230 R.I. Code R. 230-RICR-50-05-2.15

Current through December 3, 2024

Section 230-RICR-50-05-2.15 - Sale of Securities at Financial Institutions

A. Applicability

1. § 2.15 of this Part applies exclusively to broker-dealer services conducted by broker-dealers on the premises of a financial institution where retail deposits are taken.

2. § 2.15 of this Part does not alter or abrogate a broker-dealer's obligation to comply with other applicable laws, rules, or regulations that may govern the operations of broker-dealers and their agents, including but not limited to, supervisory obligations.

B. Standards for Broker-Dealer Conduct. No broker-dealer shall conduct broker-dealer services on the premises of a financial institution where retail deposits are taken unless the broker-dealer complies initially and continually with the following requirements:

1. Setting. Wherever practical, broker-dealer services shall be located in a physical location distinct from the area in which the financial institution's retail deposits are taken. In those situations where there is sufficient space to allow separate area, the broker-dealer has a heightened responsibility to distinguish its services form those of the financial institution. In all situations, the broker-dealer shall identify its services in a manner that clearly distinguishes those services from the financial institution's retail deposit-taking activities. The broker-dealer's name shall be clearly displayed in the areas in which the broker-dealer conducts its services.

2. Networking Arrangements. Networking arrangements shall be governed by a written agreement that sets forth the responsibilities of the parties and the compensation arrangements. Networking arrangements must provide that supervisory personnel of the broker-dealer and representatives of state securities authorities, where authorized by state law will be permitted access to the financial institution's premises where the broker-dealer conducts broker-dealer services in order to inspect the books and records and other relevant information maintained by the broker-dealer with respect to its broker-dealer services. Management of the broker-dealer shall be responsible for ensuring that the networking responsibilities of all parties, including those of financial institution personnel.

3. Customer Disclosure and Written Acknowledgement.

a. At or prior to the time that a customer's securities brokerage account is opened by a broker-dealer on the premises of a financial institution where retail deposits are taken, the broker-dealer shall:

(1) Disclose, orally and in writing, that the securities products purchased or sold in a transaction with the broker-dealer:

(AA) Are not insured by the Federal Deposit Insurance Corporation ("FDIC");

(BB) Obligations of the financial institution and are not guaranteed by the financial institution; and

(CC) Are subject to investment risks, including possible loss of the principal invested.

(2) Make reasonable efforts to obtain from each customer during the account opening process a written acknowledgement of the disclosures required by § 2.15(B)(3)(a)(1) of this Part.

b. If broker-dealer services include any written or oral representations concerning insurance coverage, other than FDIC insurance coverage, then clear and accurate written or oral explanations of the coverage must also be provided to the customers when such representations are first made.

4. Communications with the Public

a. All of the broker-dealer's confirmations and account statements must indicate clearly that the broker-dealer services are provided by the broker-dealer.

b. Advertisements and sales literature that announce the location of a financial institution where broker-dealer services are provided by the broker-dealer, or that are distributed by the broker-dealer on the premises of a financial institution, must, unless subject to § 2.15(B)(4)(d) of this Part, disclose that securities products:

(1) Are not insured by the FDIC;

(2) Are not deposits or other obligations of the financial institution and are not guaranteed by the financial institution; and

(3) Are subject to investment risks, including possible loss of the principal invested.

c. Recommendations by a broker-dealer concerning non-deposit investment products with a name similar to that of a financial institution must only occur pursuant to policies and procedures reasonable designed to minimize risk of customer confusion.

d. The following shorter logo format disclosure may be used by a broker-dealer in advertisements and sales literature, including but not limited to material published, or designed for use in, radio or television broadcasts, Automatic Teller Machine ("ATM") screens, billboards, signs, posters and brochures, to comply with the requirements of § 2.15(B)(4)(b) of this Part, provided that the following disclosures are displayed in a conspicuous manner:

(1) Not FDIC Insured;

(2) No Bank Guarantee; and

(3) May Lose Value.

e. As long as the omission of the disclosures required by § 2.15(B)(4)(b) of this Part would not cause the advertisement or sales literature to be misleading in light of the context in which the material is presented, such disclosures are not required with respect to messages contained in:

(1) Radio broadcasts of 30 seconds or less;

(2) Electronic signs, including billboard-type signs that are electronic, time, and temperature signs and ticker tape signs, but excluding messages contained in media such as television, online computer services, or ATMs; and

(3) Signs, such as banners and posters, when only used as location indicators.

5. Notification of Termination. The broker-dealer must promptly notify the financial institution if any agent of the broker-dealer who is employed by the financial institution is terminated for cause by the broker-dealer.

230 R.I. Code R. 230-RICR-50-05-2.15

Adopted effective 11/4/2024