More On Legal & Compliance
from The Advisor's Professional Library- Agency and Principal Transactions In passing Section 206(3) of the Investment Advisers Act, Congress recognized that principal and agency transactions can be harmful to clients. Such transactions create the opportunity for RIAs to engage in self-dealing.
- Where Are We Headed? The ultimate compliance goal is to help ensure that everyone associated with an advisory firm acts ethically at all times. Advisors and RIAs should do the right thing, even when regulators are not looking over their shoulders.
FINRA released in early January an updated set of questions and answers to its Regulatory Notice 12-29, which announced SEC approval of FINRA’s new Rule 2210 on communications with the public.
The new communications rule becomes effective on Feb. 4, and FINRA announced Tuesday that it plans to hold a free 60-minute webinar on Jan. 29 to discuss the rule. The webinar will specifically address the new supervision standards for seminars and other public appearances, the new filing requirement for structured products and how social media fits in under the new rules.
To provide additional guidance on compliance with the new rules, FINRA has published a set of questions and answers on the Advertising Regulation page on the FINRA website. The Q&A addresses issues concerning internal communications, transitional filing issues, new member firms, retail structured products, recommendations and public appearances.
For instance, FINRA offers this further guidance on retail structured products:
Q: New FINRA Rule 2210(c)(3)(E) requires a firm to file within 10 business days of first use or publication retail communications concerning any security that is registered under the Securities Act of 1933 and that is derived from or based on a single security, a basket of securities, an index, a commodity, a debt issuance or a foreign currency (registered structured products). What types of products does this filing requirement cover?
A: While it is not possible to list all registered structured products, examples include exchange-traded notes that are not registered under the Investment Company Act but are registered under the Securities Act, registered reverse convertibles, registered structured notes, registered principal protection notes, and any other registered security that includes embedded derivative-like features. See Regulatory Notice 12-03 for some examples of registered structured products.
The purpose of this filing requirement is to have firms file with FINRA retail communications about structured products that are registered under the Securities Act. It is not intended to create a duplicative requirement for retail communications that are already subject to filing, such as retail communications concerning mutual funds, closed-end funds, exchange-traded funds that are registered under the Investment Company Act, variable insurance products, direct participation programs or collateralized mortgage obligations.
While this filing requirement applies to retail communications concerning registered structured products, it does not apply to issuer-prepared prospectuses, including issuer-prepared free-writing prospectuses, that are filed with the SEC.
Another question asks how the new rule changes the filing requirements for new member firms.
FINRA provides this response:
Under NASD Rule 2210, a firm that has not previously filed advertisements with FINRA (or with a registered securities exchange having comparable standards) must file its initial advertisement with FINRA at least 10 business days prior to use and must continue to file its advertisements at least 10 business days prior to use for a period of one year.
