FINRA has proposed a new Rule 2040, which would generally replace existing NASD rules regarding payments by broker-dealers to unregistered persons. Instead, firms would be required to look to SEC rules, regulations and published guidance to determine whether such payments are permissible.
However, with respect to payment of continuing commissions to retired registered representatives, the proposed rule would codify existing NASD interpretive material. Specifically, the proposed rule would allow such payments, but only pursuant to specific provisions of a written contract executed between the representative and his broker-dealer prior to retirement. The rule would define a retiring registered representative as an individual who retires from a member firm and leaves the securities industry, and would clarify that, if the representative dies, payments may be directed to the representative’s beneficiary designated in the contract or the representative’s estate if no beneficiary is so designated.
Notice 09-69 also proposes amendments to FINRA Rule 8311 governing payments to persons subject to suspension, revocation, cancellation, bar or other disqualification. The proposed amendments would clarify that:
- The rule applies to all disqualifications, and is not limited to orders issued by FINRA or the SEC;
- Where Rule 8311 prohibits any payments, the prohibition applies to all remuneration to the sanctioned representative, and is not limited to payments resulting from securities transactions;
- The prohibition applies to all trail commissions accruing during the period of the sanction;
- The prohibition does not apply to compensation accruing prior to the effective date of the sanction, unless such compensation relates to or results from the activity giving rise to the sanction; and
- The prohibition does not preclude remuneration pursuant to an insurance or medical plan or indemnity agreement regarding legal fees.