Call us 24/7 - 1-888-909-0978

Finra Expense Sharing Agreements

In accordance with paragraph (c) (i) (i) (F) of Rule 15c3-1, a broker requests that any debt or expense related to the broker`s activity for which a third party has taken responsibility be detritus of the net worth, unless the broker can prove that the third party has sufficient resources, regardless of the broker, to pay the liability or fees. Are the guidelines in the July 11, 2003 staff letter regarding third-party expense allocation agreements (“third-party expense letters”) still valid? FINRA provided guidance on cost-sharing agreements in a communication to members published in October 2003. This communication requires brokers to “establish a data set that reflects all expenses incurred for their business and any corresponding liability, whether a third party has agreed to bear the costs or liability.” 03-63 also emphasizes the broker`s obligation to keep records of these expenses or liabilities assumed by third parties, regardless of accounting treatment or the impact on net capital. 7. Dealers must maintain written fee-sharing agreements between the broker and a third party who has paid or agreed to an issue of a broker. The agreement must specify which party is required to bear each expense, whether the broker has a direct or indirect obligation to compensate a party for the payment of the fees or otherwise compensate it, and the type of award when the broker records the costs in a specified amount as a result of a third party allocation. 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. 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. Does this provision also apply to the cost-sharing agreements by which profits are paid to the parent company, even if the subsidiary remains fully in compliance with the capital? A. Yes. The interpretation also applies in this case, even if the perceived problem that motivates the interpretation does not exist. Businesses that have generated revenue on the basis that the parent company bears most of the costs must check whether these fees are still tax acceptable and for other purposes, or whether the subsidiary should instead pay dividends to their parent company for amounts greater than the justified value of the services provided. Such payments would naturally be subject to the SEC`s capital withdrawal rules. All brokers should be aware of these requirements, as auditors and supervisory authorities have tightened their control, even with respect to the smallest expenses affecting financial statements. Both the SEC and FINRA outlined the relevant expectations of the brokers. 03-63 outlines some fundamental principles in setting cost-sharing agreements: in general, brokers and their FINOPs should be aware of the basic principles and registration requirements for cost-sharing agreements.