FINRA Eases Rules for M&A Account Transfers
What happened
The Financial Industry Regulatory Authority (FINRA) issued a notice that eases the process for bulk account transfers during financial services M&A transactions. The updated guidance is intended to cut regulatory burdens and streamline a key component of deal execution for firms in the sector. This change directly impacts the operational side of completing mergers and acquisitions within the financial industry.
Why it matters
- The prior process required firms to submit draft "negative consent" letters to FINRA for a "no objection" review, which could delay time-sensitive M&A transactions. This pre-clearance step was often on the critical path for deal execution, especially in divestitures and wind-downs. - This rule change is part of a broader "FINRA Forward" initiative, which is focused on modernizing regulations and reducing unnecessary burdens on member firms to reflect the current market and technological environment. - Firms now have greater responsibility to ensure their negative consent letters are clear, provide a minimum of 30 days' notice for customers to object, and comply with other regulations like FINRA Rule 2210 on communications and SEC's Regulation S-P for consumer privacy. - In "exigent circumstances," such as a firm unexpectedly going out of business, a shorter notice period for account transfers may be permissible. - For customers who choose to opt-out of the bulk transfer, the transferring firm is now expected to waive any Automated Customer Account Transfer Service (ACATS) fees, which can range from $55 to $100 per account. - This updated guidance applies to specific M&A-related scenarios, including the acquisition of a member firm, a firm divesting a specific business line, or a change in a firm's clearing arrangements. - The new rule does not permit individual financial advisors to use negative consent to move their personal book of business when changing firms; that process is still governed by the more affirmative requirements of FINRA Rule 11870. - While the pre-approval step is gone, FINRA will continue to review firms' use of negative consent letters during its regular examination process to ensure compliance.
Key numbers
- For customers who choose to opt-out of the bulk transfer, the transferring firm is now expected to waive any Automated Customer Account Transfer Service (ACATS) fees, which can range from $55 to $100 per account.
- The new rule does not permit individual financial advisors to use negative consent to move their personal book of business when changing firms; that process is still governed by the more affirmative requirements of FINRA Rule 11870.
What happens next
- The prior process required firms to submit draft "negative consent" letters to FINRA for a "no objection" review, which could delay time-sensitive M&A transactions.
- In "exigent circumstances," such as a firm unexpectedly going out of business, a shorter notice period for account transfers may be permissible.
- For customers who choose to opt-out of the bulk transfer, the transferring firm is now expected to waive any Automated Customer Account Transfer Service (ACATS) fees, which can range from $55 to $100 per account.
Quick answers
What happened in FINRA Eases Rules for M&A Account Transfers?
The Financial Industry Regulatory Authority (FINRA) issued a notice that eases the process for bulk account transfers during financial services M&A transactions. The updated guidance is intended to cut regulatory burdens and streamline a key component of deal execution for firms in the sector. This change directly impacts the operational side of completing mergers and acquisitions within the financial industry.
Why does FINRA Eases Rules for M&A Account Transfers matter?
The prior process required firms to submit draft "negative consent" letters to FINRA for a "no objection" review, which could delay time-sensitive M&A transactions. This pre-clearance step was often on the critical path for deal execution, especially in divestitures and wind-downs. This rule change is part of a broader "FINRA Forward" initiative, which is focused on modernizing regulations and reducing unnecessary burdens on member firms to reflect the current market and technological environment. Firms now have greater responsibility to ensure their negative consent letters are clear, provide a minimum of 30 days' notice for customers to object, and comply with other regulations like FINRA Rule 2210 on communications and SEC's Regulation S-P for consumer privacy. In "exigent circumstances," such as a firm unexpectedly going out of business, a shorter notice period for account transfers may be permissible. For customers who choose to opt-out of the bulk transfer, the transferring firm is now expected to waive any Automated Customer Account Transfer Service (ACATS) fees, which can range from $55 to $100 per account. This updated guidance applies to specific M&A-related scenarios, including the acquisition of a member firm, a firm divesting a specific business line, or a change in a firm's clearing arrangements. The new rule does not permit individual financial advisors to use negative consent to move their personal book of business when changing firms; that process is still governed by the more affirmative requirements of FINRA Rule 11870. While the pre-approval step is gone, FINRA will continue to review firms' use of negative consent letters during its regular examination process to ensure compliance.
