FINRA Notice 26-03: Bulk Account Transfers Without Affirmative Consent

FINRA Regulatory Notice 26-03 tackles a practical problem that firms face during consolidations and operational restructurings: obtaining affirmative consent from thousands of customers for account transfers is sometimes impossible. The notice clarifies when negative consent — where silence equals approval — can substitute for explicit customer authorization.

The General Rule and the Exception

Under FINRA rules, transferring a customer's account to another member firm generally requires that customer's affirmative consent or instruction. Makes sense. Your customers chose to do business with you, not the firm you're selling to.

But reality doesn't always cooperate with regulatory ideals. When a firm is winding down, selling a business line, or changing clearing arrangements, contacting every customer and waiting for explicit approval can be operationally unworkable. That's where the bulk transfer exception comes in.

When Negative Consent Is Permitted

Notice 26-03 outlines the circumstances under which firms can rely on negative consent for bulk account transfers:

• The transfer involves a large number of accounts where individual affirmative consent is impractical
• Customers receive clear written notice describing the proposed transfer
• The notice provides customers a reasonable opportunity to object
• Customers who do not respond within the specified period are deemed to have consented

The key word is "reasonable." Your negative consent letter needs to give customers enough time and clear enough instructions to actually respond if they want to object. Burying the deadline in fine print doesn't cut it.

The Negative Consent Letter Itself

This is where firms get it wrong. The letter must be clear about what's happening, when it's happening, and what the customer needs to do if they object. It should include:

• A plain-language explanation of the transfer and the receiving firm
• The date the transfer will occur absent objection
• Clear instructions for how to object
• Contact information for both the transferring and receiving firms

If you're drafting these letters, write them for the least sophisticated customer in your book. If they can't understand what's happening after one read, rewrite it.

What This Means Operationally

If you're on the acquiring side of a bulk transfer, you need to be involved in the negative consent process from the start. The transferring firm sends the letter, but you're inheriting customers who may be confused, unhappy, or unaware. Plan for increased call volume and account inquiries in the weeks following the transfer.

If you're on the transferring side, document everything. Keep copies of the letters, proof of mailing, and records of any objections received. When examiners ask — and they will — you need to show that you followed the process correctly.

Timing Considerations

Don't wait until the last minute. Negative consent periods need to be genuinely reasonable — typically 30 days at minimum. Factor in mailing time. If you're announcing a December 15 transfer date, that October negative consent letter is already late.

Bottom Line

Bulk account transfers are a reality of industry consolidation. FINRA recognizes that affirmative consent isn't always practical. But the negative consent exception is exactly that — an exception. Use it appropriately, document it thoroughly, and make sure your customers actually understand what's happening to their accounts.

Jay ProffittFounder & Managing Principal, GiGCXOs