[Federal Register Volume 85, Number 132 (Thursday, July 9, 2020)]
[Notices]
[Pages 41249-41258]
[FR Doc No: 2020-14743]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89218; File No. SR-FINRA-2020-020]

Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Adopt
FINRA Rule 3241 (Registered Person Being Named a Customer's Beneficiary
or Holding a Position of Trust for a Customer)

July 2, 2020.
    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 June 23, 2020, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    FINRA is proposing to adopt FINRA Rule 3241 (Registered Person
Being Named a Customer's Beneficiary or Holding a Position of Trust for
a Customer).
    The text of the proposed rule change is available on FINRA's
website at http://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
    Investment professionals, including registered persons of member
firms, face potential conflicts of interest when they are named a
customer's beneficiary, executor, or trustee or holding a power of
attorney or a similar position for or on behalf of their customer.
These conflicts of interest can take many forms and can include a
registered person benefiting from the use of undue and inappropriate
influence over important financial decisions to the detriment of a
customer. Moreover, problematic arrangements may not become known to
the member firm or customer's other beneficiaries or surviving family
members for years. Senior investors who are isolated or suffering from
cognitive decline are particularly vulnerable to harm.\3\
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    \3\ See, e.g., SEC Office of the Investor Advocate, Elder
Financial Exploitation White Paper (June 2018) and International
Organization of Securities Commissions (IOSCO) Senior Investor
Vulnerability Final Report (March 2018) (noting that senior
investors are more vulnerable to financial exploitation due to
social isolation, cognitive decline and other factors).
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    Many, but not all, member firms address these conflicts by
prohibiting or imposing limitations on their investment professionals,
including registered persons, being named as a beneficiary or to a
position of trust when there is not a familial relationship.\4\ Even
where a member firm has policies and procedures, FINRA has observed
situations where registered representatives have tried to circumvent
firm policies and procedures, such as resigning as a customer's
registered representative, transferring the customer to another
registered representative, or having the customer name the registered
representative's spouse or child as the customer's beneficiary.\5\
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    \4\ See Report on the FINRA Securities Helpline for Seniors
(December 2015) and Report on FINRA Examination Findings (December
2018) (both discussing member firm policies observed by FINRA
staff).
    \5\ Id. [sic].
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    FINRA has taken steps to address misconduct in this area,
including:
    (1) Identifying effective practices for member firms; \6\
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    \6\ Id. [sic].
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    (2) Setting as an examination priority member firms' supervision of
accounts where a registered representative is named a beneficiary,
executor, or trustee or holds a power of attorney or a similar position
for or on behalf of a customer who is not a family member; \7\
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    \7\ See FINRA 2018 Regulatory and Examination Priorities Letter
(January 2018), FINRA 2019 Risk Monitoring and Examination
Priorities Letter (January 2019), and FINRA Risk Monitoring and
Examination Priorities Letter (January 2020).
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    (3) Reviewing customer complaints received directly by FINRA and
those reported by member firms pursuant to FINRA Rule 4530 (Reporting
Requirements) or Form U4 (Uniform Application for Securities Industry
Registration or Transfer);
    (4) Reviewing regulatory filings made by firms on Form U5 (Uniform
Termination Notice for Securities Industry Registration related to
terminations for cause) disclosing related issues;
    (5) Reviewing matters referred by an arbitrator to FINRA for
disciplinary investigation; and
    (6) Depending on the facts and circumstances of the conduct at
issue, bringing actions for violations of FINRA rules, such as FINRA
Rules 2010 (Standards of Commercial Honor and Principles of Trade),
2150 (Improper Use of Customers' Securities or Funds; Prohibition
Against Guarantees and Sharing in Accounts), 3240 (Borrowing From or
Lending to Customers) or 3270 (Outside Business Activities of
Registered Persons).\8\
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    \8\ See, e.g., Robert Torcivia, Letter of Acceptance, Waiver and
Consent, Case ID<PHONE_NUMBER>701 (September 26, 2018) (finding, under
the facts of the case, that the registered representative violated
FINRA Rule 2010 in relation to accepting beneficiary designations
and holding powers of attorney for senior customers and failing to
inform the member firm of these positions).
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Proposed Rule Change
    To further address potential conflicts of interest that can result
in registered persons exploiting or taking advantage of being named
beneficiaries or holding positions of trust for personal monetary gain,
FINRA proposes adopting new Rule 3241 to create a uniform, national
standard to govern registered persons holding positions of trust. This
new national standard will better protect investors and provide
consistency across member firms' policies and procedures. Proposed Rule
3241 would provide that a registered person must decline:
    (1) Being named a beneficiary of a customer's estate \9\ or
receiving a bequest from a customer's estate upon learning of such
status unless the registered person provides written notice upon
learning of such status and receives written approval from the member
firm prior to being named a beneficiary of a customer's estate or
receiving a bequest from a customer's estate; and
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    \9\ For purposes of the proposed rule change, a customer's
estate would include any cash and securities, real estate,
insurance, trusts, annuities, business interests and other assets
that the customer owns or has an interest in at the time of death.
See proposed Supplementary Material .02 to Rule 3241. The proposed
scope is consistent with includable property in a decedent's gross
estate for federal tax purposes. See, e.g., IRS FAQs on Estate
Taxes, available at https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-estate-taxes#2.
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    (2) Being named as an executor or trustee or holding a power of
attorney or similar position for or on behalf of a customer unless:
    (a) Upon learning of such status, the registered person provides
written notice and receives written approval from the member firm prior
to acting in such capacity or receiving any fees, assets or other
benefit in relation to acting in such capacity; and
    (b) The registered person does not derive financial gain from
acting in such capacity other than from fees or other charges that are
reasonable and customary for acting in such capacity.\10\
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    \10\ See proposed Rule 3241(a). For example, receipt of a gift
from a customer for acting as an executor or trustee or holding a
power of attorney or similar position for or on behalf of the
customer would be considered deriving financial gain from acting in
such capacity.
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    The proposed rule change would not apply where the customer is a
member of the registered person's immediate family.\11\ The proposed
rule change applies to customers who are not immediate family members
because of the greater potential risk that the registered person has
been named a beneficiary or to a position of trust by virtue of the
broker-customer relationship. The proposed rule change also would not
affect the applicability of other rules (e.g., FINRA Rule 2150
regarding improper use of customer securities or funds). If the
proposed rule change is approved, FINRA would assess registered
persons' and firms' conduct pursuant to Rule 3241 to determine the
effectiveness of the rule in addressing potential conflicts of interest
and evaluate whether additional

rulemaking or other action is appropriate.
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    \11\ The proposed rule change would define ``immediate family''
to mean parents, grandparents, mother-in-law or father-in-law,
spouse or domestic partner, 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 who resides in the same household as the registered
person and the registered person financially supports, directly or
indirectly, to a material extent. The term includes step and
adoptive relationships. See proposed Rule 3241(c).
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Knowledge
    A registered person being named as a beneficiary or to a position
of trust without his or her knowledge would not violate the proposed
rule change; however, the registered person must act consistent with
the proposed rule change upon learning that he or she was named as a
beneficiary or to a position of trust. The proposed rule change would
apply when the registered person learns of his or her status as a
customer's beneficiary or a position of trust for or on behalf of a
customer. A registered person may decline being named as a beneficiary
or to a position of trust and decline receipt of any assets or other
benefit from the customer's estate so as not to violate the proposed
rule change. For example, if a customer named her registered person as
her beneficiary without the beneficiary's knowledge, the proposed rule
change would not apply and the registered person would not be in
violation of the proposed rule change. However, when the registered
person became aware of being so named (e.g., when the registered person
is notified that he or she is to receive a bequest from the customer's
estate), the requirements of the proposed rule change would apply and
the registered person must act consistent with the proposed rule change
(i.e., by declining the bequest unless he or she provides notice to and
receives approval from the member firm).
Firm Notice and Approval
    To provide flexibility to member firms, the proposed rule change
does not prescribe any specific form of written notice and instead
would permit a member firm to specify the required form of written
notice for its registered persons. Upon receipt of the written notice,
the proposed rule change would require the member firm to:
    (1) Perform a reasonable assessment of the risks created by the
registered person's assuming such status or acting in such capacity,
including, but not limited to, an evaluation of whether it will
interfere with or otherwise compromise the registered person's
responsibilities to the customer; \12\ and
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    \12\ In the event that the customer is deceased when the
registered person becomes aware that he or she was named the
customer's beneficiary, FINRA would expect the member firm's
reasonable assessment to include an evaluation of the registered
person's relationship with the customer prior to the customer's
death (e.g., any red flags of improper conduct by the registered
person).
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    (2) Make a reasonable determination of whether to approve the
registered person's assuming such status or acting in such capacity, to
approve it subject to specific conditions or limitations, or to
disapprove it.\13\
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    \13\ See proposed Rule 3241(b).
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    If a member firm approves the registered person's assuming such
status or acting in such capacity, the member firm has supervisory
responsibilities following approval. If the member firm imposes
conditions or limitations on its approval, the member firm would be
required to reasonably supervise the registered person's compliance
with the conditions or limitations.\14\ Moreover, where a registered
person is knowingly named a beneficiary, executor, or trustee or holds
a power of attorney or a similar position for or on behalf of a
customer account at the member firm with which the registered person is
associated and the member firm has approved the registered person
assuming such status or position, the member firm must supervise the
account in accordance with FINRA Rule 3110 (Supervision), including the
longstanding obligation to follow-up on ``red flags'' indicating
problematic activity. As to this latter point, with the notification
and assessment of a registered person being named as a beneficiary or
to a position of trust in relation to a customer account at the member
firm, there is inherently more information from which red flags may
surface. If a registered person is approved to hold (and receive
compensation for) a position of trust for a customer away from the
member firm, the requirements of both the proposed rule change and Rule
3270 regarding outside business activities would apply to the
activities away from the firm.\15\
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    \14\ See proposed Rule 3241(b)(3).
    \15\ There may be arrangements where a registered person holds a
position of trust for a customer away from the firm but the
requirements of Rule 3270 do not apply because the arrangement is
not one of the listed positions in Rule 3270 (i.e., an employee,
independent contractor, sole proprietor, officer, director or
partner of another person) or the registered person is not
compensated, or have the reasonable expectation of compensation,
from any other person as a result of any business activity outside
the scope of the relationship with his member firm.
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    The proposed rule change would require a member firm to establish
and maintain written procedures to comply with the rule's
requirements.\16\ The proposed rule change would also require member
firms to preserve the written notice and approval for at least three
years after the date that the beneficiary status or position of trust
has terminated or the bequest received or for at least three years,
whichever is earlier, after the registered person's association with
the firm has terminated.\17\ The proposed record retention requirement
is similar to the requirement in Rule 3240.
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    \16\ See proposed Rule 3241(b)(4).
    \17\ See proposed Supplementary Material .03 to Rule 3241.
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Reasonable Assessment and Determination
    FINRA expects that a member firm's reasonable assessment of the
risks created by the registered person's assuming such status or acting
in such capacity would take into consideration several factors, such
as:
    (1) Any potential conflicts of interest in the registered person
being named a beneficiary or holding the position of trust;
    (2) The length and type of relationship between the customer and
registered person;
    (3) The customer's age;
    (4) The size of any bequest relative to the size of a customer's
estate;
    (5) Whether the registered representative has received other
bequests or been named a beneficiary on other customer accounts.
    (6) 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;
    (7) Any indicia of improper activity or conduct with respect to the
customer or the customer's account (e.g., excessive trading); and
    (8) Any indicia of customer vulnerability or undue influence of the
registered person over the customer.
    This list is not intended to be an exhaustive list of factors that
a member firm may consider as part of its assessment. Moreover, while a
listed factor may not be applicable to a particular situation, the
factors that a member firm considers should allow for a reasonable
assessment of the associated risks so that the member firm can make a
reasonable determination of whether to approve the registered person
assuming a status or acting in a capacity.
    For example, a registered person's request to hold a position of
trust for an elderly customer who had no relationship with the
representative prior to the initiation of the broker-customer
relationship is likely to present different risks than a registered
person's request to hold a position of trust for a longstanding friend.
FINRA would not expect a registered person's assertion that a customer
has no viable

alternative person to be named a beneficiary or to serve in a position
of trust to be dispositive in the member firm's assessment.
    The proposed rule change would not prohibit a registered person
being named a beneficiary of or receiving a bequest from a customer's
estate. However, given the potential conflicts of interest, under the
proposed rule change a member firm would need to carefully assess a
registered person's request to be named a beneficiary of or receive a
bequest from a customer's estate, and reasonably determine that the
registered person assuming such status does not present a risk of
financial exploitation (e.g., a registered person receiving a bequest
from a customer who has been a godparent since childhood or a customer
who has been a friend since childhood) that the proposed rule is
designed to address.
    If possible, as part of the reasonable assessment of the risks,
FINRA would expect a member firm to discuss the potential beneficiary
status or position of trust with the customer as part of its reasonable
determination of whether to approve the registered person assuming the
status or acting in the capacity.
Scope of Proposed Rule
    To address attempted circumvention of the restrictions (e.g., by
closing or transferring a customer's account), the proposed rule change
would define ``customer'' 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.\18\ Member firms have flexibility
to reasonably design their supervisory systems to achieve compliance
with the proposed rule change (e.g., by using training, certifications
or other measures). In addition, as discussed below, the proposed rule
change would require the registered person, within 30 calendar days of
becoming so associated, to provide notice to and receive approval from
the member consistent with the rule to maintain the beneficiary status
or position of trust.\19\
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    \18\ See proposed Supplementary Material .01 to Rule 3241. A
securities account would include, for example, a brokerage account,
mutual fund account or variable insurance product account. For
purposes of the proposed rule change, therefore, a registered person
who is listed as the broker of record on a customer's account
application for an account held directly at a mutual fund or
variable insurance product issuer would be subject to the proposed
rule's obligations (this is sometimes referred to as ``check and
application,'' ``application way,'' or ``direct application''
business).
    \19\ See proposed Supplementary Material .04 to Rule 3241.
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    A registered person who does not have customer accounts assigned to
him or her would not be subject to the proposed rule change. In
addition, a registered person instructing or asking a customer to name
another person to be a beneficiary of the customer's estate or to
receive a bequest from the customer's estate would present similar
conflict of interest concerns as the registered person being so named.
Accordingly, the proposed rule change would not allow a registered
person to instruct or ask a customer to name another person, such as
the registered person's spouse or child, to be a beneficiary of the
customer's estate or to receive a bequest from the customer's
estate.\20\
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    \20\ See proposed Supplementary Material .06 to Rule 3241.
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Beneficiary Status and Positions of Trust Prior to Association With
Member Firm
    Registered persons move with some frequency between member firms.
If a registered person was named as a beneficiary or to a position of
trust prior to the registered person's association with the member
firm, the proposed rule change would require the registered person,
within 30 calendar days of becoming so associated, to provide notice to
and receive approval from the member consistent with the rule to
maintain the beneficiary status or position of trust.\21\
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    \21\ See proposed Supplementary Material .04 to Rule 3241.
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Pre-Existing Beneficiary Status and Positions of Trust
    Potential conflicts of interest also exist when the beneficiary
status or position of trust was entered into prior to the existence of
a broker-customer relationship, such as where the customer was not a
customer of the registered person at the time at which the registered
person was named beneficiary or to a position of trust. These
situations also have the potential that investment and other financial
decisions will benefit the registered person as the customer's
beneficiary or holder of a position of trust rather than the customer.
Therefore, the proposed rule change would require the registered person
and member firm to act consistent with the rule for any existing
beneficiary status or position of trust prior to the initiation of the
broker-customer relationship.\22\
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    \22\ See proposed Supplementary Material .05 to Rule 3241. The
proposed rule change would apply if the registered person is named a
beneficiary or receives a bequest from a customer's estate after the
effective date of the rule. For the non-beneficiary positions, the
proposed rule change would apply to positions that the registered
person was named to prior to the rule becoming effective only if the
initiation of the broker-customer relationship was after the
effective date of the proposed rule.
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    If the Commission approves the proposed rule change, FINRA will
announce the implementation date of the proposed rule change in a
Regulatory Notice to be published no later than 60 days following
Commission approval. The implementation date will be no later than 180
days following publication of the Regulatory Notice announcing
Commission approval.
2. Statutory Basis
    The proposed rule change is consistent with the provisions of
Section 15A(b)(6) of the Act, 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 the proposed rule change would result in
minimal costs to member firms, while providing additional investor
protections where such policies do not currently exist, are not
consistently applied or are less restrictive than the proposed changes.
The proposed rule change will ultimately benefit the investor
community, and promote greater trust in the brokerage industry, by
reducing the potential exploitation of vulnerable investors. FINRA
believes that establishing an industry-wide benchmark for situations in
which registered persons request member firm approval to be named
beneficiaries or to positions of trust mitigate potential conflicts of
interest consistently across the industry for all customers.

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. All members would be subject to
the proposed rule change.
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.

Regulatory Need
    FINRA is active in its efforts to protect senior and financially
vulnerable investors from exploitation. In the context of these
efforts, and with evidence of a growing trend of such exploitation,
FINRA has recognized the potential conflict of interests that can arise
from having a customer name their registered representative as a
beneficiary or to a position of trust. To mitigate such conflicts of
interest, as well as any potential resulting harm, FINRA is proposing
adoption of Rule 3241.
Economic Baseline
    The economic baseline for the proposed rule change is based on the
existing firm policies and practices on beneficiary status and
positions of trust, as well as the prevalence of registered persons
being named in such capacity. To gauge the extent of both, FINRA has
sought information with regard to current practices from a sample of
member firms and trade associations. Specifically, FINRA sought
information on current practices from firms represented on FINRA
advisory committees and engaged trade associations in conversations.
Information obtained indicates that the majority of firms have existing
policies in place with respect to registered persons being named
beneficiaries or to positions of trust.
    The majority of member firms that participated in FINRA's outreach
efforts indicated that they currently do not permit a registered person
to be named a beneficiary for a customer who is not a family member,
with some variations on how family relationship is defined. Firms
indicated that they are more likely to allow registered persons to be
named to positions of trust, in compliance with the firm's internal
processes and procedures. Registered persons are typically required to
request approval from the member firm to be named as a beneficiary or
to a position of trust. Approval is usually requested through the
outside business activities submission process. Monitoring of
compliance with the procedures is conducted through the member firms'
various control functions including, for example, branch exams, annual
questionnaire responses, and supervisory review of emails. FINRA
understands, based on anecdotal information collected through its
outreach efforts, that over the past five years more than 85% of such
requests by registered persons have been on behalf of immediate family
members.
Economic Impacts
    FINRA believes that the economic impacts of the proposed rule
change would result in minimal costs to member firms, while benefiting
the investor community by providing additional investor protections
where such policies do not currently exist, are not consistently
applied or are less restrictive than the proposed changes.
    The proposed rule change will ultimately benefit the investor
community, and promote greater trust in the brokerage industry, by
potentially reducing the exploitation of vulnerable investors. FINRA
believes that establishing an industry-wide benchmark for situations in
which registered persons request to be named beneficiaries or to
positions of trust mitigate potential conflicts of interest
consistently across the industry for all customers. As described above,
such conflicts of interest can include, but are not limited to, a
registered person benefiting from the use of undue and inappropriate
influence over important financial decisions to the detriment of a
customer.
    Anecdotal information provided to FINRA indicates that most member
firms that participated in the outreach efforts have in place both
specific policies and procedures to manage requests for registered
persons to act in a position of trust, as well as mechanisms to monitor
compliance. FINRA believes that where member firms already have these
types of policies and procedures in place, the costs of the proposed
rule change should be low, mostly stemming from compliance
requirements. For example, FINRA observed some variation in firm
policies regarding whether a registered person may be named a
customer's beneficiary after transferring the customer account to
another registered person. As this specific issue could result in
circumvention of the regulatory intent of the proposed rule, FINRA is
proposing to include a six-month look-back period with respect to the
customer-registered person relationships. FINRA believes that this will
provide some guardrails against attempts to circumvent the proposed
rule, while imposing minimal costs on firms with respect to monitoring
of transfers of accounts.
    Member firms with different policies and procedures, whether more
or less restrictive than proposed here, would likely incur costs to
amend them. Those firms required to establish a higher standard for
these activities may also incur new on-going supervisory costs. The
same would be true for those member firms with no current policies or
procedures covering these situations. Member firms with existing
practices that are more restrictive than the proposed rule change could
maintain those policies. However, member firms altering their current
policies and procedures to be in alignment with the proposed rule
change are expected to incur one-time costs to do so. Member firms will
also incur some costs to provide training on the new requirements for
registered persons.
    FINRA recognizes that the proposed rule change can result in a
diminishing of customer choice in identifying a person to serve in a
capacity of trust. There may be circumstances where the registered
person represents a better alternative to the customer than other
available options. There may also be costs to a customer to amend
estate or other legal documents if the member firm disapproves a
registered person being named a beneficiary, executor, or trustee or
holding a power of attorney or a similar position for or on behalf of
the customer. Despite the potential loss of an appropriate person to
serve in a capacity of trust or potential costs to a customer to amend
estate or other legal documents, FINRA believes that this cost is
justified by the protections afforded to investors by significantly
mitigating the particular conflict of interest.
    FINRA recognizes that investment advisers, as well as other
financial services professionals under different regulatory oversight,
potentially have similar conflicts of interest with their customers
when engaged in these activities. This is the case because the conflict
of interest is not unique to the brokerage industry. Rather, the
conflict arises from the pecuniary benefits that may accrue because of
the nature of the relationship between the customer and the financial
professional. However, there is no available information or data to
permit FINRA to gauge the prevalence and impact of such relationships
between these other financial professionals and their customers.
Further, it is difficult to gauge the circumstances under which
differences in the regulatory treatment of this activity would impact
competition.
Alternatives Considered
    FINRA considered various alternatives to the provisions in the
proposed rule change. One alternative considered was prohibiting a
registered person from inducing a customer to name the registered
person as a beneficiary of the customer's estate. FINRA believes that
the proposed rule

change is a better approach for addressing potential conflicts of
interest because of the inherent difficulty in proving inducement.
Second, FINRA considered an outright prohibition of some or all
positions of trust, but decided against that approach as some positions
of trust, if properly known to and supervised by member firms, may
benefit customers. Third, FINRA understands that member firms may have
different approaches to defining family members in their current
policies. FINRA considered different definitions of the term
``immediate family,'' and ultimately based the definition in the
proposed rule change on the definition in Rule 3240 with some changes
to modernize the scope of covered persons and to incorporate the
requirement that the other person reside in the same household as the
registered person. FINRA believes that this approach is appropriate
given that member firms have the discretion to review and approve
arrangements with customers who are not ``immediate family'' as defined
in the proposed rule change, but may be considered family members in
member firms' current policies.

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 Regulatory
Notice 19-36 (November 2019) (``Notice 19-36 Proposal''). FINRA
received 17 comment letters in response to the Notice 19-36 Proposal. A
copy of the Notice 19-36 Proposal is attached [sic] as Exhibit 2a.
Copies of the comment letters received in response to the Notice 19-36
Proposal are attached [sic] as Exhibit 2c.\23\
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    \23\ See Exhibit 2b for a list of abbreviations assigned to
commenters.
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    The comments and FINRA's responses are set forth in detail below.
Support for the Notice 19-36 Proposal
    Six commenters expressed support for the Notice 19-36 Proposal.\24\
For example, ASA supported the proposed approach and stated that for
most member firms, the Notice 19-36 Proposal would not fundamentally
alter current practices or significantly increase the costs of
compliance but would help crack down on those instances where
unscrupulous actors within the industry try to exploit existing
loopholes within the regulatory framework. FSI stated that the Notice
19-36 Proposal establishes clear parameters for member firms and
financial professional to follow and appropriately allows member firms
the flexibility to tailor the process to their unique business model.
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    \24\ See ASA, FSI, Mack, PIABA, SIFMA and St. John's Clinic.
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    While supporting the Notice 19-36 Proposal, the St. John's Clinic
suggested also requiring member firms to disclose more information
about a broker's employment status and reason for termination than
would otherwise be available on BrokerCheck as a registered person may
obtain a position of trust shortly after being terminated by a member
firm. Mack also supported the Notice 19-36 Proposal and suggested
requiring additional supervision and a surprise audit requirement when
a registered person has been approved to hold a position of trust for a
customer. Requirements related to disclosing more information about a
registered person's employment status and reasons for termination than
would otherwise be available on BrokerCheck are beyond the scope of the
proposed rule change. If the proposed rule change is approved, FINRA
would assess registered persons' and firms' conduct pursuant to the
rule to determine the effectiveness of the rule in addressing potential
conflicts of interest and evaluate whether additional rulemaking or
other action is appropriate.
    Four additional commenters expressed support for some aspects of
the Notice 19-36 Proposal but suggested material changes to the Notice
19-36 Proposal.\25\ Bolton supported the Notice 19-36 Proposal's
addressing a registered person being named a customer's beneficiary,
but suggested that holding positions of trust could be addressed under
the outside business activity framework in existing FINRA rules.
---------------------------------------------------------------------------

    \25\ See Bolton, Cambridge, Fitapelli and Silver Law.
---------------------------------------------------------------------------

    The proposed rule change's requirement that a registered person
provide notice to and receive approval from the member with which he or
she is associated is similar to the requirements for notice and
approval of outside business activities in Rule 3270. Pursuant to Rule
3270, no registered person may be an employee, independent contractor,
sole proprietor, officer, director or partner of another person, or be
compensated from any other person as a result of any business activity
away from the member firm, unless he or she has provided prior written
notice to the member.\26\ The proposed rule would apply where a
registered person is named to a position of trust for a customer of the
member firm. If a registered person is approved to hold (and receive
compensation for) a position of trust for a customer away from the
member firm, the requirements of both the proposed rule change and Rule
3270 would apply to the activities away from the firm.\27\
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    \26\ FINRA is separately conducting a retrospective review of
FINRA's rules governing outside business activities and private
securities transactions, Rule 3270 and FINRA Rule 3280 (Private
Securities Transactions of an Associated Person), respectively. See
Regulatory Notice 18-08 (Outside Business Activities).
    \27\ FINRA also reminds members of registered persons' separate
reporting obligations for Form U4, including Form U4 section 13,
Other Business.
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    Fitapelli and Silver Law supported rulemaking in this area, but
stated that a registered person should not be permitted to be a
beneficiary of or hold a position of trust for a customer who is not an
immediate family member. Fitapelli also suggested requiring member firm
notification and approval for situations involving a registered
representative's dealings with immediate family members.
    The proposed rule change applies to customers who are not immediate
family members because of the greater potential risk that the
registered person has been named a beneficiary or to a position of
trust by virtue of the broker-customer relationship. Recognizing that a
registered person and customer may have a close and longstanding
friendship or relationship that may be akin to, but not actually, a
familial relationship, the proposed rule change would not prohibit a
registered person being named a beneficiary of or receiving a bequest
from a customer's estate. However, given the potential conflicts of
interest that can result in registered persons exploiting or taking
advantage of being named beneficiaries or holding positions of trust
for personal monetary gain, in assessing a registered person's request
to be named a beneficiary of or receive a bequest from a customer's
estate, FINRA would expect approval to be given only when the member
firm has made a reasonable determination that the registered person
being named a beneficiary or receiving a bequest from a customer does
not present a risk of financial exploitation that the proposed rule
change is designed to address. A member firm may choose to go beyond
the proposed rule change to: (1) Require notification and approval when
a registered person is named a beneficiary or named to a position of
trust for immediate family members; (2) further limit or prohibit
registered persons from being named a customer's beneficiary or to a
position of trust for a customer; or (3) impose additional obligations
on the registered

person when he or she is named a beneficiary or to a position of trust
for a customer.
    Cambridge agreed with many aspects of the Notice 19-36 Proposal but
suggested some modifications. Cambridge stated that a mandatory
rejection of the customer designating the registered person as a
beneficiary could result in a scenario where the customer's intended
designation would fail in its entirety and instead proposed adoption of
a presumption in favor of the validity of the nomination unless and
until, based on a subsequent review, the member firm determines that
the nomination should not be honored.
    Given the potential conflicts of interest, FINRA would expect a
member firm to employ heightened scrutiny in assessing a registered
person's request to be named a beneficiary of or receive a bequest from
a customer's estate. Moreover, given the potential conflicts of
interest, FINRA does not agree that a beneficiary designation should be
presumed valid and free of potential conflicts of interest.
    Cambridge also suggested that, because executorships may be subject
to judicial review and often pertain to the customer's posthumous
estate, the inclusion of executorships in the Notice 19-36 Proposal is
unnecessary. However, an executorship may provide a registered person
with significant control over a customer's finances and, consequently,
may present significant conflicts of interest. As such, including
executorships among the positions of trust that are covered by the
proposed rule change is appropriate.
Opposition to the Notice 19-36 Proposal
    An anonymous commenter did not support the Notice 19-36 Proposal
because it may limit customer choice where a customer does not have
another person to be named his or her beneficiary. FINRA has observed
that investment professionals, including registered persons, often
develop close and trusted relationships with their customers, which in
some instances have resulted in the investment professional being named
the customer's beneficiary. However, being a customer's beneficiary may
present significant conflicts of interest. FINRA would not expect a
registered person's assertion that a customer has no viable alternative
person to be named a beneficiary or to serve in a position of trust to
be dispositive in the member firm's assessment.
    Kaplon did not support the Notice 19-36 Proposal and suggested
instead that member firm procedures are sufficient to address potential
conflicts of interest. FINRA has observed that many, but not all,
member firms address these potential conflicts by prohibiting or
imposing limitations on being named as a beneficiary or to a position
of trust when there is not a familial relationship. Even where a member
firm has policies and procedures, FINRA has observed situations where
registered representatives have tried to circumvent firm policies and
procedures, such as resigning as a customer's registered
representative, transferring the customer to another registered
representative, or having the customer name the registered
representative's spouse or child as the customer's beneficiary.
    NASAA suggested that registered persons, their family members and
any entities controlled by the registered persons should be prohibited
from being named as a beneficiary or appointed to a position of trust
by a customer unless the customer is an immediate family member.
Moreover, NASAA suggested that even if the Notice 19-36 Proposal was
limited to immediate family members, the registered person should be
required to seek prior written authorization from the member firm and
the member firm should be required to implement heightened supervision
of the accounts. NASAA further suggested that if FINRA proceeds with
allowing registered persons to be named as beneficiaries or serve in
positions of trust for customers beyond their immediate family members,
FINRA should, at a minimum, require the member firm to implement
heightened supervision of these accounts and should explicitly state
that member firms may choose to limit or prohibit registered persons to
be named as a beneficiary or serve in positions of trust.
    As stated in Notice 19-36, FINRA considered an outright prohibition
of some or all positions of trust, but decided against that approach as
some positions of trust, if properly known to and supervised by member
firms, may benefit customers. For example, assuming that the member
firm has done a reasonable assessment of the potential conflicts of
interest before making a reasonable determination to approve the
arrangement, a registered person with financial acumen and knowledge of
a customer's financial circumstances may be better positioned to serve
in a position of trust than other alternatives available to the
customer.
    As discussed above, the proposed rule change applies to customers
who are not immediate family member because of the greater potential
risk that the registered person has been named a beneficiary or to a
position of trust by virtue of the broker-customer relationship. The
risk that a registered person misused his or her role in the broker-
customer relationship to be named a beneficiary or hold a position of
trust is reduced when the customer is an immediate family member.
    As discussed in Item II supra, a member firm has supervisory
obligations regarding any status or arrangement that is approved by the
member firm. If the member firm imposes conditions or limitations on
its approval, the member firm would be required to reasonably supervise
the registered person's compliance with the conditions or
limitations.\28\ Moreover, where a registered person is named a
beneficiary, executor, or trustee or holds a power of attorney or a
similar position for or on behalf of a customer account at the member
firm with which the registered person is associated, the member firm
must supervise the account in accordance with FINRA Rule 3110
(Supervision), including the longstanding obligation to follow-up on
``red flags'' indicating problematic activity. As to this latter point,
with the notification and assessment of a registered person being named
as a beneficiary or to a position of trust in relation to a customer
account at the member firm, there is inherently more information from
which red flags may surface. If a registered person is approved to hold
(and receive compensation for) a position of trust for a customer away
from the member firm, the requirements of both the proposed rule change
and Rule 3270 regarding outside business activities would apply to the
activities away from the firm.
---------------------------------------------------------------------------

    \28\ See proposed Rule 3241(b)(3).
---------------------------------------------------------------------------

    As noted above, a member may choose to go beyond the proposed rule
change to: (1) Require notification and approval when a registered
person is named a beneficiary or named to a position of trust for
immediate family members; (2) further limit or prohibit registered
persons from being named a customer's beneficiary or to a position of
trust for a customer; or (3) impose additional obligations on the
registered person when he or she is named a beneficiary or to a
position of trust for a customer.
Knowledge
    FSI and SIFMA agreed with the Notice 19-36 Proposal's approach to
apply the proposed requirements only after the registered person has
knowledge that he or she was named as a beneficiary or to a position of
trust. Cole expressed general support for the Notice 19-36 Proposal but
stated that a

member firm should not be liable if the customer does not share his or
her estate documents with the firm. Duran expressed concern about
adopting a rule that would apply where the customer did not share his
or her estate documents naming the registered person as a beneficiary
and the registered person did not have control over the customer's
action.
    As discussed in Item II supra, a registered person being named as a
beneficiary or to a position of trust without his or her knowledge
would not violate the proposed rule change; however, the registered
person must act consistent with the proposed rule change upon learning
that he or she was named as a beneficiary or to a position of trust.
The proposed rule change would apply when the registered person learns
of his or her status as a customer's beneficiary or a position of trust
for or on behalf of a customer. A registered person may: (1) Provide
notice to and receive approval from the member firm with which he or
she is associated consistent with the proposed rule change; or (2)
decline being named as a beneficiary or to a position of trust and
decline receipt of any assets or other benefit from the customer's
estate so as not to violate the proposed rule change.
Firm Notice and Approval
    NASAA supported requiring a specific form of written notice for use
by a registered person in requesting approval from the member firm with
which he or she is associated. Absent a specific form, NASAA suggested
providing guidance regarding the information the registered person
should provide to the member firm. FINRA proposes to provide member
firms with flexibility in what form of written notice is required
pursuant to the proposed rule change and, consequently, no specific
form of written notice would be required by the proposed rule change.
Because the proposed rule change requires each member firm to perform a
reasonable assessment and make a determination of whether to approve or
disapprove the status or arrangement, a member firm should obtain
through the written notice or subsequent communications with the
registered person or customer information sufficient upon which to
perform the required assessment and make the related determination.
Reasonable Assessment and Determination
    Cambridge requested clarification that the factors listed in
Regulatory Notice 19-36 are not mandatory considerations as part of a
member firm's assessment of whether to approve a position or
arrangement. FINRA expects that a member firm's assessment would take
into consideration several factors, such as the non-exhaustive list of
factors provided in Regulatory Notice 19-36. While a factor may not be
applicable to a particular situation, the factors considered by the
member firm should allow for a reasonable assessment of the associated
risks so that the member firm can make a reasonable determination of
whether to approve the registered person assuming a status or acting in
a capacity.
    Cambridge also stated that it is neither appropriate nor reasonable
to obligate a member firm to determine whether a customer suffers from
an impairment as part of this assessment. In making the reasonable
assessment and determination, a member firm is not required to seek to
obtain a customer's medical information or make a medical determination
related to a customer. However, a member firm may become aware of
information related to the customer's physical or mental impairment as
part of the member firm's business relationship with the customer
(e.g., the customer may indicate to the firm that she was diagnosed
with dementia). In these circumstances, FINRA expects that a member
firm would take into consideration a customer's known mental or
physical impairment that renders the individual unable to protect his
or her own interests (e.g., if the member firm is aware that the
customer was diagnosed with dementia before naming the registered
person as her beneficiary).
``Customer'' Definition
    To address attempted circumvention of the restrictions (e.g., by
closing or transferring a customer's account), the proposed rule change
would define ``customer'' 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. Commenters had differing views on
the inclusion of a six-month look-back period in the proposed
``customer'' definition. Cambridge requested eliminating the phrase
``or in the previous six months'' from the proposed definition of
``customer'' because inclusion of the look-back period denies the
member firm flexibility in accommodating fact-specific circumstances.
NASAA, on the other hand, suggested that the proposed ``customer''
definition be amended to include a 12-month look-back provision to
prevent circumvention of the restrictions.
    The inclusion of the look-back period is important in addressing
potential conflicts of interest and circumvention of the proposed rule
change. FINRA 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 registered person and imposing reasonable
requirements on member firms in tracking account transfers.
``Immediate Family'' Definition
    Fitapelli suggested revising the definition of ``immediate family''
that was included in the Notice 19-36 Proposal to exclude the phrase
``any other person whom the registered person financially supports,
directly or indirectly, to a material extent'' due to ambiguity and
being outside of the conventional definition of ``immediate family.''
NASAA suggested revising the phrase to require that any person who the
registered person financially supports must also reside in the same
household as the registered person.
    In the proposed rule change, FINRA revised the relevant phrase in
the proposed definition of ``immediate family'' to state ``and 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.'' For example, the phrase as revised would apply
to a foster child who resides with and is financially supported by the
registered person but who has not yet been legally adopted. The
incorporation of the requirement that the other person reside in the
same household as the registered person and receive material financial
support from the registered person focuses the scope of the proposed
``immediate family'' definition.
    For purposes of the proposed definition of ``immediate family,''
FSI suggested that a ``cousin'' mean only first cousins rather than
second or more distant cousins. FINRA would interpret cousin in the
``immediate family'' definition to mean first cousins and not second or
more distant cousins.
Scope
    Kendrick questioned how the Notice 19-36 Proposal would apply to
attorneys who hold securities licenses. The proposed rule change would
apply to registered persons who have ``customers'' as defined by the
proposed rule change (i.e., any customer that has, or in the previous
six months had, a securities account assigned to the registered person
at any member firm).

A registered person also being licensed in another capacity (e.g., a
state-licensed attorney) does not exempt the registered person from
compliance with the proposed rule change. The proposed rule change
would be triggered when the registered person is named a customer's
beneficiary or receives a bequest from a customer or is named a
customer's executor, trustee or holder of a power of attorney or
similar position for a trustee. The proposed rule change would not be
triggered when an individual who is not a ``customer'' so names a
registered person. For example, a person may be registered with a
member firm and hold a state law license. In this example, the proposed
rule change would not be triggered when an individual who is not a
``customer'' under the rule names the registered person as the executor
of the individual's estate.
    SIFMA requested clarification that the Notice 19-36 Proposal
applies only when the registered person services the account or is the
broker of record for the account and does not apply when a registered
person is named as a beneficiary or to a position of trust for any
client of the member firm. The proposed rule change would apply to
registered persons who have ``customers'' as defined by the proposed
rule change. The proposed rule change would not be triggered when an
individual who is not a ``customer'' (e.g., a client of the member firm
who has not had a securities account assigned to the registered person
in the last six months) so names a registered person.
    Because some member firms have trust lines of business, SIFMA
requested clarification that the Notice 19-36 Proposal is not intended
to cover member firms acting in their capacity as a trustee in their
trust lines of business. SIFMA stated its assumption that FINRA is
focusing on individual registered persons who would be put in a
position of trust in their personal capacity, not as a result of a
member firm's authorized and approved business capacity.
    A registered person may have a role or provide assistance where a
member firm or affiliated entity offers a trust line of business.
However, FINRA understands that a customer typically names the member
firm or an affiliated entity--not a registered person--as trustee when
the member firm or its affiliated entity offers a trust line of
business. The proposed rule change would not apply where the customer
names either the member firm or an affiliated entity as his or her
trustee. However, the proposed rule change would apply where the
customer names the individual registered person as his or her trustee.
    In addition, a dually-registered representative may hold a power of
attorney for a customer's discretionary investment advisory account.
This power of attorney is intended to allow the investment adviser
representative to manage the investment advisory account. The proposed
rule change is not intended to address or impact a dually-registered
representative holding a power of attorney or other similar instrument
in order to manage a customer's investment advisory account.
    NASAA stated that member firms should be required to advise
customers in the account application of the applicable restrictions on
the registered person being named a beneficiary or holding a position
of trust for the customer. While a member firm may include information
about the applicable restrictions in the account application, FINRA
believes that a conversation or another communication between the
customer and the registered person or another associated person of the
member firm can also be effective in addressing the potential conflicts
of interest, restrictions imposed by the proposed rule change and any
additional restrictions imposed by the member firm's procedures.
Naming Other Persons
    Singer suggested that proposed Supplementary Material .06 applying
the proposed rule change where the registered person instructs or asks
a customer to name a third-party as the customer's beneficiary may not
be sufficiently broad because: (1) The registered person could suggest
or imply that the customer should name the third-party without
instructing or asking; or (2) the third-party (e.g., the registered
person's spouse) could communicate with the customer to avoid
triggering the rule.
    Proposed Supplementary Material .06 is intended to cover situations
where the registered person attempts to circumvent the proposed rule
change's restrictions. In these situations, the registered person may
communicate with the customer in a manner where the registered person
will seek to deny instructing or asking the customer to act and instead
argue that the customer acted on his own volition (e.g., by having a
third-party communicate with the customer). FINRA would interpret
proposed Supplementary Material .06 broadly to cover these situations.
For example, FINRA would interpret proposed Supplementary Material .06
to apply to situations where: (1) The registered person suggests or
implies that the customer name another person, such as the registered
person's spouse or child, to be a beneficiary of the customer's estate
or to receive a bequest from the customer's estate; or (2) the
registered person's spouse or another third party acts on behalf of the
registered person to communicate with the customer in an effort to
avoid triggering the proposed rule change's requirements.
Pre-Existing Beneficiary Status and Positions of Trust
    SIFMA asked for clarification about how the Notice 19-36 Proposal
would apply to beneficiary designations and positions of trust that are
currently in place. SIFMA stated that while many member firms currently
have policies in this area, it would be challenging and time-consuming
to conduct a full-scale retroactive review of all accounts across an
organization to determine whether the arrangements currently in place
are consistent with the proposed requirements. NASAA, on the other
hand, does not support a ``grandfathering'' clause for beneficiary
designations and positions of trust that are currently in place.
Moreover, NASAA suggested that member firms should ask about the
existence of any pre-existing position during the hiring process so
that the relationship can be screened before the individual associates
with the member firm.
    Many, but not all, member firms currently have policies and
procedures in place to address potential conflicts by prohibiting or
imposing limitations on being named as a beneficiary or to a position
of trust when there is not a familial relationship. Accordingly, member
firms may have approved arrangements under the policies and procedures
in place prior to the proposed rule change becoming effective. The
proposed rule would apply if the registered person is named a
beneficiary or receives a bequest from a customer's estate after the
effective date of the rule. For the non-beneficiary positions, the
proposed rule would apply to positions that the registered person was
named to prior to the rule becoming effective only if the initiation of
the broker-customer relationship was after the effective date of the
proposed rule.
    For example, a registered representative was named a beneficiary of
a customer who is not an immediate family member in 2018, consistent
with the firm's procedures, and the customer passes away after the
proposed rule change becomes effective. The

registered representative is notified by the executor that he is to
receive a bequest of $5,000 from the customer's estate. Because the
bequest would be received after the proposed rule change is effective,
the registered representative would be required to provide written
notice to the member firm and the member firm would be required to
perform a reasonable assessment and determination of whether to approve
or disapprove the registered representative receiving the bequest.
    If a registered person was named as a beneficiary or to a position
of trust prior to the registered person's association with the member
firm, proposed Supplementary Material .04 would require the registered
person, within 30 calendar days of becoming so associated, to provide
notice to and receive approval from the member consistent with the rule
to maintain the beneficiary status or position of trust. If a
registered person was named to a position of trust prior to the
proposed rule change becoming effective, proposed Supplementary
Material .04 would apply if the registered person moved to a new member
firm after the proposed rule change became effective.
    For example, a registered representative was named a trustee by a
customer who is not an immediate family member in 2018, consistent with
Member Firm A's procedures. Notice to and approval by Member Firm A is
not required in order for the registered representative to continue
serving as the customer's trustee after the proposed rule change
becomes effective. However, if the registered representative left
Member Firm A to become associated with Member Firm B after the
proposed rule change became effective, proposed Supplementary Material
.04 would apply and the registered representative would need to provide
notice to and receive approval from Member Firm B in order to continue
serving in the position.
Application Beyond Broker-Dealers
    Singer stated that ``FINRA's best intentions can only be extended
so far'' and that state and federal laws may need to be revised to
address the consequences of financial professionals taking advantage of
elderly or vulnerable customers. FINRA welcomes the opportunity to work
with other regulators to address misconduct in this area.

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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number SR-FINRA-2020-020 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-2020-020. 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 (http://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. All comments received will be
posted without change. Persons submitting comments are cautioned that
we do not redact or edit personal identifying information from comment
submissions. You should submit only information that you wish to make
available publicly. All submissions should refer to File Number SR-
FINRA-2020-020 and should be submitted on or before July 30, 2020.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-14743 Filed 7-8-20; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 87, Number 45 (Tuesday, March 8, 2022)]
[Rules and Regulations]
[Pages 12855-12856]
[FR Doc No: 2022-04828]

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DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 71

[Docket No. FAA-2021-1135; Airspace Docket No. 21-ASW-26]
RIN 2120-AA66

Amendment of the Class E Airspace; Olney, TX

AGENCY: Federal Aviation Administration (FAA), DOT.

ACTION: Final rule.

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SUMMARY: This action amends the Class E airspace at Olney, TX. This
action is the result of an airspace review due to the decommissioning
of the Olney non-directional beacon (NDB). The geographic coordinates
of the airport are also being updated to coincide with the FAA's
aeronautical database.

DATES: Effective 0901 UTC, May 19, 2022. The Director of the Federal
Register approves this incorporation by reference action under 1 CFR
part 51, subject to the annual revision of FAA Order JO 7400.11 and
publication of conforming amendments.

ADDRESSES: FAA Order JO 7400.11F, Airspace Designations and Reporting
Points, and subsequent amendments can be viewed online at https://www.faa.gov/air_traffic/publications/. For further information, you can
contact the Airspace Policy Group, Federal Aviation Administration, 800
Independence Avenue SW, Washington, DC 20591; telephone: (202) 267-
8783. FAA Order JO 7400.11F is also available for inspection at the
National Archives and Records Administration (NARA). For information on
the availability of FAA Order JO 7400.11F at NARA, email:
[email protected] or go to https://www.archives.gov/federal-register/cfr/ibr-locations.html.

FOR FURTHER INFORMATION CONTACT: Rebecca Shelby, Federal Aviation
Administration, Operations Support Group, Central Service Center, 10101
Hillwood Parkway, Fort Worth, TX 76177; telephone<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION:

Authority for This Rulemaking

    The FAA's authority to issue rules regarding aviation safety is
found in Title 49 of the United States Code. Subtitle I, Section 106
describes the authority of the FAA Administrator. Subtitle VII,
Aviation Programs, describes in more detail the scope of the agency's
authority. This rulemaking is promulgated under the authority described
in Subtitle VII, Part A, Subpart I, Section 40103. Under that section,
the FAA is charged with prescribing regulations to assign the use of
airspace necessary to ensure the safety of aircraft and the efficient
use of airspace. This regulation is within the scope of that authority
as it amends the Class E airspace extending upward from 700 feet above
the surface at Olney Municipal Airport, Olney, TX, to support
instrument flight rule operations at this airport.

History

    The FAA published a notice of proposed rulemaking in the Federal
Register (86 FR 71600; December 17, 2021) for Docket No. FAA-2021-1135
to amend the Class E airspace at Olney, TX. Interested parties were
invited to participate in this rulemaking effort by submitting written
comments on the proposal to the FAA. No comments were received.
    Class E airspace designations are published in paragraph 6005 of
FAA Order JO 7400.11F, dated August 10, 2021, and effective September
15, 2021, which is incorporated by reference in 14 CFR 71.1. The Class
E airspace designations listed in this document will be published
subsequently in FAA Order JO 7400.11.

Availability and Summary of Documents for Incorporation by Reference

    This document amends FAA Order JO 7400.11F, Airspace Designations
and Reporting Points, dated August 10, 2021, and effective September
15, 2021. FAA Order JO 7400.11F is publicly available as listed in the
ADDRESSES section of this document. FAA Order JO 7400.11F lists Class
A, B, C, D, and E airspace areas, air traffic service routes, and
reporting points.

The Rule

    This amendment to 14 CFR part 71 amends the Class E airspace
extending upward from 700 feet above the surface at Olney Municipal
Airport, Olney, TX; removes the Olney NDB and associated extensions
from the airspace legal description; removes the city associated with
the airport in the header of the airspace legal description to comply
with changes to FAA Order JO 7400.2N, Procedures for Handling Airspace
Matters.
    This action is the result of an airspace review due to the
decommissioning of the Olney NDB which provided guidance to instrument
procedures at this airport.
    FAA Order JO 7400.11, Airspace Designations and Reporting Points,
is published yearly and effective on September 15.

Regulatory Notices and Analyses

    The FAA has determined that this regulation only involves an
established body of technical regulations for which frequent and
routine amendments are necessary to keep them operationally current, is
non-controversial and unlikely to result in adverse or negative
comments. It, therefore: (1) Is not a ``significant regulatory action''
under Executive Order 12866; (2) is not a ``significant rule'' under
DOT Regulatory Policies and Procedures (44 FR 11034; February 26,
1979); and (3) does not warrant preparation of a regulatory evaluation
as the anticipated impact is so minimal. Since this is a routine matter
that only affects air traffic procedures and air navigation, it is
certified that this rule, when promulgated, does not have a significant
economic impact on a substantial number of small entities under the
criteria of the Regulatory Flexibility Act.

Environmental Review

    The FAA has determined that this action qualifies for categorical
exclusion under the National Environmental Policy Act in accordance
with FAA Order 1050.1F, ``Environmental Impacts: Policies and
Procedures,'' paragraph 5-6.5.a. This airspace action is not expected
to cause any potentially significant environmental impacts, and no
extraordinary circumstances exist that warrant preparation of an
environmental assessment.

Lists of Subjects in 14 CFR Part 71

    Airspace, Incorporation by reference, Navigation (air).

Adoption of the Amendment

    In consideration of the foregoing, the Federal Aviation
Administration amends 14 CFR part 71 as follows:

PART 71--DESIGNATION OF CLASS A, B, C, D, AND E AIRSPACE AREAS; AIR
TRAFFIC SERVICE ROUTES; AND REPORTING POINTS

0
1. The authority citation for part 71 continues to read as follows:

    Authority:  49 U.S.C. 106(f), 106(g); 40103, 40113, 40120; E.O.
10854, 24 FR 9565, 3 CFR, 1959-1963 Comp., p. 389.

71.1   [Amended]

0
2. The incorporation by reference in 14 CFR 71.1 of FAA Order JO
7400.11F, Airspace Designations and Reporting Points, dated August 10,
2021, and effective September 15, 2021, is amended as follows:

Paragraph 6005 Class E Airspace Areas Extending Upward From 700
Feet or More Above the Surface of the Earth.

* * * * *

ASW TX E5 Olney, TX [Amended]

Olney Municipal Airport, TX
    (Lat. 33[deg]21'03'' N, long. 98[deg]49'09'' W)

    That airspace extending upward from 700 feet above the surface
within a 6.6-mile radius of Olney Municipal Airport.

    Issued in Fort Worth, Texas, on March 2, 2022.
Martin A. Skinner,
Manager, Operations Support Group, ATO Central Service Center.
[FR Doc. 2022-04828 Filed 3-7-22; 8:45 am]
BILLING CODE 4910-13-P


[Federal Register Volume 83, Number 150 (Friday, August 3, 2018)]
[Rules and Regulations]
[Pages 38029-38031]
[FR Doc No: 2018-16683]

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DEPARTMENT OF HOMELAND SECURITY

Coast Guard

33 CFR Part 165

[Docket Number USCG-2018-0027]
RIN 1625-AA11

Regulated Navigation Area; Lake Washington, Seattle, WA

AGENCY: Coast Guard, DHS.

ACTION: Temporary final rule.

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SUMMARY: The Coast Guard is establishing a temporary regulated
navigation area for certain navigable waters of Lake Washington. The
regulated navigation area is intended to protect personnel and vessels
moored in the vicinity and other vessel traffic from potential hazards
created by vessel wake. Vessels transiting this area will be restricted
to speeds that create a minimum wake.

DATES: This rule is effective from 8 p.m. on August 3, 2018, through
11:59 p.m. on August 5, 2018. This rule will be enforced from 8 p.m. to
8 a.m. daily from August 3, 2018, through August 4, 2018 and from 8
p.m. to 11:59 p.m. on August 5, 2018.

ADDRESSES: To view documents mentioned in this preamble as being
available in the docket, go to http://www.regulations.gov, type USCG-
2018-0027 in the ``SEARCH'' box and click ``SEARCH.'' Click on Open
Docket Folder on the line associated with this rule.

FOR FURTHER INFORMATION CONTACT: If you have questions on this rule,
call or email Petty Officer Zachary Spence,

Sector Puget Sound Waterways Management, Coast Guard; telephone 206-
217-6051, [email protected].

SUPPLEMENTARY INFORMATION:

I. Table of Abbreviations

CFR Code of Federal Regulations
DHS Department of Homeland Security
FR Federal Register
NPRM Notice of proposed rulemaking
Sec.  Section
U.S.C. United States Code

II. Background Information and Regulatory History

    The Coast Guard is issuing this temporary rule without prior notice
and opportunity to comment pursuant to authority under section 4(a) of
the Administrative Procedure Act (APA) (5 U.S.C. 553(b)). This
provision authorizes an agency to issue a rule without prior notice and
opportunity to comment when the agency for good cause finds that those
procedures are ``impracticable, unnecessary, or contrary to the public
interest.'' Under 5 U.S.C. 553(b)(B), the Coast Guard finds that good
cause exists for not publishing a notice of proposed rulemaking (NPRM)
with respect to this rule because the extraordinary amount of vessel
traffic occurring after Seafair marine events and wake hazards posed to
persons and vessels moored to the log booms and other vessel traffic in
the regulated navigation area. Wakes created by vessels transiting in
the vicinity of the vessels moored to the log boom pose a safety
concern to personnel aboard those vessels and damage to property.
Prompt action is needed to restrict vessel movement prior to and after
Seafair events. It is impracticable to publish an NPRM because we must
establish this regulated navigation area by August 3, 2018.
    Under 5 U.S.C. 553(d)(3), the Coast Guard finds that good cause
exists for making this rule effective less than 30 days after
publication in the Federal Register. Delaying the effective date of
this rule would be impracticable because prompt action is needed to
respond to the potential safety hazards associated with excessive
vessel wake and the hazards posed to personnel and vessels moored in
the vicinity, particularly those moored to the log booms on Lake
Washington as well as other vessel traffic in the area.

III. Legal Authority and Need for Rule

    On July 25, 2018, numerous local entities notified the Coast Guard
of potential hazardous conditions associated with increased vessel and
swimmer congestion before and after Seafair, which may make routine
navigation unsafe for persons and vessels. The Coast Guard is issuing
this rule under authority in 33 U.S.C. 1231. The District Commander has
determined that potential hazards associated with excessive vessel wake
from August 3, 2018, through August 5, 2018, will be a safety concern
for anyone south of the Interstate 90 Bridge and north of Bailey
Peninsula due to extraordinary amount of vessel traffic occurring after
Seafair marine events. Wake hazards caused by this anticipated increase
in marine traffic will pose significant risk to persons and vessels
moored to the log booms and other vessel traffic in the area. This rule
is needed to protect persons and vessels in the navigable waters within
the regulated navigation area from excessive vessel wake occurring
prior to and after Seafair Events.

IV. Discussion of the Rule

    This rule establishes a regulated navigation area from 8 p.m. to 8
a.m. daily from August 3, 2018, through August 4, 2018 and from 8 p.m.
to 11:59 p.m. on August 5, 2018. The regulated navigation area will
cover all navigable waters south of the Interstate 90 floating bridge
and north of a line between the Bailey peninsula and Mercer Island. The
duration of the regulated navigation area is intended to protect
personnel and vessels in these navigable waters from excessive wake
associated with vessel traffic before and after Seafair events. Vessels
transiting the area will be required to create minimum wake at speeds
less than 7 miles per hour. Enforcement periods for this rule will
occur daily prior to and immediately following Seafair Unlimited
Hydroplane Race activities.
    On June 25, 2018 (83 FR 29438), we published a related notice of
enforcement of regulation for 33 CFR 100.1301, Seattle Seafair
unlimited hydroplane race. That regulation will be enforced from 8 a.m.
on July 31, 2018, through 8 p.m. on August 6, 2018.

V. Regulatory Analyses

    We developed this rule after considering numerous statutes and
Executive orders related to rulemaking. Below we summarize our analyses
based on a number of these statutes and Executive orders.

A. Regulatory Planning and Review

    Executive Orders 12866 and 13563 direct agencies to assess the
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits. Executive Order 13771 directs agencies to control
regulatory costs through a budgeting process. This rule has not been
designated a ``significant regulatory action,'' under Executive Order
12866. Accordingly, this rule has not been reviewed by the Office of
Management and Budget (OMB), and pursuant to OMB guidance it is exempt
from the requirements of Executive Order 13771.
    This regulatory action determination is based on the size,
location, duration and time-of-day of the regulated navigation area.
Vessel traffic will be able to transit through the regulated navigation
area, only impacting a small designated area of Lake Washington for
less than three days. Moreover, the Coast Guard would issue a Broadcast
Notice to Mariners via VHF-FM marine channel 16 about the regulated
navigation area.

B. Impact on Small Entities

    The Regulatory Flexibility Act of 1980, 5 U.S.C. 601-612, as
amended, requires Federal agencies to consider the potential impact of
regulations on small entities during rulemaking. The term ``small
entities'' comprises small businesses, not-for-profit organizations
that are independently owned and operated and are not dominant in their
fields, and governmental jurisdictions with populations of less than
50,000. The Coast Guard certifies under 5 U.S.C. 605(b) that this rule
will not have a significant economic impact on a substantial number of
small entities.
    While some owners or operators of vessels intending to transit the
regulated navigation area may be small entities, for the reasons stated
in section V.A above, this rule will not have a significant economic
impact on any vessel owner or operator.
    Under section 213(a) of the Small Business Regulatory Enforcement
Fairness Act of 1996 (Pub. L. 104-121), we want to assist small
entities in understanding this rule. If the rule would affect your
small business, organization, or governmental jurisdiction and you have
questions concerning its provisions or options for compliance, please
contact the person listed in the FOR FURTHER INFORMATION CONTACT
section.
    Small businesses may send comments on the actions of Federal
employees who enforce, or otherwise determine compliance with, Federal
regulations to the Small Business and Agriculture Regulatory
Enforcement Ombudsman and the Regional Small Business Regulatory
Fairness Boards. The Ombudsman evaluates these actions annually and
rates each agency's

responsiveness to small business. If you wish to comment on actions by
employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247). The
Coast Guard will not retaliate against small entities that question or
complain about this rule or any policy or action of the Coast Guard.

C. Collection of Information

    This rule will not call for a new collection of information under
the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

D. Federalism and Indian Tribal Governments

    A rule has implications for federalism under Executive Order 13132,
Federalism, if it has a substantial direct effect on the States, on the
relationship between the national government and the States, or on the
distribution of power and responsibilities among the various levels of
government. We have analyzed this rule under that Order and have
determined that it is consistent with the fundamental federalism
principles and preemption requirements described in Executive Order
13132.
    Also, this rule does not have tribal implications under Executive
Order 13175, Consultation and Coordination with Indian Tribal
Governments, because it does not have a substantial direct effect on
one or more Indian tribes, on the relationship between the Federal
Government and Indian tribes, or on the distribution of power and
responsibilities between the Federal Government and Indian tribes. If
you believe this rule has implications for federalism or Indian tribes,
please contact the person listed in the FOR FURTHER INFORMATION CONTACT
section above.

E. Unfunded Mandates Reform Act

    The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538)
requires Federal agencies to assess the effects of their discretionary
regulatory actions. In particular, the Act addresses actions that may
result in the expenditure by a State, local, or tribal government, in
the aggregate, or by the private sector of $100,000,000 (adjusted for
inflation) or more in any one year. Though this rule will not result in
such an expenditure, we do discuss the effects of this rule elsewhere
in this preamble.

F. Environment

    We have analyzed this rule under Department of Homeland Security
Directive 023-01 and Commandant Instruction M16475.1D, which guide the
Coast Guard in complying with the National Environmental Policy Act of
1969 (42 U.S.C. 4321-4370f), and have determined that this action is
one of a category of actions that do not individually or cumulatively
have a significant effect on the human environment. This rule involves
a regulated navigation area lasting less than 3 days that will restrict
vessel speed between the I-90 floating bridge and a line drawn
perpendicular from Bailey Peninsula to Mercer Island. It is
categorically excluded from further review under L60(a) of Appendix A,
Table 1 of DHS Instruction Manual 023-01-001-01, Rev. 01. A Record of
Environmental Consideration supporting this determination is available
in the docket where indicated under ADDRESSES.

List of Subjects in 33 CFR Part 165

    Harbors, Marine safety, Navigation (water), Reporting and
recordkeeping requirements, Security measures, Waterways.

    For the reasons discussed in the preamble, the Coast Guard amends
33 CFR part 165 as follows:

PART 165--REGULATED NAVIGATION AREAS AND LIMITED ACCESS AREAS

0
1. The authority citation for part 165 continues to read as follows:

    Authority: 33 U.S.C. 1231; 50 U.S.C. 191; 33 CFR 1.05-1, 6.04-1,
6.04-6, and 160.5; Department of Homeland Security Delegation No.
0170.1.

0
2. Add Sec.  165.T13-0027 to read as follows:

Sec.  165.T13-0027  Regulated Navigation Area; Lake Washington;
Seattle, WA.

    (a) Location. The following area is a regulated navigation area:
The waters of Lake Washington bounded by the Interstate 90 (Mercer
Island/Lacey V. Murrow) Bridge, the western shore of Lake Washington,
and the east/west line drawn tangent to Bailey Peninsula and along the
shoreline of Mercer Island.
    (b) Definitions. As used in this section, designated representative
means a Coast Guard Patrol Commander, including a Coast Guard coxswain,
petty officer, or other officer operating a Coast Guard vessel and a
Federal, State, and local officer designated by or assisting the
Captain of the Port Puget Sound (COTP) in the enforcement of the
regulated navigation zone.
    (c) Regulations. All vessels and persons transiting this regulated
navigation area shall proceed at a speed which creates minimum wake, 7
miles per hour or less.
    (d) Enforcement periods. This section will be enforced from 8 p.m.
to 8 a.m. daily from August 3, 2018, through August 4, 2018 and from 8
p.m. to 11:59 p.m. on August 5, 2018.

    Dated: July 31, 2018.
D.G. Throop,
RADM, U.S. Coast Guard, Commander, Thirteenth Coast Guard District.
[FR Doc. 2018-16683 Filed 8-2-18; 8:45 am]
 BILLING CODE 9110-04-P


[Federal Register Volume 82, Number 146 (Tuesday, August 1, 2017)]
[Rules and Regulations]
[Page 35655]
[FR Doc No: 2017-16084]

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DEPARTMENT OF HOMELAND SECURITY

Coast Guard

33 CFR Part 117

[Docket No. USCG-2017-0517]

Drawbridge Operation Regulation; Thames River, New London, CT

AGENCY: Coast Guard, DHS.

ACTION: Notice of deviation from drawbridge regulation; modification.

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SUMMARY: The Coast Guard has modified a temporary deviation from the
operating schedule that governs the Amtrak Bridge across Thames River,
mile 3.0, at New London, CT. This action is necessary to complete
installation of an emergency generator. This modified deviation allows
the bridge to require a two hour advance notice for openings during
nighttime hours.

DATES: The modified deviation published on June 23, 2017 (82 FR 28552)
is effective from August 1, 2017 through 12:01 a.m. on September 30,
2017. For the purposes of enforcement, actual notice will be used from
12:01 a.m. on July 31, 2017 until August 1, 2017.

ADDRESSES: The docket for this deviation, [USCG-2017-0517] is available
at http://www.regulations.gov. Type the docket number in the ``SEARCH''
box and click ``SEARCH''. Click on Open Docket Folder on the line
associated with this deviation.

FOR FURTHER INFORMATION CONTACT: If you have questions on this
temporary deviation, call or email James L. Rousseau, Bridge Management
Specialist, First District Bridge Branch, U.S. Coast Guard; telephone
617-223-8619, email<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION: On June 23, 2017, the Coast Guard published
a temporary deviation entitled ``Drawbridge Operation Regulation;
Thames River, New London, CT'' in the Federal Register (82 FR 28552).
Under that temporary deviation, between July 31, 2017 and September 12,
2017, the draw of the Amtrak Bridge would require a two hour advance
notice for openings during nighttime hours.
    Amtrak, the owner of the bridge, requested a modification of the
currently published deviation in order to facilitate installation of a
lift span emergency generator. Due to delays in manufacturing Amtrak
has requested that the temporary deviation be modified to allow the
Amtrak Bridge to require a 2 hour advance notice between 9 p.m. and 7
a.m. from July 31, 2017 to September 30, 2017, while a crane barge is
present next to the lift span. The presence of the crane barge reduces
the horizontal clearance to 70 feet. Additionally, between July 31,
2017 and September 10, 2017, the lift span will be in the down position
during daytime hours but will be able to open when requested.
    The Amtrak Bridge across the Thames River, mile 3.0 at New London,
Connecticut has a horizontal clearance of 150 feet and a vertical
clearance of 29 feet at mean high water and 31 feet at mean low water
in the closed position. The bridge has a vertical clearance of 75 feet
in the intermediate raised position and 135 feet in the fully open
position at mean high water. The existing drawbridge operating
regulations are listed at 33 CFR 117.224. The waterway is transited by
recreational traffic, commercial vessels, ferries, and military
vessels. Vessels that can pass under the bridge without an opening may
do so at all times. When the barge is located next to the lift span,
the bridge will not be able to open immediately for emergencies. There
is no alternate route for vessels unable to pass through the bridge
when in the closed position.
    The Coast Guard will also inform the users of the waterways through
our Local and Broadcast Notices to Mariners of the change in operating
schedule for the bridge so that vessel operators can arrange their
transits to minimize any impact caused by this temporary deviation.
    In accordance with 33 CFR 117.35(e), the drawbridge must return to
its regular operating schedule immediately at the end of the effective
period of this temporary deviation. This deviation from the operating
regulations is authorized under 33 CFR 117.35.

    Dated: July 26, 2017.
Christopher. J. Bisignano,
Supervisory Bridge Management Specialist, First Coast Guard District.
[FR Doc. 2017-16084 Filed 7-31-17; 8:45 am]
BILLING CODE 9110-04-P