On August 24, 2015, FINRA Rule 2040 concerning payments to unregistered persons went into effect. The rule, approved by the SEC in January 2015, is aligned with § 15(a) of the Securities Exchange Act of 1934. Generally, FINRA firms or associated persons are forbidden from “paying any compensation, fees, concessions, discounts, commissions or other allowances” to persons not registered as broker-dealers under § 15(a) but who are required to be registered (as a result of receiving such compensation) or appropriately-registered association persons outside of compliance with Federal law, Federal regulations, and FINRA rules. Rule 2040(a) requires persons making the determination whether a party receiving compensation must register as a broker-dealer under § 15(a) to look to SEC guidance, and FINRA firms can obtain assistance in making this determination by “(1) reasonably relying on previously published releases, no-action letters or interpretations from the SEC staff that apply to their facts and circumstances; (2) seeking a no-action letter from the SEC staff; or (3) obtaining a legal opinion from independent, reputable U.S. licensed counsel knowledgeable in the area.” FINRA firms’ determinations must be reasonable under the circumstances and should be reviewed periodically. Firms’ determinations must also be reflected in those firms’ books and records.
Rule 2040(b) allows FINRA firms to pay continuing commissions to retiring registered representatives, individuals who retire from a member firm and leave the securities industry after they are no longer associated with the firm for accounts of continuing customers of the retiring registered representatives.
Similarly, Rule 2040(c) allows firms and associated persons to pay transaction-related compensation to non-registered foreign finders if the finders’ only role was in providing an initial referral and certain conditions are met. Firms regularly working with foreign finders are required to “have reasonable procedures that appropriately address the limited scope of activities permissible under such arrangements.”