘prior to entering into 

such arrangements’’ or ‘‘prior to the 

modification of such arrangements’’ and 

‘‘obtain the member’s approval.’’ 19

The proposed rule change would also 

amend the notification and approval 

requirements that apply to borrowing or 

lending arrangements within the 

registered persons, personal relationship 

and business relationship exceptions, to 

correspond with the proposed 

amendments that would clarify that the 

general prohibition applies to preexisting arrangements. Specifically, 

proposed Rule 3240(b)(1)(B) would 

require registered persons, prior to the 

initiation of a broker-customer 

relationship at the member with a 

person with whom the registered person 

has an existing borrowing or lending 

arrangement, to notify the member in 

writing of existing arrangements within 

the registered persons, personal 

relationship and business relationship 

exceptions and obtain the member’s 

approval in writing of the brokercustomer relationship.20

Further, the proposed rule change 

would require that all notices required 

under Rule 3240 be in writing and 

retained by the member. Currently, Rule 

3240 does not specify that notice must 

be given in writing, and the recordretention provision in Rule 3240.01 

requires members only to preserve 

written approvals. The proposed rule 

change would require registered persons 

to give written notice and require 

members to preserve records of such 

written notice for at least three years.21

The proposed rule change would also 

amend the provisions that address 

notice and approval of arrangements 

within the immediate family and 

financial institution exceptions, to 

correspond with the proposed 

amendments that would clarify that the 

general prohibition applies to 

arrangements that pre-exist the brokercustomer relationship. Currently, under 

Rule 3240(b)(2) and (3), the member’s 

written procedures may indicate that 

registered persons are not required to 

notify the member or receive member 

approval of arrangements within the 

immediate family exception or 

arrangements within the financial 

institution exception that meet the 

additional conditions set forth in Rule 

3240(b)(3). To extend these provisions 

to pre-existing arrangements, the 

proposed rule change would amend 

Rule 3240(b)(2) and (3) to provide that 

the member’s procedures may also 

indicate that registered persons are not 

required to notify the member or receive 

member approval of such arrangements 

either prior to or subsequent to 

initiating a broker-customer 

relationship. 

Finally, in response to comments 

received in response to Notice 21–43, 

the proposed rule change would 

establish new obligations on a member 

when receiving notice of a borrowing or 

lending arrangement. Specifically, 

FINRA is proposing to add Rule 3240.06 

(Obligations of Member Receiving 

Notice). Proposed Rule 3240.06 would 

provide that upon receiving written 

notice under Rule 3240, the member 

shall perform a reasonable assessment of 

the risks created by the borrowing or 

lending arrangement with a customer, 

modification to the borrowing or 

lending arrangement with a customer, or 

existing borrowing or lending 

arrangement with a person who seeks to 

be a customer of the registered person. 

It would further provide that the 

member shall also make a reasonable 

determination of whether to approve the 

borrowing or lending arrangement, 

modification to the borrowing or 

lending arrangement, or, where there is 

an existing borrowing or lending 

arrangement with a person who seeks to 

be a customer of the registered person, 

the broker-customer relationship. 

Proposed Rule 3240.06 would be similar 

to Rule 3241(b)(1), which requires 

members to perform a ‘‘reasonable 

assessment’’ and ‘‘reasonable 

determination’’ when receiving notice of 

a registered person being named a 

customer’s beneficiary or holding a 

position of trust for a customer, and to 

supplementary material to FINRA Rule 

3270 (Outside Business Activities of 

Registered Persons) that provides factors 

members must consider upon receiving 

written notice of an outside business 

activity.22

FINRA intends that a member’s 

‘‘reasonable assessment’’ and 

‘‘reasonable determination’’ for 

purposes of proposed Rule 3240.06 

would be informed by guidance that 

FINRA has already provided to 

members in Notice 21–43.23

Specifically, FINRA expects that a 

member’s ‘‘reasonable assessment’’ 

would take into consideration several 

factors, such as: 

(1) any potential conflicts of interest 

in the registered person being in a 

borrowing or lending arrangement with 

a customer; 

(2) the length and type of relationship 

between the customer and registered 

person; 

(3) the material terms of the 

borrowing or lending arrangement; 

(4) the customer’s or the registered 

person’s ability to repay the loan; 

(5) the customer’s age; 

(6) whether the registered person has 

been a party to other borrowing or 

lending arrangements with customers; 

(7) whether, based on the facts and 

circumstances observed in the member’s 

business relationship with the customer, 

the customer has a mental or physical 

impairment that renders the customer 

unable to protect his or her own 

interests; 

(8) any disciplinary history or indicia 

of improper activity or conduct with 

respect to the customer or the 

customer’s account (e.g., excessive 

trading); and 

(9) any indicia of customer 

vulnerability or undue influence of the 

registered person over the customer. 

This list is not intended to be 

exhaustive. Moreover, while a listed 

factor may not be applicable to a 

particular situation, the factors that a 

member considers should allow for a 

reasonable assessment of the associated 

risks so that the member can make a 

reasonable determination of whether to 

approve the borrowing or lending 

arrangement, modification to the 

borrowing or lending arrangement, or, 

where there is an existing borrowing or 

lending arrangement with a person who 

seeks to be a customer of the registered 

person, the broker-customer 

relationship. FINRA does not expect a 

registered person’s assertion that the 

registered person or the customer has no 

viable alternative person from whom to 


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3972 Federal Register / Vol. 89, No. 14 / Monday, January 22, 2024 / Notices 

24FINRA notes that the proposed rule change 

would impact members that have elected to be 

treated as capital acquisition brokers (‘‘CABs’’), 

given that the CAB Rules incorporate the impacted 

FINRA rule by reference. 

25 15 U.S.C. 78o–3(b)(6). 

26See 2023 FINRA Industry Snapshot, https://

www.finra.org/sites/default/files/2023-04/2023- 

industry-snapshot.pdf. There is no data of the 

number of customers of the registered member 

firms. 

27The number of enforcement cases includes the 

FINRA disciplinary actions that resulted in a Letter 

of Acceptance, Waiver, and Consent (AWC), an 

Order Accepting Settlement (OAS), or a decision 

issued by FINRA’s Office of Hearing Officers, and 

that resulted in findings that the respondent 

violated Rule 3240. The number does not include 

matters resulting in Cautionary Action. 

28 ‘‘Not repaid according to its terms’’ could 

include, but is not limited to, situations in which 

a customer is not repaid in full or not repaid at the 

interest rate or by the date agreed upon. 

borrow money to be dispositive in the 

member’s assessment. If possible, as 

part of the member’s reasonable 

assessment of the risks, FINRA would 

expect a member to try to discuss the 

arrangement with the customer.24

If the Commission approves the 

proposed rule change, FINRA will 

announce the effective date of the 

proposed rule change in a Regulatory 

Notice. 

2. Statutory Basis 

FINRA believes the proposed rule 

change is consistent with the provisions 

of section 15A(b)(6) of the Act,25 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, by strengthening 

and modernizing Rule 3240, the 

proposed rule change would enhance 

investor protection. The proposed rule 

change would reduce risks to investors 

through incremental adjustments that 

strengthen the general prohibition 

against borrowing and lending 

arrangements and narrow the few 

exceptions to the rule. In addition, the 

proposed rule change would facilitate 

compliance by clarifying the scope of 

the general prohibition and the personal 

relationship and business relationship 

exceptions. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

FINRA does not believe that the 

proposed rule change would 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 

further analyze the regulatory need for 

the proposed rule change, its potential 

economic impacts, including 

anticipated costs, benefits, and 

distributional and competitive effects 

relative to the current baseline, and the 

alternatives FINRA considered in 

assessing how best to meet its regulatory 

objective. 

(a) Regulatory Need 

Rule 3240 generally prohibits 

registered persons from borrowing from 

or lending to their customers except 

when certain conditions are met, as 

specified in Rule 3240 and described 

above. Anecdotal evidence from 

member firms, law clinics, and previous 

enforcement cases—as well as FINRA’s 

experience in examining and enforcing 

for compliance with Rule 3240— 

suggests that there is some ambiguity 

about the scope of Rule 3240 and certain 

risks to investors due to conflicts of 

interest and the superior information 

that registered persons have about 

potential risks and returns. As discussed 

further below, the proposed rule change 

would reduce ambiguity and aim to 

mitigate these risks. 

(b) Economic Baseline 

The economic baseline for the 

proposed rule change is Rule 3240, 

members’ existing internal procedures 

regarding borrowing from or lending to 

a customer, and the extent of investor 

protection and market efficiency that 

result. As of the end of 2022, there were 

620,882 registered persons and 3,378 

registered member firms that would be 

covered by the proposed rule change, in 

addition to the registered persons’ 

customers.26

Absent Rule 3240, borrowing or 

lending arrangements between 

registered persons and their customers 

would likely be more widespread and 

riskier due to conflicts of interest and 

the superior information that registered 

persons have about potential risks and 

returns. Rule 3240 generally prohibits 

these arrangements, and it establishes 

processes that may help mitigate the 

potential conflicts of interest in those 

arrangements that are within the 

exceptions. In this regard, registered 

persons may not enter into borrowing or 

lending arrangements that are within 

the rule’s exceptions unless the 

registered person’s member firm has 

written procedures allowing the 

borrowing or lending of money between 

such registered persons and their 

customers, and unless the registered 

person complies with any applicable 

notification and approval requirements. 

Members may adopt procedures that are 

stricter than Rule 3240. However, for 

purposes of conducting an economic 

analysis, FINRA does not have 

comprehensive information readily 

available about members’ borrowing or 

lending policies or practices. 

To understand the potential harm 

from impermissible borrowing or 

lending arrangements, FINRA reviewed 

final FINRA enforcement cases that 

involved findings of Rule 3240 

violations. Between January 2018 and 

December 2021, there were an average 

of 15 such enforcement cases per year, 

totaling 58 cases over the four-year 

period.27 The number of cases year over 

year did not display a noticeable trend. 

The customer was the borrower in only 

one of the cases, and the registered 

person was the borrower in the other 57 

cases. The amounts of borrowed or lent 

money ranged from $1,800 to 

$1,350,000, with a mean of $163,509 

and a median of $70,000. 

Customer harm occurs if a loan from 

the customer is not repaid according to 

its terms,28 or if the terms of the loan 

are substantially worse when compared 

to prevailing market terms for loans to 

comparable borrowers. In the 

enforcement cases in the review period, 

the customers were often repaid, though 

it is uncertain whether they were repaid 

according to the terms of the loan or 

how those terms would have compared 

to prevailing market terms. FINRA notes 

the number of enforcement cases does 

not represent all violations of Rule 3240 

that may have occurred, and thus, does 

not provide a complete picture of the 

economic baseline of customer harm. 

FINRA also reviewed disclosures on 

Forms U4 and U5 of consumer-initiated, 

investment-related arbitrations, civil 

litigation or customer complaints 

(written or oral) that included 

allegations related to a registered person 

(or former registered person) borrowing 

money from or lending money to a 

customer. This information 

complements the information from the 

enforcement cases regarding the 

potential harm caused by impermissible 

borrowing or lending arrangements, 

although the disclosures do not 

necessarily indicate whether or how 

Rule 3240 was violated. From 2018 to 

2021, there was a total of 100 such 

disclosures over the four-year period, 

which averaged to 23 disclosures per 

year. The number of such disclosures 

declined from 38 in 2018 to 19 in 2021. 

In 28 of the total 100 identified 

disclosures, the amount of the 

compensatory damages claim was not 


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Federal Register / Vol. 89, No. 14 / Monday, January 22, 2024 / Notices 3973 

29For example, in one disclosure, a family 

member filed the complaint on behalf of a deceased 

customer without knowing the exact amount 

borrowed. 

30 In two disclosures, the alleged compensatory 

damages were $20 million and $43 million, both of 

which are more than three standard deviations from 

the mean. FINRA removed these data points in 

calculating the mean and median to avoid biases 

caused by outliers. 

known.29 In the remaining 70 

disclosures excluding two outliers,30 the 

alleged compensatory damages claims 

ranged from $1,800 to $3.7 million, with 

a mean of $224,760 and a median of 

$94,600. Fifty-three of the 100 

disclosures resulted in settlements, 

which ranged from $1,800 to $1.3 

million. Five of the disclosures resulted 

in an arbitration award between $2,000 

and $150,000. One disclosure resulted 

in a civil judgment of $85,000. 

The extent to which data concerning 

these consumer-initiated events may 

inform an economic baseline has some 

limitations. First, some disclosures 

allege harm caused by conduct in 

addition to borrowing from or lending to 

a customer, such as recommending 

unsuitable investments, so FINRA is 

unable to determine how much of the 

alleged harm derives from allegations 

related to borrowing or lending. Second, 

the alleged compensatory damages 

could be a poor proxy for measuring 

customer harm because the disclosures 

did not specifically mention the 

borrowed amounts or have details about 

whether the loan was repaid, and 

because nearly all alleged compensatory 

damages claims were not adjudicated. 

Nevertheless, to the extent some of the 

disclosures are of settlements, awards or 

judgments, those provide a better gauge 

of the potential customer harm than 

mere allegations of compensatory 

damages. Thus, the disclosure data 

provides a perspective, in addition to 

the enforcement data, on the prevalence 

and the scope of borrowing or lending 

arrangements between registered 

persons and customers. 

To supplement the quantitative 

analysis above, FINRA also considered 

its own experience with examining and 

enforcing for compliance with Rule 

3240. Specifically, FINRA is concerned 

that some registered persons attempt to 

circumvent the current rule, using 

tactics such as timing a borrowing or 

lending arrangement to be entered into 

after terminating a broker-customer 

relationship, using other nominal 

borrowers such as a spouse or business 

entity of the registered person, or 

claiming a personal relationship that is 

not bona fide. For example, FINRA has 

detected instances in which the 

registered person re-assigned the 

customer to another registered person 

and then immediately entered into a 

borrowing arrangement with the former 

customer. These kinds of arrangements 

present the same kinds of conflicts of 

interest that Rule 3240 is intended to 

address, and, as such, also inform the 

economic baseline. 

(c) Economic Impact 

By extending the coverage of the 

rule’s general prohibition, narrowing 

some exceptions, and clarifying certain 

aspects of the rule, the proposed rule 

change would result in fewer attempts 

by registered persons to enter into 

impermissible arrangements. For 

example, the expected cost of 

attempting to enter into a borrowing or 

lending arrangement that is not within 

the exceptions would be higher, as the 

likelihood of getting caught would 

increase when members, registered 

persons and customers have better 

information about permitted 

arrangements. Further, by reducing 

ambiguity regarding permissible 

borrowing or lending arrangements, a 

registered person who currently avoids 

a permissible and mutually beneficial 

borrowing or lending arrangement may 

be more comfortable entering into such 

an arrangement because of the proposed 

rule change. 

The proposed rule change would 

prohibit some arrangements that are 

allowed under the current rule. For 

example, the general prohibition does 

not currently extend to arrangements 

entered into within six months after a 

broker-customer relationship ends; 

under the proposed rule change, it 

would. Additionally, the proposed rule 

change would narrow the personal 

relationship exception, prohibiting 

some of the arrangements that are 

permissible under the current rule. 

FINRA recognizes, however, that the 

proposed rule change may preclude 

arrangements that could be mutually 

beneficial to customers and registered 

persons and superior to alternative 

opportunities for borrowing or lending. 

Furthermore, requiring members to 

make a reasonable assessment of the 

risks and a reasonable determination of 

whether to approve the arrangement or 

new broker-customer relationship, as 

the case may be, may lead some 

members to disallow these arrangements 

altogether to avoid the cost of making 

the required assessments and 

determinations. 

The long-term net impact of the 

proposed rule change on members’ 

compliance costs is less clear. The 

proposed rule change would likely 

reduce registered persons’ attempts to 

borrow based on the close personal 

relationship exception. Further, with 

the proposed modernized definition of 

‘‘immediate family,’’ some arrangements 

that are currently within the personal 

relationship exception would instead be 

within the immediate family exception, 

of which members could choose not to 

require notification or approval. On the 

other hand, by clarifying that the rule 

covers arrangements that pre-exist the 

initiation of a broker-customer 

relationship and extending the rule six 

months after a broker-customer 

relationship is terminated, members 

would start receiving notice of the kinds 

of arrangements of which they are not 

currently receiving notice and would be 

required to evaluate whether to approve 

the arrangement or a new brokercustomer relationship, as applicable. 

Additionally, members may incur 

additional costs of supervising and 

monitoring due to the extended time 

period that the proposed rule change 

covers. The extent of net savings or 

costs to members for compliance would 

depend on the relative prevalence of 

such cases and the additional 

monitoring costs. 

The proposed rule change requiring 

members that receive notice of an 

arrangement to perform a reasonable 

assessment of the risks created by the 

arrangement could also raise members’ 

compliance costs in the long term to the 

extent that members are not currently 

conducting these assessments. While 

the current rule requires members, upon 

receiving notice of an arrangement, to 

approve the arrangement in writing, the 

current rule does not require members 

to conduct a reasonable assessment of 

the risks of the arrangement prior to 

giving approval. Some members may 

already have a robust assessment 

process while some may have to adjust 

their process to comply with the 

proposed rule change. As a result, the 

compliance cost of the approval process 

for members that would have to make 

the adjustments could increase. 

Members may also incur increased 

compliance costs in the short term. 

Specifically, members may need to 

update their written procedures in light 

of the proposed rule change given that 

Rule 3240 prohibits all arrangements 

unless the member has procedures 

permitting them. Members may also 

have to re-train their staff to become 

aware of the extended prohibitions, the 

modernized definition of ‘‘immediate 

family,’’ the proposed factors to 

consider for arrangements based on 

close personal relationships and 

business relationships, and the 

‘‘reasonable assessment’’ and 

‘‘reasonable determination’’ 

requirements. While the proposed rule 


ddrumheller on DSK120RN23PROD with NOTICES1
3974 Federal Register / Vol. 89, No. 14 / Monday, January 22, 2024 / Notices 

31See Letter from Michael Edmiston, President, 

Public Investors Advocate Bar Association, to 

Jennifer Piorko Mitchell, Office of the Corporate 

Secretary, FINRA, dated February 14, 2022 

(‘‘PIABA’’); letter from Bernard V. Canepa, 

Managing Director and Associate General Counsel, 

Securities Industry and Financial Markets 

Association, to Jennifer Piorko Mitchell, Office of 

the Corporate Secretary, FINRA, dated February 14, 

2022 (‘‘SIFMA’’); letter from Alice L. Stewart et al., 

Esquire, Director, University of Pittsburgh 

Securities Arbitration Clinic and Professor of Law, 

to Jennifer Piorko Mitchell, Office of the Corporate 

Secretary, FINRA, dated February 14, 2022 

(‘‘University of Pittsburgh’’). 

32See Letter from Jenice L. Malecki, Malecki Law, 

to Marcia E. Asquith, Executive Vice President, 

Board and External Relations, FINRA, dated 

February 14, 2022 (‘‘Malecki’’); letter from Melanie 

Senter Lubin, President, North American Securities 

Administrators Association, Inc., to Jennifer Piorko 

Mitchell, Office of the Corporate Secretary, FINRA, 

dated February 14, 2022 (‘‘NASAA’’). 

33See Comment submission from Caleb Benore, 

dated December 29, 2021 (‘‘Benore’’). 

34See PIABA, SIFMA and University of 

Pittsburgh. 

35While generally supporting the proposal, 

University of Pittsburgh had comments regarding 

the business relationship exception, and PIABA had 

comments regarding the definition of ‘‘customer.’’ 

Those comments are discussed below. 

36NASAA, which generally opposed the 

proposal, also expressed support for the 

modernization of the definition of ‘‘immediate 

family.’’ 

37 In the alternative, NASAA and Malecki 

recommended various changes to Rule 3240, should 

it continue to permit any kinds of borrowing or 

lending arrangements. Those comments are 

discussed below. 38See Dishonest or Unethical Business Practices 

of Broker-Dealers and Agents (adopted May 23, 

1983), https://www.nasaa.org/wp-content/uploads/ 

2011/07/29-Dishonest_Practices_of_BD_or_

Agent.83.pdf. NASAA also commented that its 

model rule concerning unethical business practices 

of investment advisers includes a similar 

prohibition. See NASAA Unethical Business 

Practices Of Investment Advisers, Investment 

Adviser Representatives, And Federal Covered 

Advisers Model Rule 102(a)(4)–1 (2019), available 

at https://www.nasaa.org/wp-content/uploads/ 

2019/05/NASAA-IA-Unethical-Business-PracticesModel-Rule.pdf (providing that an investment 

adviser, an investment adviser representative or a 

federal covered adviser shall not engage in 

unethical business practices, including, among 

other things, ‘‘[b]orrowing money or securities from 

a client unless the client is a broker-dealer, an 

affiliate of the investment adviser, or a financial 

institution engaged in the business of loaning 

funds’’ or ‘‘[l]oaning money to a client unless the 

investment adviser is a financial institution engaged 

in the business of loaning funds or the client is an 

affiliate of the investment adviser’’). 

39See Notice 21–43. 

change would not apply retroactively, as 

discussed below, members may elect to 

re-evaluate previously approved 

arrangements under the proposed rule 

change. Additionally, members may 

choose to respond to the proposed rule 

change by reviewing their current 

registered persons’ borrowing or lending 

arrangements with their current and 

previous customers, to the extent they 

have not already done so. 

For members that are not already 

maintaining written notices and 

approvals of borrowing or lending 

arrangements that the proposed rule 

change would require, there would be 

additional operational costs. However, 

FINRA expects the incremental costs to 

be minimal, as the costs of making and 

keeping written records are trivial with 

digital technology. 

(d) Alternatives Considered 

FINRA considered generally 

prohibiting all borrowing or lending 

arrangements between registered 

persons and customers and eliminating 

the existing exceptions. FINRA does not 

propose a complete prohibition for 

several reasons. As an initial matter, 

Rule 3240 already contains a general 

prohibition, and the proposed rule 

change would strengthen it, by 

clarifying that it applies to pre-existing 

arrangements, extending the time period 

over which the rule would apply, 

adopting supplementary material that 

addresses conduct by registered persons 

regarding arrangements with persons 

related to the registered person or to the 

customer, and narrowing some 

exceptions. 

Moreover, as discussed below, FINRA 

determined that the enumerated 

exceptions in Rule 3240, with the 

proposed rule change described above, 

are for limited situations where the 

likelihood that the registered person and 

customer entered into the borrowing or 

lending arrangement by virtue of the 

broker-customer relationship is reduced, 

and the potential risks are outweighed 

by the potential benefits of allowing 

registered persons to enter into 

arrangements with such customers. See 

discussion infra section C. 

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 Notice 21–43. 

Six comments were received in 

response to Notice 21–43. A copy of 

Notice 21–43 appears in Exhibit 2a. 

Copies of the comment letters received 

in response to Notice 21–43 appear in 

Exhibit 2b. Of the six comment letters 

received, three were in favor of the 

proposed rule change,31 two were 

opposed,32 and one raised issues that 

were beyond the scope of Rule 3240.33

The comments and FINRA’s 

responses are set forth in detail below. 

General Support for the Proposal 

Three commenters expressed support 

for the proposal in Notice 21–43.34

SIFMA noted that the proposal would 

provide greater clarity and guidance to 

members in assessing which 

arrangements may be permissible under 

the exceptions to the prohibition. 

PIABA specifically expressed support 

for applying Rule 3240 to arrangements 

that pre-exist the broker-customer 

relationship, extending the definition of 

customer to those who had accounts 

with a registered person in the previous 

six months, and making clear that the 

same or very similar conflicts of interest 

are present if a registered 

representative’s close family member 

obtains a loan from a registered 

representative’s customer. University of 

Pittsburgh expressed support for nearly 

every change proposed in Notice 21– 

43.35 PIABA, SIFMA and University of 

Pittsburgh all supported the proposed 

modernization of the ‘‘immediate 

family’’ definition.36

General Opposition to the Proposal 

NASAA and Malecki did not support 

the proposal in Notice 21–43 because 

they both would favor an outright 

prohibition on borrowing from or 

lending to customers.37 NASAA stated 

that the proposed changes would 

continue to subject registered persons to 

disparate regulatory requirements. In 

particular, NASAA noted that its model 

rule concerning Dishonest or Unethical 

Business Practices of Broker-Dealers and 

Agents, which lists acts and practices 

that are considered contrary to high 

standards of commercial honor and just 

and equitable principles of trade, 

prohibits agents from ‘‘[e]ngaging in the 

practice of lending or borrowing money 

or securities from a customer, or acting 

as a custodian for money, securities or 

an executed stock power of a 

customer.’’ 38

During the retrospective review of 

Rule 3240, while some stakeholders also 

suggested that all borrowing and 

lending arrangements should be 

prohibited, others commented that the 

rule has appropriate exceptions or that 

the rule should have stronger controls 

short of a complete prohibition.39 In 

evaluating this wide range of views, 

FINRA considered, as stated in Notice 

21–43, whether the rule should 

generally prohibit all borrowing and 

lending arrangements between 

registered persons and customers with 

no exceptions. FINRA decided against 

this approach, however, for several 

reasons. 

First, Rule 3240 already contains a 

general prohibition that the proposed 

rule change would strengthen by 

extending the period over which the 

rule would apply, clarifying that the 

prohibition applies to pre-existing 

arrangements, and narrowing some of 

the exceptions. Second, FINRA believes 


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40See, e.g., Georgia (Ga. Comp. R. & Regs. 590– 

4–5–.16(2)(b)(1) (2011)); Massachusetts (950 Mass. 

Code Regs. 12.204(1)(b)(1) (2020)); Pennsylvania (10 

Pa. Code § 305.019(c)(2)(i) (2018)). 

41See, e.g., Connecticut (Conn. Agencies Regs. 

§ 36b–31–15b(a)(1) (1995)); Michigan (Mich. 

Admin. Code r.451.4.27(3)(a) (2019)); New Jersey 

(N.J. Admin. Code § 13:47A–6.3(a)(43) and (44) 

(2017)); North Carolina (18 N.C. Admin. Code 

6A.1414(c)(1) (1988)). 

42See, e.g., Colorado (Colo. Code Regs. 704–1 

§ 51–4.7(H)(2) (2019)); Florida (Fla. Admin. Code 

Ann. r.69W–600.013(2)(a) (2021)); Nevada (Nev. 

Admin. Code § 90.327(1)(d)(1) and Nev. Admin. 

Code § 90.321(1) (2008)). 

43Specifically, FINRA has not identified state 

broker-dealer laws or regulations prohibiting 

borrowing or lending with customers in New York, 

California, Illinois or Texas. See generally 2023 

FINRA Industry Snapshot at 22–23, available at 

https://www.finra.org/sites/default/files/2023-04/ 

2023-industry-snapshot.pdf. 

44See 17 CFR 240.15l–1(a)(1). 

45Moreover, the member’s reasonable assessment 

and determination would be informed by guidance 

in Notice 21–43 that the member’s reasonable 

assessment of the risks may include consideration 

of, among other factors, ‘‘any potential conflicts of 

interest in the registered person being in a 

borrowing or lending arrangement with a 

customer.’’ 

46See Securities Exchange Act Release No. 61302 

(January 6, 2010), 75 FR 1672, 1673 (January 12, 

2010) (Notice of Filing of File No. SR–FINRA– 

2009–095). 

that all the exceptions are tailored to 

permit arrangements for which the 

potential benefits outweigh related 

potential risks. The exceptions allow for 

narrow situations where the likelihood 

that the registered person and customer 

entered into the borrowing or lending 

arrangement by virtue of the brokercustomer relationship is reduced. Third, 

Rule 3240 also contains several 

protections that restrict a registered 

person’s ability to enter into an 

arrangement within the five exceptions 

(i.e., that no arrangements within the 

exceptions are permitted absent a 

member’s procedures allowing the 

borrowing or lending of money between 

registered persons and customers and 

absent the registered person’s 

compliance with applicable notice and 

approval requirements). These 

protections would be further 

strengthened through the proposed rule 

change to require members, when 

receiving written notice of a borrowing 

or lending arrangement, to make a 

reasonable assessment of the risks 

created by a borrowing or lending 

arrangement and a reasonable 

determination of whether to approve it. 

FINRA does not believe that NASAA’s 

model rule concerning the unethical 

business practices of broker-dealers and 

agents warrants changing the general 

approach of Rule 3240 as a general 

prohibition with narrow exceptions and 

associated protections. As explained 

above, one of the paragraphs in the 

NASAA model rule prohibits brokerdealer agents from engaging in the 

practice of borrowing or lending money 

or securities from a customer. Although 

some states have adopted that paragraph 

of the NASAA model rule verbatim,40

some states have laws or regulations 

concerning borrowing or lending that 

are, in many respects, more similar to 

Rule 3240,41 or even incorporate Rule 

3240 by reference.42 Moreover, FINRA 

has not identified any broker-dealer 

laws or regulations concerning 

borrowing or lending arrangements in 

several states that have high 

concentrations of FINRA-registered 

broker-dealer firms and branches.43

Considering that Rule 3240 has a 

general prohibition on both borrowing 

arrangements and lending arrangements, 

limited tailored exceptions, and 

associated protections, including 

written-procedures requirements and 

notice-and-approval requirements, 

FINRA’s rule—in its current form and as 

proposed—is as strong, if not stronger, 

than many states’ laws. 

In addition, NASAA commented that 

all borrowing and lending arrangements 

should be prohibited because the 

conflicts of interest that such 

arrangements create cannot be mitigated 

by member firm policies and 

procedures. NASAA contended that its 

position is consistent with the 

Commission’s approach regarding 

certain other broker-dealer conflicts of 

interest. In this regard, NASAA wrote 

that the Commission recognized in the 

context of Regulation Best Interest (‘‘Reg 

BI’’) that some conflicts are so pervasive 

that they cannot reasonably be mitigated 

and must be eliminated in their entirety. 

NASAA contended that the direct 

personal incentives inherent in 

borrowing and lending arrangements, 

and the desire to collect or the duty to 

pay a customer, are of equal if not 

greater concern. 

FINRA believes that the regulatory 

approach used in Rule 3240 is generally 

consistent with the approach the 

Commission took with Reg BI. Reg BI 

establishes a standard of conduct for 

broker-dealers and associated persons 

when they make a recommendation to a 

retail customer of any ‘‘securities 

transaction or investment strategy 

involving securities.’’ 44 FINRA notes 

that Reg BI requires broker-dealers to 

address conflicts of interest associated 

with recommendations, including 

through mitigation, and in certain 

circumstances where the Commission 

determined that such conflicts cannot 

be reasonably mitigated, through 

elimination. Rule 3240 is generally 

consistent with the spirit of this 

regulatory approach. In this regard, Rule 

3240 generally prohibits most borrowing 

and lending arrangements and, thus, 

eliminates the potential conflicts these 

arrangements would present. Moreover, 

the proposed rule change would 

strengthen the general prohibition, by 

clarifying that it applies to arrangements 

that pre-exist a broker-customer 

relationship, extending it to 

arrangements that arise within six 

months after a broker-customer 

relationship ends, and adding 

supplementary material concerning 

conduct by registered persons regarding 

arrangements with persons related to 

the registered person or to the customer. 

Furthermore, as discussed, the rule’s 

tailored exceptions, which would be 

narrowed under the proposed rule 

change, are for situations where the 

potential benefits of the borrowing or 

lending arrangement—including the 

benefits of being able to enter into some 

arrangements without a notice and 

approval process—outweigh related 

potential risks. In addition, the rule has 

additional protections (i.e., the writtenprocedures requirement and the notice 

and approval requirements) that would 

be further enhanced by requiring firms 

to make a reasonable assessment of the 

risks and a reasonable determination of 

whether to approve the arrangement.45

In addition, NASAA suggested that 

FINRA should clarify that members may 

impose more stringent controls up to 

and including a total prohibition of 

borrowing and lending arrangements. 

When FINRA proposed to adopt Rule 

3240 as part of the consolidated FINRA 

rulebook, it indicated that members can 

choose to permit registered persons to 

borrow money from or lend money to 

their customers consistent with the 

requirements of the rule or may be more 

restrictive, including prohibiting 

borrowing or lending arrangements in 

whole or in part.46 In light of NASAA’s 

suggestion, if the proposed rule change 

is approved, FINRA would reiterate this 

guidance in the Regulatory Notice 

announcing the approval of the 

proposed rule change. 

The Immediate Family Exception 

NASAA recommended eliminating 

the immediate family exception because 

elder financial exploitation is often 

perpetrated by family members. NASAA 

also contended that, if the current rule 

framework is maintained, notification 

and approval should be required for 

arrangements with immediate family 

members, particularly where the 

customer is a senior or may otherwise 

be a vulnerable adult under applicable 


ddrumheller on DSK120RN23PROD with NOTICES1
3976 Federal Register / Vol. 89, No. 14 / Monday, January 22, 2024 / Notices 

47FINRA notes that the statements in this section 

that apply to senior family members also apply to 

other family members who may be vulnerable 

adults. 48See Securities Exchange Act Release No. 49081 

(January 14, 2004), 69 FR 3410 (January 23, 2004) 

(Notice of Filing of File No. SR–NASD–2004–05) 

(explaining, among other things, that such 

requirements may invade the legitimate privacy 

interests of customers and registered persons). 

49FINRA has maintained a longstanding 

commitment to protecting senior investors and 

continues to work to address risks facing this 

investor population as part of its regulatory 

mission, including by adopting rules that are 

intended to address risks related to possible 

financial exploitation of senior investors. See, e.g., 

FINRA, Protecting Senior Investors 2015–2020 

(April 30, 2020); Regulatory Notice 20–34; Rule 

2165 (Financial Exploitation of Specified Adults); 

Rule 4512.06 (Trusted Contact Person). FINRA 

further notes that Rule 2010 (Standards of 

Commercial Honor and Principles of Trade)—which 

provides that a member, in the conduct of its 

business, shall observe high standards of 

commercial honor and just and equitable principles 

of trade—protects investors from unethical behavior 

and is broad enough to cover a wide range of 

unethical conduct. 

50See proposed Rule 3240(a)(2)(D) and (E). 

51See proposed Rule 3240.04. FINRA agrees that 

a loan from a customer from whom the registered 

person purchases non-commercial consumer goods 

or services, such as hair styling services, would not 

fit within the business relationship exception. 

52See Malecki. 

state law. Malecki also raised concerns 

regarding elder financial exploitation 

and noted that debt situations can easily 

cause serious friction within family and 

friends. Malecki commented that the 

immediate family exception is too 

broad, and that only a narrow exception 

for educational debt for children should 

be permitted when brokers manage their 

own children’s accounts. 

Except for proposing to modify the 

definition of ‘‘immediate family,’’ 

FINRA does not propose to amend the 

existing immediate family exception or 

require notice and approval of 

arrangements with immediate family 

members. As explained above, the 

narrow exceptions to the rule— 

including for arrangements with 

immediate family members—are for 

situations where FINRA believes the 

likelihood that the registered person has 

borrowed from or lent money to a 

customer by virtue of the brokercustomer relationship is reduced, and 

the rule contains additional protections 

that restrict a registered person’s ability 

to enter into an arrangement within the 

exceptions. 

FINRA believes that Malecki’s 

suggestion to limit the immediate family 

exception to educational debt for 

children would narrow the exception 

too much. There are numerous other 

examples of beneficial borrowing or 

lending arrangements between 

immediate family members, including 

senior family members.47 Such loans 

may cover, for example, medical 

expenses, child care or elder care 

expenses, emergency home repair costs, 

or expenses in the wake of a job loss, or 

they may support a family member’s 

small business at an interest rate lower 

than commercially available. 

Furthermore, FINRA continues to 

believe, as it did when it previously 

eliminated from the predecessor to Rule 

3240 notice and approval requirements 

for arrangements with immediate family 

members, that such requirements may 

invade the legitimate privacy interests 

of customers and registered persons.48

Thus, FINRA believes the potential risks 

are outweighed by the potential benefits 

of permitting immediate family 

members to privately borrow from and 

lend to each other. 

FINRA also reiterates that a registered 

person is prohibited from entering into 

a borrowing or lending arrangement 

with a customer who is an immediate 

family member, including one who is a 

senior investor, unless the member 

adopts written procedures permitting 

such arrangements. As explained above, 

members may choose to prohibit all 

borrowing and lending arrangements, 

allow only some of the exceptions 

enumerated in Rule 3240(a)(2), or 

impose limitations on the exceptions. 

FINRA believes that, by strengthening 

the general prohibition and narrowing 

its exceptions, the proposed rule change 

would further protect all investors, 

including senior investors.49

The Personal Relationship and Business 

Relationship Exceptions 

Several commenters addressed the 

personal relationship and business 

relationship exceptions. Malecki 

commented that these two exceptions 

are too broad. Likewise, University of 

Pittsburgh requested that Rule 3240 

limit the business relationship 

exception to the financial industry and 

noted that a registered person getting 

regular haircuts from a hairstylist 

should not fit within the business 

relationship exception. University of 

Pittsburgh also requested that FINRA 

provide examples of qualifying business 

relationships and more information 

about whether a business relationship 

qualifies for the exception. On this last 

point, University of Pittsburgh 

suggested that useful factors may 

include (1) the financial risks for the 

parties; (2) the industry involved; and 

(3) any other factor that may help 

determine the trust established between 

the parties and the comparative risks of 

their past business practices and their 

potential borrower-lender agreements. 

FINRA shares some of these concerns 

and accordingly has proposed to narrow 

the personal relationship exception and 

to provide factors that are relevant to 

assessing whether a relationship falls 

within the scope of either exception. 

Beyond what FINRA proposed in Notice 

21–43—and in response to the 

comments—FINRA proposes additional 

amendments to expressly provide that 

the personal and business relationships 

must be ‘‘bona fide’’ 50 and provide that 

an illustrative example of a ‘‘business 

relationship’’ is a loan from a registered 

person to a small outside business that 

the registered person co-owned for years 

for the sole purpose of providing the 

business with additional operating 

capital.51

FINRA does not believe, however, 

that additional changes to the personal 

and business relationship exceptions are 

warranted. The personal relationship 

exception, as proposed to be amended, 

would not permit ‘‘virtually anyone’’ to 

enter into a borrowing or lending 

arrangement.52 Rather, the proposed 

rule change would narrow the personal 

relationship exception significantly, to 

apply only to personal relationships that 

are ‘‘bona fide’’ and ‘‘close,’’ and 

maintained outside of, and formed prior 

to, the broker-customer relationship. 

This narrower definition would reduce 

the risk that a registered person would 

concoct a personal relationship with a 

customer for the purpose of entering 

into a borrowing or lending arrangement 

with that customer, and it would 

address concerns expressed during the 

retrospective rule review that the 

exception can be exploited. 

Likewise, FINRA believes that the 

business relationship exception, as 

proposed to be amended, is 

appropriately tailored. Rule 3240 

currently requires that the qualifying 

business relationships be ‘‘outside of the 

broker-customer relationship.’’ This 

language serves to separate the business 

relationship from the broker-customer 

relationship, and thus mitigate the 

potential conflict of interest. The 

proposed rule change would further 

narrow this exception by requiring that 

the business relationship be ‘‘bona 

fide.’’ FINRA does not believe that the 

‘‘business relationship’’ exception 

should be further limited to only the 

financial industry. There is no 

indication that the risks related to 

arrangements based on a bona fide 

business relationship turn on the 

industry or sector involved. 

With respect to University of 

Pittsburgh’s suggested factors, FINRA 

notes that the proposed rule change 

would require members, when receiving 

written notice under Rule 3240, to 


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53See proposed Rule 3240.02. 

54PIABA also suggests that the period of time 

used in proposed Rule 3240.02 should be one year 

or more, instead of six months, and cites the time 

it could take to ‘‘unwind some position a registered 

representative might recommend.’’ It is unclear, 

however, what kinds of positions this comment 

pertains to or what would need to be unwound. 

55See Rule 4111(i)(13). 

56Like Rule 3240, Rule 3241 addresses situations 

that may create potential conflicts of interest 

between registered persons and their customers. 

Specifically, Rule 3241 addresses the potential 

conflicts that registered persons may face when 

they are named a customer’s beneficiary, executor 

or trustee, or hold a power of attorney or similar 

position for or on behalf of a customer. It limits any 

registered person from being named a beneficiary, 

executor or trustee, or to have a power of attorney 

or similar position of trust for or on behalf of a 

customer, and protects investors by requiring 

members to affirmatively address registered persons 

being named beneficiaries or holding positions of 

trusts for customers. See Regulatory Notice 20–38 

(Oct. 29, 2020). 

57Prior to the adoption of Rule 3241, many 

members ‘‘prohibit[ed] or impos[ed] limitations on 

being named as a beneficiary or to a position of 

trust when there is not a familial relationship,’’ but 

FINRA ‘‘observed situations where registered 

representatives tried to circumvent firm policies, 

such as resigning as a customer’s registered 

representative [and] transferring the customer to 

another registered representative.’’ See Regulatory 

Notice 20–38. ‘‘To address attempted 

circumvention of the restrictions (e.g., by closing or 

transferring a customer’s account),’’ FINRA defined 

‘‘customer’’ in Rule 3241 to include ‘‘any customer 

that has, or in the previous six months had, a 

securities account assigned to the registered person 

at any member firm.’’ Id.; Rule 3241.01. When 

proposing Rule 3241, FINRA explained that the 

inclusion of the six-month look-back period ‘‘is 

important in addressing potential conflicts of 

interest and circumvention of the proposed rule 

change.’’ See Securities Exchange Act Release No. 

89218 (July 2, 2020), 85 FR 41249, 41256 (July 9, 

2020) (Notice of Filing of File No. SR–FINRA– 

2020–20). FINRA further explained, in response to 

a comment suggesting that the proposed definition 

of ‘‘customer’’ include a 12-month lookback 

provision, that it ‘‘believes the six-month period 

strikes an appropriate balance between achieving 

the regulatory objective of addressing 

circumvention of the proposed rule change by 

transferring the customer account to another 

representative and imposing reasonable 

requirements on member firms in tracking account 

transfers.’’ Id. 

58See Rules 3270 (Outside Business Activities of 

Registered Persons) and 3280 (Private Securities 

Transactions of an Associated Person). 

59See Rule 3110(a); see also NASD Notice to 

Members 99–45 (June 1999). 

60See Rule 3110(a)(1) and (b)(1). 

61See NASD Notice to Members 98–96 (December 

1998); see also NASD Notice to Members 99–45, 

supra note 59. 

62See NASD Notice to Members 98–96, supra 

note 61; see also NASD Notice to Members 99–45, 

supra note 59. 

perform a reasonable assessment of the 

risks created and make a reasonable 

determination of whether to approve the 

arrangement or broker-customer 

arrangement, as the case may be. As 

explained above, a member’s reasonable 

assessment and determination would be 

informed by the guidance already 

provided in Notice 21–43, which 

includes a non-exhaustive list of factors 

to consider when evaluating whether to 

approve a borrowing or lending 

arrangement. For example, these factors 

include, among others, any potential 

conflicts of interest, the length and type 

of relationship, the material terms of the 

arrangement, and the customer’s or 

registered person’s ability to repay the 

loan. These factors are broad enough to 

cover many of the kinds of specific 

considerations suggested by University 

of Pittsburgh, including its suggestion 

that members consider the industry that 

the loan involves. 

Definition of ‘‘Customer’’ 

Under the proposed rule change, the 

rule’s prohibition would extend to 

arrangements with any customer who, 

within the previous six months, had a 

securities account assigned to the 

registered person at any member firm.53

NASAA suggests that the period of time 

used in proposed Rule 3240.02 should 

be one year, instead of six months, 

because Rule 4111 (Restricted Firm 

Obligations) uses a one-year lookback 

period.54

The Rule 4111 lookback periods 

(including, among others, the one-year 

lookback period that pertains to 

‘‘Registered Persons In-Scope’’ 55) 

impact how Rule 4111 identifies firms 

with a significant history of misconduct. 

FINRA, however, has proposed a sixmonth period of time to align proposed 

Rule 3240.02 with the six-month period 

in the definition of ‘‘customer’’ in Rule 

3241, because Rule 3241 addresses 

similar potential conflicts of interest as 

Rule 3240.56 Moreover, FINRA believes 

the six-month lookback period in 

proposed Rule 3240.02 strikes an 

appropriate balance between achieving 

the regulatory objective of addressing 

circumvention of the proposed rule 

change and imposing requirements that 

are reasonable and appropriate, 

including reasonable requirements on 

members in tracking transfers of 

customers’ accounts.57

Supervision and Customer-Disclosure 

Requirements 

NASAA suggested that members 

should be required to incorporate 

specific supervisory procedures for 

assessing, and after approving, a 

borrowing or lending arrangement. 

Specifically, NASAA commented that 

the member should be required to 

document (1) the steps it undertook to 

assess the risk prior to approving the 

arrangement; (2) the steps it will take to 

minimize the conflict of interest; (3) 

how it communicated to the customer 

the risk created by the lending 

arrangement or repayment terms so that 

the customer appreciates the risk; and 

(4) an outline of the supervisory 

measures that it will take. Regarding the 

member’s assessment of a borrowing or 

lending arrangement, NASAA 

contended that the rule should require 

members to evaluate borrowing and 

lending arrangements, and that the 

member’s assessment should include an 

interview (preferably by a compliance 

officer) with the customer outside of the 

presence of the registered person or, 

where that is not possible, other 

verification that the customer benefits 

from and entered into the arrangement 

on his or her own volition and without 

pressure. Regarding supervision after 

approving an arrangement, NASAA 

commented that members should 

closely monitor the account of a 

customer who is a party to a borrowing 

or lending arrangement and impose 

formal conditions, apply heightened 

scrutiny to these accounts on an 

ongoing, annual review basis, place the 

registered person on heightened 

supervision, and conduct additional 

reviews on trades and transactions to 

ensure that recommendations are 

suitable. Similarly, Malecki commented 

that all loans except for educational 

debt for children should be supervised, 

and that ‘‘supervision of loans’’ should 

be aligned with FINRA rules regarding 

outside business activities and private 

securities transactions.58

The fundamental approach of 

FINRA’s supervision rule is to require 

members to establish and maintain a 

system to supervise the activities of 

each associated person that is 

‘‘reasonably designed’’ to achieve 

compliance with applicable securities 

laws and regulations, and with 

applicable FINRA rules.59 Likewise, the 

written supervisory procedures required 

by FINRA’s supervision rule must be 

‘‘reasonably designed’’ to achieve 

compliance with applicable securities 

laws and regulations, and with 

applicable FINRA rules.60 In guidance, 

FINRA has previously explained that 

written supervisory procedures should 

include a description of the controls and 

procedures used by members to deter 

and detect misconduct and improper 

activity.61 Additionally, at a minimum, 

written supervisory procedures should 

include and describe (1) the specific 

identification of the individual(s) 

responsible for supervision; (2) the 

supervisory steps and reviews to be 

taken by the appropriate supervisor; (3) 

the frequency of such reviews; and (4) 

how such reviews shall be 

documented.62 FINRA does not believe 


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63See proposed Rule 3240.06. 

64With respect to Malecki’s comment that 

‘‘supervision of loans’’ should be aligned with 

FINRA rules regarding outside business activities 

and private securities transactions, FINRA notes 

that Rule 3270 does not require members to 

‘‘supervise’’ outside business activities. However, if 

a loan constitutes a private securities transaction, 

then Rule 3280—and any applicable supervisory 

obligations—would apply. See Rule 3280(c)(2) 

(discussing supervisory requirements involving 

private securities transactions for compensation); 

3280(d) (discussing private securities transactions 

not for compensation, where a member may ‘‘at its 

discretion’’ require the person to adhere to specified 

conditions); 3280(e)(1) (defining ‘‘private securities 

transaction’’ and several exclusions to that 

definition). 

65FINRA assumes that NASAA’s comment about 

‘‘pre-existing’’ arrangements concerns arrangements 

that were entered into before the effective date of 

the proposed rule change. 

66For example, the proposed rule change to 

narrow the personal relationship exception would 

not apply retroactively to a borrowing or lending 

arrangement that was entered into prior to the 

effective date of the proposed rule change and that 

was permissible under the current personal 

relationship exception. 

67FINRA reiterates, however, that the current 

rule’s general prohibition against borrowing and 

lending arrangements between registered persons 

and customers already applies to arrangements that 

pre-existed the formation of the broker-customer 

relationship, and that the proposed rule change 

would clarify that scope. 

68FINRA also notes that FINRA’s supervision rule 

would require a member to follow-up on ‘‘red flags’’ 

indicating problematic activity related to borrowing 

or lending arrangements between registered persons 

and their customers, including arrangements that 

were entered into prior to the effective date of the 

proposed amendments. See Securities Exchange Act 

Release No. 89218 (July 2, 2020), 85 FR 41249, 

41251 (July 9, 2020) (Notice of Filing of File No. 

SR–FINRA–2020–20) (explaining that Rule 3110 

(Supervision) includes the ‘‘longstanding obligation 

to follow-up on ‘red flags’ indicating problematic 

activity’’). 

it is necessary or appropriate to further 

prescribe specific supervisory 

procedures that members should use 

when supervising for compliance with 

Rule 3240. 

In response to the comments, 

however, FINRA is proposing stronger 

controls for when a member considers 

whether to approve a borrowing or 

lending arrangement or, where there is 

a pre-existing borrowing or lending 

arrangement, a new broker-customer 

relationship—specifically, the proposed 

requirement that a member, upon 

receiving written notice under Rule 

3240, perform a ‘‘reasonable 

assessment’’ of the risks and a 

‘‘reasonable determination’’ of whether 

to approve the arrangement or new 

broker-customer relationship, as the 

case may be.63 As explained above, 

FINRA intends that a member’s 

reasonable assessment and reasonable 

determination would be informed by the 

guidance that FINRA provided in Notice 

21–43 concerning the factors members 

may consider when assessing whether 

to approve a borrowing or lending 

arrangement. FINRA believes this 

guidance would help members, when 

performing the reasonable assessments 

and determinations required under the 

proposed rule change, evaluate the key 

risks and conflicts and afford 

appropriate flexibility in evaluating 

which factors may apply to a particular 

situation.64

In a related comment, NASAA 

suggested that FINRA should require 

registered persons, at a minimum, to 

disclose to customers the factors listed 

in the guidance provided in Notice 21– 

43. Although NASAA refers to those 

factors as ‘‘the Proposal’s recommended 

disclosures,’’ the factors in Notice 21–43 

are intended to help guide a member’s 

assessment of whether to approve a 

loan; they were not designed or 

intended to be the basis of customer 

disclosures about a loan. Nevertheless, 

FINRA notes that that guidance states 

that FINRA expects a member, if 

possible and as part of the member’s 

evaluation of whether to approve a 

borrowing or lending arrangement, to 

try to discuss the arrangement with the 

customer. 

Retroactivity 

NASAA commented that applying the 

proposed rule change retroactively 

could provide benefits to investors and 

recommended retroactive disclosure of 

pre-existing borrowing and lending 

arrangements.65 FINRA seeks, however, 

to avoid creating situations that would 

require registered persons and 

customers to terminate borrowing or 

lending arrangements or brokercustomer relationships that, when 

entered into, were permissible under the 

current version of Rule 3240. In general, 

the proposed rule change would not 

apply retroactively to borrowing or 

lending arrangements that were entered 

into prior to the effective date of the 

proposed rule change and were 

permissible under the current version of 

Rule 3240.66 Rather, the proposed rule 

change would apply only to (1) new 

arrangements and new broker-customer 

relationships that occur after the 

effective date of the proposed rule 

change; and (2) modifications that occur 

after the effective date of the proposed 

rule change of borrowing or lending 

arrangements that were entered into 

before the effective date.67 Although 

FINRA is not proposing to require 

members to re-evaluate previously 

approved arrangements, members 

would have the discretion to do so.68

Harmonization of Regulatory 

Approaches to Financial Professionals’ 

Borrowing and Lending Arrangements 

In Notice 21–43, FINRA described 

some similarities and differences 

between Rule 3240 and the federal and 

state regulatory approaches for 

investment advisers and their 

supervised persons. FINRA sought to 

encourage and inform a broader 

dialogue about whether the similar risks 

presented when any financial 

professional borrows from or lends 

money to customers warrants a more 

uniform approach to regulating this 

activity. SIFMA commented that it 

welcomes a discussion on harmonizing 

the regulatory approaches, where 

appropriate. 

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 

(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 (https://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include file number SR– 

FINRA–2024–001 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–2024–001. 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 


ddrumheller on DSK120RN23PROD with NOTICES1
Federal Register / Vol. 89, No. 14 / Monday, January 22, 2024 / Notices 3979 

69 17 CFR 200.30–3(a)(12). 

post all comments on the Commission’s 

internet website (https://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. Do not include personal 

identifiable information in submissions; 

you should submit only information 

that you wish to make available 

publicly. We may redact in part or 

withhold entirely from publication 

submitted material that is obscene or 

subject to copyright protection. 

All submissions should refer to file 

number SR–FINRA–2024–001 and 

should be submitted on or before 

February 12, 2024. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.69

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2024–01068 Filed 1–19–24; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[SEC File No. 270–182, OMB Control No. 

3235–0237] 

Submission for OMB Review; 

Comment Request; Extension: Form 

N–54A 

Upon Written Request, Copies Available 

From: Securities and Exchange 

Commission, Office of FOIA Services, 

100 F Street NE, Washington, DC 

20549–2736 

Notice is hereby given that, pursuant 

to the Paperwork Reduction Act of 1995 

(44 U.S.C. 3501 et seq.), the Securities 

and Exchange Commission 

(‘‘Commission’’) has submitted to the 

Office of Management and Budget a 

request for extension of the previously 

approved collection of information 

discussed below. 

Under the Investment Company Act 

of 1940 (15 U.S.C. 80a–1 et seq.) (the 

‘‘Investment Company Act’’), certain 

investment companies can elect to be 

regulated as business development 

companies, as defined in Section 

2(a)(48) of the Investment Company Act 

(15 U.S.C. 80a–2(a)(48)). Under Section 

54(a) of the Investment Company Act 

(15 U.S.C. 80a–53(a)), any company 

defined in Section 2(a)(48)(A) and (B) 

may elect to be subject to the provisions 

of Sections 55 through 65 of the 

Investment Company Act (15 U.S.C. 

80a–54 to 80a–64) by filing with the 

Commission a notification of election, if 

such company has: (1) a class of equity 

securities registered under Section 12 of 

the Securities Exchange Act of 1934 (15 

U.S.C. 78a et seq.) (‘‘Exchange Act’’); or 

(2) filed a registration statement 

pursuant to Section 12 of the Exchange 

Act for a class of its equity securities. 

The Commission adopted Form N–54A 

(17 CFR 274.53) as the form for 

notification of election to be regulated 

as a business development company. 

The purpose of Form N–54A is to 

notify the Commission that the 

investment company making the 

notification elects to be subject to 

Sections 55 through 65 of the 

Investment Company Act, enabling the 

Commission to administer those 

provisions of the Investment Company 

Act to such companies. 

The Commission estimates that on 

average approximately 21 business 

development companies file these 

notifications each year. Each of those 

business development companies need 

only make a single filing of Form N– 

54A. The Commission further estimates 

that this information collection imposes 

a burden of 0.5 hours, resulting in a 

total annual PRA burden of 10.5 hours. 

Based on the estimated wage rate, the 

total cost to the business development 

company industry of the hour burden 

for complying with Form N–54A would 

be approximately $4,462.50. 

The collection of information under 

Form N–54A is mandatory. The 

information provided by the form is not 

kept confidential. An agency may not 

conduct or sponsor, and a person is not 

required to respond to, a collection of 

information unless it displays a 

currently valid control number. 

The public may view background 

documentation for this information 

collection at the following website: 

www.reginfo.gov. Find this particular 

information collection by selecting 

‘‘Currently under 30-day Review—Open 

for Public Comments’’ or by using the 

search function. Written comments and 

recommendations for the proposed 

information collection should be sent 

within 30 days of publication of this 

notice by February 21, 2024 to (i) 

MBX.OMB.OIRA.SEC_desk_officer@

omb.eop.gov and (ii) David Bottom, 

Director/Chief Information Officer, 

Securities and Exchange Commission, 

c/o John Pezzullo, 100 F Street NE, 

Washington, DC 20549, or by sending an 

email to: PRA_Mailbox@sec.gov. 

Dated: January 17, 2024. 

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2024–01099 Filed 1–19–24; 8:45 am] 

BILLING CODE 8011–01–P 

SMALL BUSINESS ADMINISTRATION 

Data Collection Available for Public 

Comments 

ACTION: 60-Day notice and request for 

comments. 

SUMMARY: The Small Business 

Administration (SBA) intends to request 

approval, from the Office of 

Management and Budget (OMB) for the 

collection of information described 

below. The Paperwork Reduction Act 

(PRA) requires Federal agencies to 

publish a notice in the Federal Register 

concerning each proposed collection of 

information before submission to OMB, 

and to allow 60 days for public 

comment in response to the notice. This 

notice complies with that requirement. 

DATES: Submit comments on or before 

March 22, 2024. 

ADDRESSES: Send all comments by email 

to Tamara Jennings, Sr. Loan Specialist, 

Office of Financial Assistance, Small 

Business Administration at 

tamara.jennings@sba.gov. 

FOR FURTHER INFORMATION CONTACT: 

Tamara Jennings, Sr. Loan Specialist, 

(202) 205–6674, tamara.jennings@

sba.gov or Curtis B. Rich, Agency 

Clearance Officer, (202) 205–7030, 

curtis.rich@sba.gov. 

SUPPLEMENTARY INFORMATION: For SBA 

financial assistance programs, SBA 

Form 413 Personal Financial Statement 

(PFS) collects information regarding the 

assets and liabilities of certain owners, 

officers and guarantors of the small 

business applicant benefiting from such 

assistance and is used when analyzing 

the applicant’s repayment abilities or 

creditworthiness. SBA’s Surety Bond 

Guaranty Program uses the Form 413 

PFS information during the claim 

recovery process. The information is 

also collected from applicants and 

participants in SBA’s 8(a) Business 

Development (BD) and Women-Owned 

Small Business (WOSB) Program 

certification process to determine 


ddrumheller on DSK120RN23PROD with NOTICES1