(Dow Jones) A rule proposed by the Financial Industry Regulatory Authority could prohibit brokerages from using financial institutions as custodians if they aren't registered with the regulator and don't promptly verify the existence of customer assets.

The Securities and Exchange Commission is requesting comment on the proposal, published in the Federal Register on Aug. 5.

Brokerages, when notified by FINRA, wouldn't be allowed to continue to custody or retain record ownership with assets with financial institutions it doesn't regulate and that don't promptly comply with staff requests for written verification of assets it maintains. The rule would apply regardless of whether the assets belong to the customer or brokerage, according to a proposal filed with the SEC.

Brokerages who receive the notice would be required to transfer assets "within a reasonable period of time," according to the regulatory filing.

FINRA is proposing the rule to ensure that it can independently verify assets maintained by its members at financial institutions that aren't FINRA-registered, according to the filing. FINRA may request independent verification, but can't compel financial institutions that it doesn't regulate to comply with the request, according to its regulatory filing.

"This inability to obtain such information directly from a non-member financial institution may limit FINRA's ability to effectively detect fraud and protect investors," the agency wrote in the regulatory filing.

The proposal "strongly encourages" brokerages to enter contracts with financial institutions that aren't FINRA-registered to comply with the regulator's staff requests. Brokerages could pursue legal action against custodians if they make such an agreement, according to the regulatory proposal. Finra, however, isn't proposing to require such contracts "at this time."

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