Current through Register Vol. XLI, No. 48, November 27, 2024
Section 174-5-3 - Commission Findings(a) West Virginia Code § 30-40-18(c), which requires that brokers' trust fund account be federally insured, is an important public policy that is necessary to protect the public interest. However, the FDIC insurance for deposits at a particular financial institution may be insufficient, requiring some brokers to either open additional trust fund accounts at other financial institutions or at times be out of compliance with this important requirement when the balance of the trust fund account exceeds the amount that is insured against loss.(b) The Commission finds there is a need to allow brokers to have a means for complying with § 30-40-18(c) through safe, secure, established banking products that allow for the temporary deposit of excess funds with other insured financial institutions. The Commission finds that a cash sweep product is such a safe, secure and established means for brokers with excess funds to comply with the provisions of § 30-40-18(c).(c) The Commission finds that such accounts comply with the current provisions of West Virginia Code § 30-40-18 so long as an appropriate addendum to the Trust Fund Account Statement and Consent to Examine is signed by the broker and the financial institution where the cash sweep account is established.(d) The Commission finds that brokers with cash sweep accounts may at times require the withdrawal of funds which are on deposit in other financial institutions due to the cash sweep account. West Virginia Code § 30-40-18(d) and related rules require that each trust fund account provide for the withdrawal of funds without notice. Since excess funds may at times be deposited in other financial institutions in accordance with the cash sweep account agreement, the relationship institution must agree to advance funds on any check drawn against the broker's trust fund account for which there are sufficient funds in the cash sweep account unless prohibited by applicable law or court order or cannot by reason of force majeure or circumstances beyond the relationship bank's control.(e) In the event of such advanced payment, the Commission finds that the advance is not a loan, the funds in the cash sweep account are not collateral for a loan, the anticipated debit of the funds in the cash sweep account does not breach the broker's fiduciary obligations in relation to the broker's trust fund account, and the relationship bank's advance to cover a check drawn against the broker's trust fund account with the understanding that the advanced funds will be debited upon receipt of the swept funds deposited elsewhere is not violative of West Virginia Code § 30-40-18(f) and related rules.