FINRA recently released its monthly summary of disciplinary actions for January 2009. There are many of the routine cases involving private securities transactions, outside business activities, omissions on Forms U-4, improper use of discretion, and forgery. I noticed an increase in cases involving brokers making or receiving loans to/from customers. There were 4 cases involving loans with customers reported for this one month.
Brokers should beware of not only FINRA's Rule on loans with customers, NASD Rule 2370, but also their own firm's procedures on borrowing from or lending to customers. Under Rule 2370, a broker may not borrow from, or lend to, a customer unless his or her firm's procedures authorize such loan. in some cases as set forth in the Rule, the broker must have the lending arrangement pre-approved by the firm. Of course, some firms outright prohibit such loans, and breaking the firm's policy could also be grounds for disciplinary action under NASD Rule 2110. Regardless of whether its allowed, its not necessarily the best idea, and brokers should consider the consequences of undertaking such an agreement carefully.
