FINRA reminded member firms about supervisory requirements concerning Uniform Transfers to Minors Act ("UTMA") and Uniform Gifts to Minors Act ("UGMA") accounts.

In a regulatory notice, FINRA described UTMA/UGMA accounts as custodial accounts that facilitate the transfer of various forms of assets to minors without the need for formal trusts. FINRA clarified that firms managing UTMA/UGMA accounts must obtain "essential facts" about their customers - as required under FINRA Rule 2090 ("Know Yorulesur Customer") - which are defined as facts that help to facilitate (i) the effective service of a customer's account, (ii) special handling based on the needs of each account, (iii) understanding of the scope of an individual's authority acting on behalf of a customer and (iv) compliance with all relevant securities laws. FINRA stated that firms must implement supervisory systems designed to ensure that firms gather information on, and stay up to date with, essential facts about their customers.

FINRA stated that termination of custody is also considered an essential fact about the account's beneficiary and, therefore, firms must take steps to monitor the point at which the beneficiary reaches the relevant age.

In order for firms to know essential facts about the UTMA/UGMA account beneficiary, FINRA urged firms to establish supervisory systems with the ability to:

  • appropriately handle the termination of custodianship once the beneficiary reaches the relevant age; and
  • clarify whether the custodian can manage assets in the UTMA/UGMA account once the beneficiary reaches the relevant age.

Commentary Steven Lofchie

FINRA's guidance follows a number of enforcement actions relating to the handling of UTMA and UGMA accounts.

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