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Highlights
- With the recent release of Notice 26-03, the Financial Industry Regulatory Authority (FINRA) will eliminate its pre-review of draft negative consent customer letters starting April 1, 2026.
- The notice modernizes guidance but does not create new rules, instead outlining effective practices such as obtaining customer authorization, meeting timing expectations and ensuring compliance with FINRA Rules 1017 and 2210, as well as Regulation S P.
- Firms should proactively update agreements and procedures related to bulk transfers, including opt-out processes, disclosures and fee waiver practices to align with FINRA's clarified expectations.
The Financial Industry Regulatory Authority (FINRA) on February 6, 2026, released Notice 26-03 (Notice), which consolidates and modernizes guidance on the use of negative consent for bulk transfers or assignments of customer accounts. The Notice represents a significant shift in FINRA's approach by eliminating the long-standing practice whereby member firms submit draft negative consent customer letters to FINRA staff for review prior to any bulk transfer or assignment of customer accounts. This change will become effective on April 1, 2026.
Key Takeaways
FINRA will no longer review draft customer letters and provide a "no objection" response to the use of such letters in connection with bulk transfers. Though this reduces administrative burdens, firms remain responsible for ensuring their practices comply with all applicable regulatory and legal requirements. FINRA will continue to examine members' use of negative consent in transferring and assigning accounts. In some ways, similar to the ability of investment advisers to use negative consent for contract assignments under the Investment Advisers Act of 1940, this negative consent reduces burdens for member firms. Nevertheless, FINRA may require this information under Continuing Membership Application (CMA) as further noted below.
The Notice does not create new legal or regulatory requirements, nor does it create new interpretations of existing requirements or relieve firms of any existing obligations. However, firms should consider updating their practices in light of this guidance. Firms should review their account opening agreements to ensure they contain appropriate customer authorization for negative consent procedures, as well as develop or update internal procedures for bulk transfers that incorporate the effective practices outlined in the Notice.
Background
Generally, a firm must obtain a customer's affirmative consent or instruction to transfer or assign the customer's account to another member. However, for large bulk transfers, obtaining affirmative consent may be unworkable, leading firms to use negative consent – a process where customers are notified that their accounts will be transferred unless they expressly object.
When Negative Consent Can Be Used
The Notice provides an illustrative list of situations, though not exhaustive, where negative consent has been used to transfer or assign customer accounts:
- An introducing firm entering into new clearing arrangements may transfer some or all of its customer accounts to the new clearing firm(s).
- A firm going out of business, including due to financial or operational difficulties, may transfer all of its customer accounts to one or more other firms.
- A firm divesting a specific business line or area may transfer the affected customer accounts.
- Following the conclusion or termination of a clearing relationship, including where the introducing firm has gone out of business, the clearing firm may assign customer accounts to other introducing firms on its platform.
- A firm acquired by or merged with another member may transfer all customer accounts to the new firm.
- Upon conclusion of a networking arrangement with a financial institution pursuant to FINRA Rule 3160, a firm may transfer customer accounts to a new firm as directed by the financial institution.
- Upon conclusion of an arrangement relating to employee equity compensation or employer-sponsored retirement plans, a firm may transfer customer accounts to a new firm as directed by the employer.
- Negative consent also can be used to change the broker-dealer of record on directly held accounts in specified situations.
Effective Practices for Using Negative Consent
Customer Authorization
FINRA emphasizes the importance of obtaining customers' prior written authorization to make changes to their accounts by negative consent. Firms should consider obtaining such authorization during the client onboarding process, such as in an account opening agreement.
Regulatory Compliance
Various regulatory and legal requirements may apply to the use of negative consent. Members must ensure the transfer or assignment is consistent with all applicable laws, rules and regulations. If required under FINRA Rule 1017, a member must file a CMA with respect to the proposed transfer or assignment. Letters that constitute retail communications are subject to content standards under Rule 2210. Regulation S-P governs the protection of financial and personal customer information and applies to these transfers. Other laws may apply depending on the nature of the account, such as investment advisory accounts and retirement accounts.
Free Credit Balances and Sweep Programs
When a transfer involves free credit balances, delivering and receiving firms may rely on the negative consent letters to transfer those balances, provided the transfer is consistent with Exchange Act Rule 15c3-3(j) and U.S. Securities and Exchange Commission (SEC) staff guidance. Where a receiving firm offers different sweep program products than does the delivering firm, the receiving firm may rely on the negative consent letters to immediately reinvest customers' free credit balances in available products, provided this is consistent with SEC Rule 15c3-3(j) and related SEC guidance.
Timing Requirements
Absent exigent circumstances, firms should provide customers with at least 30 days' notice before transferring or assigning their accounts via negative consent. Exigent circumstances are rare and include situations such as a firm going out of business on short notice for unforeseen reasons. In some instances, customers would benefit from more than 30 days' notice or receiving more than one letter informing them of upcoming changes. As noted under the Fee Waiver and Disclosures section below, there may be additional considerations for firms relating to timing and fees.
Description of Transfer
Firms should provide customers with a clear and concise description of the circumstances necessitating the transfer or assignment. Firms may also consider providing additional relevant information, such as a brief description of the receiving firm's services and whether products offered are similar to those offered by the delivering firm. Information about any immediate impacts of the change, such as trading restrictions during the transfer process, should also be considered.
Opt-Out Provisions
Providing customers with the opportunity to opt out is fundamental to the use of negative consent. Letters should include a statement that the customer has the right to object to the proposed transfer or assignment. The letter should inform customers of the date by which they need to respond if opting out, how to opt out (e.g., by telephone, email or another method) and the alternatives available if opting out, including how to effectuate a transfer to a different firm and the consequences of opting out without transferring.
Fee Waivers and Disclosures
Customers who do not opt out should not be charged for any transfer or assignment based on negative consent. The delivering firm should waive any Automated Customer Account Transfer Service (ACATS) fees for customers who opt out and affirmatively transfer their accounts to another member, regardless of whether the transfer occurs before or after the opt-out deadline. Receiving firms may consider waiving ACATS fees for a period (e.g., 30 to 60 days) following the transfer, which would effectively provide customers with additional time to decide whether to transfer to another member without incurring fees. This is especially important when customers receive less than 30 days' notice due to exigent circumstances. The letter should also disclose any cost that will be imposed on the customer as a result of the transfer or assignment.
Delivery Methods
Firms may choose different delivery methods for sending letters, including regular mail or electronic delivery, consistent with guidance regarding electronic delivery of information to customers.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
