Over the past several years, many noncarrying broker-dealers qualifying to claim an exemption under paragraph (k) of Rule 15c-3-3 have experienced confusion when claiming the exemption, whether on the FOCUS Report or on the exemption report itself. Some broker-dealers have checked a box under Item 24 of Part IIA of the FOCUS Report to match their FINRA membership agreements when their operations didn’t fit into that exemptive provision or other exemptive provisions. As a result, some broker-dealers decided not to check an exemptive provision box but were unsure of the exact provisions to include on their exemption report.
On July 1, 2020, the SEC provided clarity by updating the “Frequently Asked Questions Concerning the July 30, 2013 Amendments to the Broker-Dealer Financial Reporting Rule.” FAQs were added to discuss the following issues:
- Types of broker-dealers covered by Footnote 74 of the 2013 release adopting amendments to Rule 17a-5 and what should be included in the exemption report. (Question 8)
- How to complete the FOCUS Report if the exemptive provisions don’t apply. (Question 8.1)
- When a broker-dealer might identify both paragraphs (k)(2)(i) and (k)(2)(ii) of Rule 15c3-3 on the exemption report and FOCUS Report. (Questions 12 & 12.1)
If a broker-dealer doesn’t operate under the exemptive provision or provisions included in its FINRA membership agreement, we recommend the broker-dealer reach out to FINRA to obtain guidance on the proper exemption to claim and if necessary, amend its agreement based on its circumstances.
