Neither a Borrower Nor a Lender Be!

FINRA filed a rule amendment with the SEC on January 2 to propose amending FINRA Rule 3240, Borrowing From or Lending to Customers (SR-FINRA-2024-001). This proposed rule amendment is designed 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.

Currently, the FINRA rule prohibiting customer borrowing/lending has five exceptions designed to allow situations where the relationship exists primarily outside of the registered representative-customer context and where the potential risks are outweighed by the potential benefits of such arrangements. The proposed rule change would strengthen the general prohibition, for example, to prohibit brokers from initiating a broker-customer relationship with a person with whom the broker has an existing borrowing or lending arrangement. If the proposed rule is enacted, broker-dealers are advised to work with legal counsel to update their procedures accordingly.

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