FINRA Regulatory Notice 19-08: FOCUS Reporting for Operating Leases


On March 19, 2019, the Financial Industry Regulatory Authority (“FINRA”) issued Regulatory Notice 19-08 Giving Broker-Dealers Guidance on FOCUS Reporting for Operating Issues.

Summary (per Regulatory Notice 19-08)

In October 2018, the U.S. Securities and Exchange Commission (“SEC”) Division of Trading and Markets issued the no-action relief letter regarding the treatment of operating leases under SEA Rule 15c3-1 in connection with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Update for Leases ASU 2016-02, Leases (Topic 842). Due to member inquiries, FINRA discussed with the SEC and issued Regulatory Notice 19-08 advising members on reporting the right-of-use lease assets and lease liabilities on their FOCUS reports going forward. Members are not required to refile any FOCUS reports that they have already submitted to comply with this guidance.

ASU 2016-02,Leases(Topic 842) Background

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes the existing guidance for lease accounting, Leases (Topic 840). Under the new standard broker-dealers will be required to recognize operating leases with terms of greater than twelve months on the statement of financial condition by recording a lease liability and corresponding right-of-use asset at the present value of future lease payments. The asset may also include initial direct costs, prepaid lease payments, and any lease incentives. The effective date of ASU 2016-02 is for fiscal years beginning after December 15, 2018. The changes to accounting for leases could have had a material impact on the net capital of a broker-dealer by requiring the right-of-use asset to be deducted as nonallowable while also including the lease liability in the aggregate indebtedness computation. This would have required owners of broker-dealers to make additional capital infusions into the entity prior to this accounting rule taking effect or risk a potential net capital deficiency.

SEC No-Action Letters

The SEC had issued a no-action letter in November 2016 and, in October 2018, they issued another no-action letter and withdrew the original letter they released in November 2016. The new letter removes the requirement that a broker-dealer deduct from net capital the excess of a lease liability over a lease asset. This change corrects the “hole” that was left from the previous letter. Under the withdrawn letter net capital would have been reduced twice for the portion of the liability that exceeded the asset, first by recording the expense and second by deducting the difference between the asset and liability. This would have been the case because any difference where the liability exceeded the asset would mean that more expense was being taken than actually being paid. The requirement that broker-dealers analyze each lease liability and related asset individually remains in effect.

FOCUS Reporting Guidance from FINRA Regulatory Notice 19-08

  • To Report the Operating Lease Asset on FOCUS Report Part II, Part IIA and Part II CSE, members should report the operating lease asset on the line “Property, furniture, equipment, leasehold improvements and rights under lease agreements” by reporting the portion of the asset to be added back in Box 490 (“Allowable” column) and by reporting any non-allowable portion of the asset in Box 680 (“Non-Allowable” column).
  • To Report the Operating Lease Liability
    • On FOCUS Report Part II, members should report the operating lease liability on the line “Accounts payable and accrued liabilities and expenses – F. Other” by reporting the portion that is not an aggregate indebtedness liability in Box 1380 (“Non-A.I. Liabilities” column) and by reporting the portion that is an aggregate indebtedness liability in Box 1200 (“A.I. Liabilities” column).
    • On FOCUS Report Part IIA, members should report the operating lease liability on the line “Accounts payable, accrued liabilities, expenses and other” by reporting the portion that is not an aggregate indebtedness liability in Box 1385 (“Non-A.I. Liabilities” column) and by reporting the portion that is an aggregate indebtedness liability in Box 1205 (“A.I. Liabilities” column).
    • On FOCUS Report Part II CSE, members should report the operating lease liability on the line “Accounts payable and accrued liabilities and expenses – F. Other” by reporting in Box 1680.

The Regulatory Notice provides clear guidance with respect to where these items are reflected in broker-dealer reports and eliminate inconsistencies in applying the new standard.

Click here to access the Regulatory Notice. If you have any questions around the Regulatory Notice or would like to speak with one of Withum’s Broker-Dealer specialists, fill in the form below.


Financial Services

Author:Lauren Grossi, CPA |
[email protected]

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