A customer of Ironwood Brokerage has a valid letter of authorization on file directing checks to a named third party. She requests one today, but the only funds in the account come from a deposited check that has not yet been collected. What should cashiering do?
- A.Issue it on the authorization; a valid third-party instruction obliges the firm to pay regardless of collection status.Wrong. Authorization settles who may be paid and says nothing about whether there is money available to pay with.
- B.Decline the instruction; a firm check may be drawn only in favour of the account owner.Wrong. Payment to a third party on proper written authorization is permitted, so this overstates the restriction considerably.
- C.Record the request and issue the check on collection; declining to advance uncollected funds is not a prohibited hold.Correct. Paying on collection answers the funds question without leaving the instruction unrecorded or unanswered.
- D.Issue it now and restrict the customer's securities positions until the deposited item collects.Wrong. Freezing positions is no substitute for collected funds and invents a remedy these facts do not offer.
Why: Two sound rules point in opposite directions and the candidate has to see that they answer different questions. A valid letter of authorization must be honoured, and honoured promptly, so the department cannot simply sit on the request. But disbursing against an uncollected item exposes the firm to the very float that kiting exploits, and a firm does not pay out money it does not yet have. Waiting for collection is therefore not the prohibited practice of holding a check, because that prohibition targets items received or issued and then left unrecorded or undelivered, which is not what happens when the department records the request, tells the customer why and pays on collection. Had the account already held a collected balance, the check would go out today.
A written complaint reaches Ashcombe Securities alleging that a registered representative signed the customer's name on a letter of authorization used to move funds. The firm places the letter in the complaint file kept for the supervising office and includes it in the statistical and summary information on written customer complaints it reports to FINRA. Is that sufficient?
- A.Yes, because statistical and summary reporting is the mechanism through which written customer complaints reach FINRA.Wrong. That describes the general route accurately and misses that a defined subset of allegations is carved out for individual reporting.
- B.No, because a written complaint alleging forgery is itself an individually reportable event for the firm.Correct. The nature of the allegation, not its merit, is what moves this letter out of the aggregate filing.
- C.No, because the firm must first substantiate the allegation and then report it as an internal conclusion that a rule was violated.Wrong. Self-reporting of an internal conclusion is a different branch of the rule, and treating it as a precondition would let a firm defer reporting by never concluding anything.
- D.Yes, provided the representative amends his own registration record to disclose the allegation.Wrong. This shifts a filing the member owes onto the individual, and registration-record disclosure runs in parallel rather than in substitution.
Why: FINRA's reporting rule handles most written customer complaints through statistical and summary reporting, but singles out a narrow class, those alleging theft or misappropriation of funds or securities or forgery, as events the member must report individually. Here the allegation is that a signature was forged, so the letter both enters the complaint records kept for the supervising office and triggers the firm's separate individual report. The duty does not wait on proof; the reportable event is the arrival of the allegation, not its substantiation. Had the customer complained only that the transfer was slow, the statistical route would have been the whole of the obligation.