In which situation can a registered person of a broker-dealer borrow funds from a customer without firm approval?

In which situation can a registered person of a broker-dealer borrow funds from a customer without firm approval?

• A. When the customer is a close family member
• B. When the customer is a friend
• C. When the customer is the brother-in-law of the registered person
• D. When the customer is also an employee

Answer: (C)

The situation in which a registered person of a broker-dealer can borrow funds from a customer without requiring firm approval is when the customer is the brother-in-law of the registered person. This specific relationship typically falls under the category of immediate family members, where certain borrowing rules may be relaxed. In the context of regulatory guidelines, such as those from the Financial Industry Regulatory Authority (FINRA), borrowing from customers who are classified as family or relatives can sometimes be permissible without needing prior approval from the firm. The relationship between a registered person and their brother-in-law is considered a close familial relationship. Other options, while they may involve close relationships, do not clearly meet the regulatory criteria for exemption from firm approval. For instance, borrowing from friends or customers in general, even if they are acquaintances, usually requires the approval of the broker-dealer to prevent any potential conflicts of interest or unethical behavior, which is the primary reason for the regulation in the first place. Rules around borrowing aim to protect both the integrity of the financial firm's operations and the interests of customers.

The situation in which a registered person of a broker-dealer can borrow funds from a customer without requiring firm approval is when the customer is the brother-in-law of the registered person. This specific relationship typically falls under the category of immediate family members, where certain borrowing rules may be relaxed.

In the context of regulatory guidelines, such as those from the Financial Industry Regulatory Authority (FINRA), borrowing from customers who are classified as family or relatives can sometimes be permissible without needing prior approval from the firm. The relationship between a registered person and their brother-in-law is considered a close familial relationship.

Other options, while they may involve close relationships, do not clearly meet the regulatory criteria for exemption from firm approval. For instance, borrowing from friends or customers in general, even if they are acquaintances, usually requires the approval of the broker-dealer to prevent any potential conflicts of interest or unethical behavior, which is the primary reason for the regulation in the first place. Rules around borrowing aim to protect both the integrity of the financial firm's operations and the interests of customers.