Compliance and Regulatory Alerts - 03-25-20

FINRA Warns Firms on UTMA/UGMA Account Supervision

In a Notice issued on February 27, FINRA advised firms of their responsibilities over custodial accounts under the Uniform Transfers to Minors Act and Uniform Gifts to Minors Act (“UTMA/UGMA”). FINRA is continuing to look at whether firms have adequate policies and procedures in place to comply with UTMA/UGMA, and how those policies and procedures are operationalized. Specifically, as we previously reported, FINRA is seeking to ensure that control over accounts is passed to the beneficiaries once the minors reach the statutory age (18 or 21 in most states; an alternative age is permitted in a dozen or so other states).

These accounts are set up under state law, but they generally require the appointment of a custodian, the designation of a minor beneficiary and the deposit of assets into an account. Under UTMA/UGMA, the deposits are considered irrevocable transfers to the beneficiary. Termination of the custodianship is based on the beneficiary reaching maturity or dying, or as prescribed in some other way by state statute.

In the Notice, FINRA described special obligations of custodians beyond the broker-dealer requirements to safeguard customer assets pursuant to the securities laws. Specifically, it reviewed custodial responsibilities in light of a firm’s “Know Your Customer” (Rule 2090) and Supervision (Rule 3110) obligations. It warned members that adequate compliance requires firms to take into account termination of custodianship and changes of authority under these rules.

During firm examinations last year, FINRA found transaction authorizations and supervisory systems and procedures failings, particularly with respect to custodian terminations. As Bates noted when the 2019 Examination Report was issued, FINRA also criticized firms for allowing custodians to “withdraw, journal and transfer money from UTMA/UGMA accounts months, or even years, after the beneficiaries reached the age of majority.”

In its new Notice, FINRA highlighted that effective supervisory systems (i) track custodian terminations (from inception and by using automated tools) and (ii) provide automated alerts for representatives to communicate with custodians—and for custodians to communicate with beneficiaries—about transfers of custodial assets and relevant age milestones. It also endorsed practices concerning verification of custodian authority to manage assets after termination and account documentation concerning any post-termination relationship.

How Bates Helps

Bates works with clients to closely review their UTMA/UGMA client account records to identify the impacted populations, whether control over the accounts has transferred, and whether trading activity has occurred or commissions generated once beneficiaries have reached the statutory ages for control over the accounts. 

Bates also conducts large data analyses based on beneficiary (minor) dates of birth against the applicable ages for change of account control. This helps in identifying those accounts that should have been converted but have not, the trading done in those accounts, and the commissions earned. The resulting information is then used to respond to FINRA and discuss any remediation or other next steps.


For more information on how Bates Group can help your firm respond to UTMA/UGMA account inquiries, please contact:

Scott Lucas  

Bates Group Managing Director, Regulatory & Internal Investigations

t: (971) 250-4344   e:


David Birnbaum

Bates Group Managing Director

t: (917) 273-2682   e:


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