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The SEC Approves Amendment to FINRA Rule 8210 Regarding Inspection of Books and Records And Testimony

Recently, in late December 2012, the Securities and Exchange Commission (“SEC”) adopted the proposed amendment to the Financial Industry Regulatory Authority, Inc. (“FINRA”) Rule 8210, which deals with FINRA staff and adjudicator’s ability to inspect and copy books and records, and require testimony, from member firms, associated persons and other persons under FINRA’s jurisdiction. FINRA initially filed a request to amend Rule 8210 in September 2009, and thereafter made two amendments to the initial rule proposal. Now, over three years later, on February 25, 2013, the amended FINRA Rule 8210 will become effective. The new FINRA Rule 8210 significantly broadens FINRA’s ability to inspect member firms’ and/or associated persons’ books and records and compel sworn testimony. Specifically, the new rule adds the phrase “possession, custody or control,” to the scope of books and records it can inspect. The addition of the word “control” means that a member firm or associated person has a legal right, authority or ability to obtain upon demand the relevant books or records. This broadens FINRA’s reach and authority since FINRA will be able to inspect and copy the books and records not only in the possession and custody of such entities and individuals, but also any books and records under their control. Based upon FINRA’s broad based ability to inspect and copy a wider array of books and records, it is imperative for member firms, associated persons, or individuals subject to FINRA’s jurisdiction to seek the advice of counsel when they are subject to a FINRA Rule 8210 request.

Moreover, the new Rule 8210 allows for service of a FINRA Rule 8210 request to be made on an unregistered individual to any known business or home address. Similarly, service of a Rule 8210 request can also now be made upon the attorney of record for a member firm, associated person, or person over whom FINRA has jurisdiction over. Since service of a Rule 8210 request can be made upon the attorney, FINRA urges that “[i]t is accordingly the responsibility of a firm, associated person or person subject to FINRA’s jurisdiction to communicate clearly to FINRA staff when they are being represented by an attorney in responding to a Rule 8210 request.” See FINRA Notice to Members 13-06 (January 2013).

Lax & Neville LLP has nationally represented small broker-dealers, financial services professionals and securities industry companies in regulatory matters, including regulatory enforcement proceedings, and securities-related and commercial litigation. Additionally, Lax & Neville has extensive experience in successfully advising member firms and associated persons who are subject to FINRA Rule 8210 requests. Please contact our team of attorneys for a consultation at (212) 696-1999.