The Financial Industry Regulatory Authority issued guidance relating to master and sub-account arrangements in Regulatory Notice 10-18. Although FINRA acknowledged that there are bona fide reasons to establish master/sub-account arrangements in certain circumstances (e.g., bona fide investment advisers and omnibus clearing arrangements), FINRA cautioned that certain arrangements raise questions regarding whether the master account and all sub-accounts can legitimately be viewed as one customer account. According to FINRA, where a firm becomes aware of the identities of the beneficial owners of sub-accounts, it may be required to recognize the sub-accounts as separate customer accounts. The Notice sets out certain “red flags” that FINRA believes would put a firm on notice that sub-accounts should not be treated as one single customer account.
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