Pay Attention To Your Orphans

What should a broker-dealer do when a customer's contact information no longer works? The law imposes responsibilities on broker-dealers in such situations. We expect the Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), and State securities regulators to have heightened interest and increased scrutiny over "orphaned" accounts, which are those where the designated representative relationship has ended or the client has become unresponsive. Recent SEC and FINRA actions and regulatory priorities focus on retail accounts, underscoring that firms must actively supervise these accounts, make diligent efforts to locate the customer, maintain escalation protocols, avoid charging fees for services not provided, and, if contact remains unsuccessful, transfer the abandoned property to the state. Failure to follow the rules governing orphaned accounts can expose a broker-dealer to significant sanctions.