New Charitable Contributions Guidelines Issued

The NASD and the NYSE have issued a joint notice regarding the solicitation of substantial charitable contributions from NASD member firms or NYSE member organizations with whom they conduct or intend to conduct business, by employees and or agents of customers, or potential customers who are acting in a fiduciary capacity. It was noted in the NASD Notice to Members that the solicitation of substantial charitable contributions by employees or agents of a customer acting in a fiduciary capacity raises potential conflicts, similar to the payment of gifts or gratuities as established by NASD Rule 3060.

As a result of those potential conflicts of interest, the NASD and NYSE encouraged firms establish policies and procedures to address firms charitable giving. They noted that Written Supervisory Procedures should be established that allow the firm to act in the best interest of the customer, and those procedures should include methods to:

• Centralize the disbursement of funds;
• Establish thresholds for review of the dollar amount and frequency of contributions requiring senior management approval;
• Ensure contributions cannot be based on the business done by the customer;
• Ascertain the relationship between the employee or agent and the charitable organization; and
• Contact customer directly to allow the customer to verify the validity of the contribution so that it is in the customer's best interests and not that of the agent or employee.

Notwithstanding the above, it was also noted that the guidelines were not designed to restrict the payment of contributions of individuals acting in their own capacity, provided that the charitable contributions made thorough a firm's employees was not an indirect means to circumvent the guidance given by the NASD and NYSE.