Independence rules apply to loans that you and your immediate family
members hold, co-sign, or guarantee. Loans from restricted entities
are generally not permitted unless specific criteria are met.
The independence rules apply to many different types of loans
that you and your immediate family members may hold,
including margin loan accounts and student loans.
Let’s review these two types of loans in detail.
Margin Loan Accounts
Many brokerage and investment accounts, and some digital
wallets used to hold cryptocurrency, have a margin loan account,
also referred to as a margin loan feature, that enables the investor
to borrow against investments in the account by using the securities
in the account as collateral. This type of borrowing creates a margin loan,
which is subject to the independence rules.
Margin loan accounts with restricted entities are not permitted.
Margin loan accounts need to be reported in KICS as loans within 14 days
of being established, even if the funds are not used.
Margin loan accounts associated with brokerage accounts
need to be manually reported in your KICS account as they
are not automatically updated in KICS through
the KICS Broker Import program.
Individuals are often not aware that their brokerage and investment
accounts have a margin loan account until a transaction
takes place that triggers a margin loan.
To avoid incurring personal independence violations,
contact your broker or financial advisor for you and your
immediate family members’ accounts to confirm whether there is a
margin loan account in place. For digital wallets,
if you have trouble identifying the lender that would issue the margin loan,
contact Risk Management - Independence for assistance.
Also, make sure that accounts with restricted entities do not contain
a margin loan feature in order to prevent the creation
of a restricted margin loan.
Student Loans
There are certain exceptions in place that allow student loans
to be held with restricted entities in some cases. You and your
immediate family members are permitted to obtain a new student loan
from a financial institution that is a restricted entity,
as long as you are not a Covered Person to that restricted entity,
the loan is obtained under normal lending terms,
conditions and requirements, and the loan is kept current at all times.
If the lender of the student loan is an SEC restricted entity that
you later become a Covered Person for, you
(or your immediate family member)
may continue to hold the student loan as long as you do not
make any changes to the terms and conditions of the loan.
This exception to continue holding the loan only applies to loans
obtained for you or your immediate family member’s educational expense.
Loans for which you or your immediate family member
are the co-signor or guarantor for non-immediate family members’,
for example, your non-dependent niece’s,
educational expenses are not eligible for this exception.
If the lender of the student loan is an AICPA restricted entity that you
later become a Covered Person for, you (or your immediate family member)
may continue holding the loan as long as you do not make any changes
to the terms and conditions of the loan.
You must report the lender of all of your and your immediate
family members’ student loans in KICS within 14 days of obtaining the loan.
Most student loans are issued by Navient and the
U.S. Department of Education. If you have reported your student loans
in KICS under a different entity name, confirm that you have correctly
identified the lender by reviewing your loan statements or
contacting the loan servicer, and update KICS accordingly.
Make sure to report each individual student loan in KICS
as a separate loan, regardless of whether it is with the same lender.
For example, if a student receives a new loan each year from the
U.S. Department of Education, each year’s loan
needs to be reported as a separate loan in KICS.