SEC Division of Trading and Markets no-action letter: BancWest Investment Services, Inc.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
DIYlStl~l!l .Of'
TRADING A~t) MAR.ICE;T!:I
Eversheds Sutherland (US) LLP
700 Sixth Street, NW, Suite 700
Washington, DC 20001-3980
Re: Banc West Investment Services, Inc.
Dear Ms. Smith:
This responds to your September 20, 2018 letter on behalf of Banc West Investment Services, Inc. ("BWIS") requesting that the staff of the Division of Trading and Markets ("Staff') not recommend enforcement action to the Securities and Exchange Commission ("Commission") ifBWIS transmits checks submitted by customers to rollover funds from a retirement plan into an Individual Retirement Account ("IRA") to BWIS's carrying broker￾dealer in a manner consistent with the Commission's Exemptive Order for checks received for purchases of deferred variable annuities. 1 I understand that you have made the following representations. BWIS is registered with the Commission as a broker-dealer under Section 15(b) of the Exchange Act and is a member of the Financial Industry Regulatory Authority, Inc. ("FINRA"). It introduces customer accounts to its carrying broker-dealer on a fully disclosed basis pursuant to a written agreement with the carrying broker-dealer. 2 1 See Order Granting a Conditional Exemption to Broker-Dealers From Requirements in Rules 15c3-l and 15c3-3 Under The Securities Exchange Act of 1934 To Promptly Transmit Customer Checks For The Purchase of Deferred Variable Annuity Contracts, Exchange Act Release No. 34-56376 (Sept. 7, 2007), 72 FR 52400 (Sept. 13,
2007) ("Variable Annuity Exemptive Order").
2 See FINRA Rule 4311 (Carrying Agreements), requiring, among other things, that FINRA member firms enter into an agreement for the carrying, on an omnibus or fully disclosed basis, of any customer account in which

You note that your request for relief is limited to circumsumces in which a BWIS customer formerly participated in a tax-qualified plan made available by his or her employer, such as a plan q.ualified unaer section 40l(k) of the Intem.al Revenue· Code, and now desires to rollover assets held in such plan to an IRA. More specifically, although such assets may consist of investments in stock, mutual funds, employer securities and other investment types, your request for relief is only with respect to distribution checks issued by a tax-qualified plan. You state that a customer's decision to rollover assets to an IRA involves a number of considerations, which require, among other things, an examination of the services, investment options, fees and expenses that may be involved with a particular IRA. As such, FINRA has cautioned its members that they must have policies and procedures in place reasonably designed to comply with FINRA rules applicable to rollovers.3 In particular, FINRA has reminded member firms that they have an obligation of fair dealing with respect to customers planning for retirement, and that if a recommendation is made, member firms must consider certain attributes ' unique to the individual customer, such as the customer's age, other investments, financial situation and needs, and investment objectives:
A recolJ!lllendation concerning the type of retirement account in which a customer should hold~his 11etirement investments typically involves a recommended securities transaction, anq thus is subject to Rule l 111. For example, a firm may recommend that an investor sell his plan assets and roll over the cash proceeds into an IRA. Recommendations to sell securities in the plan or to purchase securities for a newly-opened IRA are subject to Rule 2111.4 FINRA Rule 2111 (Suitability) protects customers by providing that if a member firm's registered representative recommends a transaction or investment strategy involving a security or securities, the firm must use reasonable diligence to ascertain the customer's investment profile. 5 Furthermore, the rule prohibits member firms and their associated persons from making a securities transactions can be effected. You note that not all BWIS customer accounts are introduced to its carrying firm, e.g., accounts whose purchases are limited to variable annuity and/or variable life insurance contracts. 3 See FINRA Regulatory Notice 13-45, Rollovers to Individual Retirement Accounts (Dec. 2013) ("FINRA RN 13-45"). 4 See FINRA RN 13-45 at 4; see also FINRA Rule 2111 (Suitability). 5 See FINRA Rule 2111 (Suitability). 2

recommendation unless they have sufficient information about the customer to believe that the recouunendation is swtable for that c:aste.m.er. Even if a recommendation is not made, FINRA member firms are requn-ed to follow "know ye• customer" pr~edures by, for example, collecting basic information from new customers, such as the customer's name, residence, and occupation, before establishing an account for the customer. 6 Member firms also must comply with the anti-money laundering obligations of FINRA Rule 3310. 7 With respect to investment services that involve retirement planning, FINRA has reminded its members that the obligation of fair dealing requires compliance with numerous FINRA rules. 8 In addition to applicable FINRA regulations, member firms must also meet Internal Revenue Code requirements applicable to rollovers, including the requirement that individuals have only a 60-day window in which to rollover the distribution to another eligible retirement plan or IRA in order to avoid negative tax consequences.9 You note that BWIS has adopted policies and procedures to comply with FINRA guidaJ.lce with respect to pJ:oviding services to persons who may be planning for their retirement. Th~se compliance policies include the use of a form, titled "IRA Rollover Acknowledgement," which must be signed by the customer and received by BWIS prior to the time when BWIS forwards· rollover checks to its carrying firm. Among other things, you note that the IRA Rollover Acknowledgement reminds the customer that he or she has multiple options with respect to his or her retirement savings, including leaving the money in the former employer's plan. You state that BWIS also provides customers with a document titled "Rollover Decision Considerations," which lists twelve different factors the customer should discuss with his or her adviser in connection with the decision to rollover or consolidate retirement assets into an IRA. You also state that this document counsels customers to "make sure [they] have a conversation" with their adviser to review the customer's options. 6 See FINRA Rule 2090 (Know Your Customer) and FINRA Rule 4512 (Customer Account Information). 7 See FINRA Rule 3310 (Anti-Money Laundering). 8 See FINRA RN 13-45 at :fn. 7 (citing FINRA Rules 2010 (Standards of Commercial Honor and Principles of Trade), 2210 (Communications with the Public), and 2111 (Suitability) as well as NASO supervisory rules). See https://www .irs.gov/retirement-plans/plan-participant-employee/rollovers-of-retirement-plan-and-ira￾distributions (discussing distribution options and possible tax consequences). 3 9

You represent that the request for relief by BWIS is based on a compliance conflict resulting from its obliption to comply with the FINRA rules discussed above and its obligation to comply with the requirements of Exchange Act Rule 15c3-3, in particular the rule's "prompt transmission" requirement, which generally requires the transmission of customer funds and securities to a firm's clearing broker or dealer by noon of the next business day after receipt. You state that BWIS "cannot in all circumstances" make the fair dealing or suitability determinations called for by a rollover decision and at the same time ensure that a customer's rollover check is forwarded to the firm's carrying broker-dealer by noon of the next following business day. Specifically, you note that BWIS centralizes check processing in its main office in Omaha and directs registered representatives and customers to send checks to that office.10 You state that the Omaha office cannot always comply with the prompt transmission requirement beclluse BWIS must consider whether it has met its obligations under applicable FINRA rules. As part of that process, B WJS requires that it be in receipt of an IRA Rollover Acknowledgment form executed by the customer prior to forwarding the rollover check to its carrying firm. You note that BWIS believes that its customers would be disadvantaged if it were to return every rollover check to the customer or the customer's prior plan administrator before noon of the next business day in order to avoid a violation of the prompt transmission requirement. 11 Pursuant to paragraph (k)(2)(ii) of Exchange Act Rule 15c3-3, an SEC-registered broker￾dealer is exempted from the requirements of that rule provided that it serves as an introducing broker or dealer (i.e., does not hold customers' funds or securities), clears all transactions with and for customers on a fully disclosed basis with a clearing broker or dealer, and promptly transmits all customer funds and securities to the clearing broker-dealer which carries all of the accounts of such customers and maintains and preserves such books and records JO You note that customers may also deposit checks directly to an established account with B WIS' s clearing firm and that such checks are not included in your request for relief since they are not held by BWIS. You note in particular the possibility that individuals may attempt to rollover their distributions near the end of the 60-day rollover period, in which case returning the distribution check to the customer could create negative tax consequences. You further note that even in the case of an employee requesting a direct rollover, obtaining a rollover check can sometimes take up to several weeks, in which case the "prompt transmission" requirement could result in BWIS returning a check to a transferring plan for an individual who may no longer have an account with the plan, resulting in customer confusion and administrative problems. 4 11

pertainag thereto pursuant to the :requirements of Exchange Act Rules 17a-3 and 17a-4 as are customarily made and kept by a clearing brokeN:ieale:r. The Commission has defined the term "promptly. n:•mit$" to.require that "ttammission or delivery is made no later than noon of the next business day after the receipt of such funds or securities. " 12 In order to rely on an exemption from Exchange Act Rule 15c3-3 pursuant to paragraph (k) of the rule, a broker-dealer must forward checks made payable to a carrying broker-dealer by noon of the next business day following a registered representative's receipt of such a check from a customer . .. Based on your representations, the Staff will not recommend enforcement action to the Commission ifBWIS fails to transmit a customer's rollover check to the carrying broker-dealer by noon of the next business day after receipt, if the purpose for holding the check is to complete the fair dealing or suitability process in compliance with applicable FINRA rules, and BWIS:

1. Establishes p0licies and procedures reasonably designed to ensure that customer
   checks are safeguarded;
2. Ensures ~ta registered representative of B WIS who takes possession of the
   rQllover check promptly transmits such check to an Office of Supervisory Jurisdiction ("QSJ") of BWIS for processing;
3. Caus.es a registered representative of BWIS to complete the fair dealing or
   saita'bilityproeess within seven business days after an OSJ ofBWIS receives the rollover check;
4. Transmits the rollover check to the carrying broker-dealer no later than noon of
   the business day following the date a registered representative of BWIS completes the fair dealing or swtability process;
5. Maintains a copy of each such check and creates a record of the date the check was
   received from the customer and the date the check was transmitted to the carrying broker-dealer if the customer's rollover request is approved, or returned to the customer if it is rejected; and
6. Discloses to customers its process for handling customer checks received in
   connection with rollovers.
   You should be aware that this is a Staff position with respect to enforcement only and does not purport to express any legal conclusions regarding the application of the federal securities laws. This position is based solely on the foregoing description. Factual variations could warrant a different response, and any material change in the facts must be brought to the See Exchange Act Release No. 31511 (Nov. 24, 1992), note 11; 17 CFR240. 15c3- l(c)(9). 5 12

Staff's attention. This position may be withdrawn or modified if the Staff determines that such action is neeessary for the protection of investors, in th.e public interest, or otherwise in furtherance of the securities laws. Sincerely, ~u/- Thomas K. McGowan Associate Director 6

Michael A. Mc:u::c11taroll
S.nior ~ltcrEiJ<!; PltectOr
. . ~enie·tommisslon
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205~,·

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  'the Fir:m,--~.it,~i~t:t:1. .. · .l<l,\ill"Kf·1ti ~\tle l;!tei•t~Kl}{U}.1 lt introttute, eus~m~r· Jft.t1ct0c ~: !er on a rutty dlsttos~d ffifsts f)Ur$US'1t to a w.ritte", ... t:',.~lll~ ·W:lthi~'l.ilaf'l"Yltw' ~tHi@&m·«"W+ff Ptar# •• mtmcmMaf#• Pwt«®rM l, Re,u.fafiJin. the reque~·f<lr relief cl,1st'iJ$!;E;!d in this letter Is limited ~ drdttm$t~nces lh Wbich a IWlS· customer formerly partl<ilpated in a tax.,quatffled pian made. avalhat;>le by his or he.r emptoyer, 1 ~. Rule I5c3··'3{k){Z}CU~, .r,rovidiog an exempt!orrrrom ~le .15c3-3 to a broker-dealer who, al> an int.roduc::ing. br~f;:.,~:,,.:.de!let, ¢l~i!ir$ al! tranIQns with .and for customers on a fwily dt$¢IO$e'~ ~f$ts a ftidrrg brl')ker;--deater, and who p~ptlY transmith!IH CUltdmer funds and ·· . . . . ·. · · · · .. ·. · . . . bn>ker-deiter wnicb carl'ia ail .of tht atcounts Qf s~~ cu~t<:Ji:ners and and presel"tes ~J:tboc,~s an · · eustomarfly made and• cleirln; 1>toker..q~~rer, • i>ur,ot 't9 2 l!Qt ctJ~tOfijer ateoui,Js are intrql!iacedto f'- carey:lnQ• ftrln, e.·, accounts whose pur¢hases are limited to var!abft\l. annuity Mo/or va~lble life· rttsuraneetontraas. evershe4S $1:!therlan~ {U~ U.P JS pal'ti:;f,a .gl~I , ~~~l~t opera~ •:nrQUg~ !l~US sef~ <fnd 'Ql~inl;t legal entitles, under eversheds Sutherland. For a full descrfptton ot' the struct~·am:i a list /:if off!ces,.plttase visit W\Wl.il!versheds~slltherland,com. BWIS•Sec~o1006 39911397.2

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  t P~~~ trtt. ro~dur• tn Rta•, t•UOt1 iAA, .. , .... . fINRA has spectf.lcally reminded member ftrms that the); h.ave an obligation of fair dealin~ with n!s~ct: to cusi~n:rjrsi,pJa.n~ftil fot'ln~1r·~•~t1• tDtt:'.ffj ~fflrntndttiOf!I J$, mt1df; . m•m~r flr~ mJ.:1-•t ~~-f~rta;i ~~• ~"the fn~•~ -r; · toe ~j ~I; a~ J;ffV~!!t,': ,s In w::tlfit• to:1~ fi mln~Jot: .. ·• rt~V&$·~ n,jtemef\lf ,-.~ · a SWIS assists cu&t~mers with ddned oontrtb.utio.n, defined.benefit and sect,ori.403(b} plans. . 13(~ ilofio~ffltO IndMl .· .. ·.. . . .· ~ f!ae, 21)13) ffijA ,,t• .• . . • t:li'i ~~H~/n•-.ons ·. ~i(~tQty Nf;>tt~ 13~ Bto ·.r-f!.~.n~HndtVfdual Retirement le 2090 (Know Your Customer) and FI.NRA Rule 4512 (Customer Account Infermattonl. 9 a..nNRAJ\ufe 3310 .(Anti-Money l..at:tnderfng). 10 iij ANAA AiM 13-45 atfn.7~. cftlh~ FlNRA Rutes 2010 (Standards of Commercial Honor and PritJ~li$ ofT~d.e), 2210 (Cemmunleatfons.with the Public), and 2111 (Suitability) as well as NASO i,;upettvls~rv rules. Evershel.fsS~!H'landlUSJ i.t:.P 1$'J)i!ltofa global fesi~l"l:i,:ij. oi,e,..t1ni1thl;'o\lgh var:l~ S(:j)a~t':aottcllstln~ztegal entitles, under Evershelis sui:11ertanc1. For a ftilldestrtptton o:r the ~!:tore anti a fist .of offle$, pltiase ~tslt w-ww.evel-$11~s-suthenanct.eom. BWIS-SEC-01007 39911397.2

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S.WIS has adgp.~ .• ant pd!.!.res tor~m~ty ~itil:,fNM!$ gt.tiij~ij~ with res,ect to p~vi<liJi(J:•~Ni~$ ft$ Wt(). mlW ie lltan~j~g f~r :tl:lar retirement; One aped of the Firm's pc,,ic;i. . . ·. ... . tv,es the use:ota ‎ titiut "IMA~o:Uor Ac .. t," which mus ie st1i:tecUij'.the:.witomet and re~iX(«I ~'~:~ p~rto ~•r . . .. .the Firm forwams A· riollcVli" lffl-s:tf 1,ts, c.~~~r~~ Aftf(lflg •rtnitllt, ~e ll19\ ~,u~.r . .. . . .. •. .• .... his ~Selia ~jjijfjll~/' -~ wh; ~URtels , t1:1e.1ttort1mer's. Ith the The F1rm:iS;Rt!Ue~. ~tth .,~ -~ · from ,iqn to c.c,mpfy w~h the FlMAA ~-f-;,:~4t wiffi·· tk3'"3. The Rtm ~t:tnot rn;~i tin;u~~ncef m~ijt DUJty determfoati<ms' atJ~ t'Qt tlY a t1ss1ott ~ . . s and ax 12 Dlstlitilitfit>n& that take th~ffotm of a c;teck made Pf:IYable W the employee's ,new retirement plan Qr liV\ t:1re t,:eat~ as a direct rottov~r and are not subJiact to mandatory income tax withh id, 13 .ffte . . Notite 20.14-74, 2014..:.50 :I.R.8. 937 {Dec. 8, 2014), which pr£111ldes a m · · must be provided within a reasonable period prior to t *' . '' ,, tM i,,atnn~m .. . .. .. ·.. . 14 S!IC R¢1e~ .. . . . . 2&l, 11'92), n. Ut S!CRutec 1Sc3-1(c)(9), and Interpretations of Financial ~ct QperatJonaJ Ruf~, aYallabfe. at · · ~:a· iml.ll.lJl~:ail:.rl.!!!lt:
1Sc3r3·4otemmati<>ns.,pdf at p. 2s23 (defirjition "'promPtlv :tra BWIS-$EC·01008

Michael A. Macctili.lroU
Sqmt,er 2(1, ~0.18
PJge4
~~~tl~Jt T~,nent
R·~d' b~.B:WIS
. se rules •. !.n this inDt. form exe,eute~ er~~ IWlSfs tJl'~6J firm" lf :the fi~ ~fl t9 rettJrn every rollover · · · · ~ of •the ne1i\t ',. rennt. ·1,s ~1>ta111~ . d next nlstrattve probf~ms for tn~ is~ 11:i pdtsattn of a en•~ ii ~ Jta:1/e,lflJ~.tmt wfflf,tbe f)llA, 15 cu,tomers',may also ~posit:Gtte:cks dtrettty,,t~ an ettsn~;,•~unt w.ith "&~IS!s ¢teJrirtg firm; tnoe ~e&s a~ not·tnci~ tn this reg~ for reuir s1.ue~~Y are rrot held by awrs. 16 ~ !xdtMge Act Reiae No. 3t.--,96i'll ($fjpt, 2;001),. Qfider QfantJng a .C,nditltnaJ · · .wt.· 3 U~r the Ute Pttrt.::rtase .. of

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  ltfes tiL:C by Mark M. ~ .. .. .. {I and Mtrkets, tt,~ "1',f:Y,t,JFE Letter"), a~ailable at:
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  Eversh:ed~ Sl,lth~lein~ ('-:!$) l..t.P· ls.11,11: of a ~10tiill legttl practlce1 .· o~r.1tlng throl.lfih various sepi,rate and. <:flstlnct legal entitles, under Eversh~s SUth'erland. For a full dei.k:rlf;it!M of'the m..!GtUre•and a list ofofflces, pleae vtrslt www.even.heds-suther1and.a:,m. BWlS-SEC-01009 39911397.2

Mlchael A.. Matchtaroli VlQ September 20, 2018 Pap6 oz w< C&flfldentiat T~atment lequ~ br swrs
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.... ¢ rj/!f!> ·t:il Fu~~ tf-iiK~mat tblt ~--~•• tr~t ts net warranted w,th re$pBt ti>the . :;.:.•.·.···.•~· t~~•l' '. . . .. · fief'ehi" JM$ t~l\y ,,. __ tiij •ys1 nott~. 1>rtor to. ~' M~d ~~ •ae·:se t• ~,if~ M~nlty·lffKi ~ate, l).INUE! any BVJif .. ~{es.

• M:il.f- t~~k y,u ~r.vour t~•tderttiofl of this request. If you have any questions, please contad the > :,. undqgne<;t.at 201-3$3--0245.
  WVl Slrn!ere4y, cc: Rollin L. Biel, &WIS Chief Finartcial Officer Grefory •.eis~ BWIS Chief compHanee Officer Thomas K. lllfcGowen, SEC ~.n•n l'.'Qy.,. sic Sineacf Pta'nken, FINAA Eversheds Sutherland (US) LLP IS part of a global legal pra<:tice, operating through various separate and distinct legal entitles, under Eversheds Sutherland. For a full description of the structure and a list of offices, please visit www.eversheds-sutherland.com. BWIS·SEC-01011 39911397.2