4. Any withdrawal of capital from a broker-dealer by a third party within three months or within one year of the broker`s income from an expense that the third party has paid or is willing to pay is considered, for net capital purposes, to have been made for the broker`s expenses, unless the broker`s books and records reflect a liability to the third party with respect to the fees. Cost-sharing agreements between brokers and third parties are a hot topic for FINRA and the SEC. Businesses and their FINOP should fully understand the guidelines provided in the communication to members 03-63. 1. A broker must account for all the unsured and related liabilities, whether the liability is in solidarity with a person and a third party has agreed to bear the costs or liability. Registration must include the value of all goods or services used in the broker and trader`s business, where a third party has provided the goods or services or has paid the fee or liability or has agreed to pay the fee or liability, whether or not the registration of costs is required of GAAP, and whether a cost liability is considered a liability of the broker-trader for net capital purposes. 8. Any broker must be able to prove that he or she is complying with the rules of financial responsibility under a cost-sharing agreement.
It may therefore be necessary to grant these authorities access to books and registers, including books from unregistered companies, in relation to the costs covered by the agreement. A. No. Existing agreements or agreements must be amended or codified and notified to the company`s DEA. NASD district offices have now taken the initiative to review the fee allocation agreements already in place as part of routine screenings and ongoing membership applications. However, due to the current focus on securities rationing systems implemented by dealers and their related companies, the SEC has again focused on auditing and analyzing fee allocation relationships. In recent times, member companies that use cost-sharing agreements have been subject to enhanced scrutiny during the FINRA cycle reviews, resulting in most cost-sharing agreements and the allocation process being found to be deficient by FINRA, regardless of the adequacy results in previous round evaluations. As the acceptance of intercompany cost-sharing agreements appears to be changing by FINRA, we recommend that companies take immediate steps to verify both the compliance of their cost-sharing agreements with the SEC guidelines and the process and methodology used to determine the basic monthly allocation, so that the 2010 allocations are set before the start of the new fiscal year. In addition, you should be aware that in the event of a substantial change to the agreement, a copy of the revised agreement must be forwarded to your FINRA district office or you will submit your company to additional regulatory review. Nicole: So when it comes to cost-sharing agreements, I think it`s really important to make sure it`s written down. This is the most important thing: it has to be written, because the rules say so. At the end of the year, the broker-dealer must prove that the third party has sufficient resources, regardless of the broker-dealer, to bear the costs incurred by the broker.
This can be achieved by receiving a copy of the audited annual accounts of the third party. Q. In the interpretation, it is a question of countering a note that a broker has certainly more profitable than a real representation of expenses would support.