RIA Compliance Blog
FINRA has recently released Regulatory Notice 15-16 which contains proposed amendments to the rules currently governing public communications they will make reporting by FINRA member firms regarding public communications less onerous due to more lenient filing requirements. If the proposed amendments are adopted, the rules proposed to be amended are FINRA Rules 2210, 2214 and 2213.
FINRA Rule 2210 relates to communications of a firm with the public. Under the current regime new firms are required, at least 10 days prior to making any retail communications, to file such communications with FINRA for the first year of the firm’s membership. Under the proposed amendment, new firms would only be required to file their websites and any material changes thereto within 10 days of first use of the website for the first year of the firm’s membership. This proposed change was prompted by FINRA’s recognition that the primary form of retail communications is now done through the firm’s websites and that the 10-day waiting period served no significant investor protection function.
In addition to this proposed amendment, FINRA proposes to eliminate the filings required by firms with respect to a manager’s discussion of fund performances of a registered investment company’s shareholder report when such report is distributed or made available to potential investors. FINRA is proposing this requirement be completely eliminated if such reports have previously been filed with the SEC. FINRA has also asked for comments on an amendment which would eliminate filings for retail communications for registered investment companies that contain a performance ranking and comparison (which filing also included a copy of the ranking and comparison) provided the firms maintain the materials as part of their records. Finally, firms are currently required to file within 10 days of the first retail communication concerning registered investment companies. It’s now proposed that such filing requirement be eliminated provided it’s a generic communication which does not promote a particular fund or fund family.
FINRA Rule 2214 requires that templates of written reports produced by, or retail communications concerning, investment analysis tools (interactive tools that produce simulations and analyses that present the likelihood of various investment outcomes) must be filed within 10 days of the tool’s first public use. As FINRA is also provided access to such tools it is proposing a complete elimination of this filing requirement. In addition, firms which previously filed a template are not required to file retail communications where such changes to the template only to updated recent statistical or other nonnarrative information. FINRA proposes to expand the template filing exclusion to allow firms to include updated non-predictive narrative descriptions of market events during the period covered by the communication and factual descriptions of portfolio changes without having to refile the template.
FINRA Rule 2213 currently provides that firms are not permitted to circulate and are required to file, 10 days prior to the first use and after FINRA has suggested any proposed changes, retail communications that include discussions or illustrations of bond mutual fund volatility. Consistent with the filing requirements associated with other retail communications about specific registered investment companies, the proposal would permit firms to file these communications within 10 business days of first use rather than prior to use. The proposed amendment also seeks to and eliminate the requirement that such communications could only be included in a retail communication that accompanies or is preceded by the bond fund’s prospectus.
Implications FINRA has taken the approach that the proposed amendments would “benefit firms by reducing their costs associated with the specific requirements in [the] proposal. These cost savings would include savings on filing fees from the proposed elimination or reduction in the scope of certain filing requirements.” Firms, however, have taken a different view; concerned about the costs associated with updating their policies and procedures, training staff and system updates to reflect changes in the filing requirements. According to the Notice, FINRA, “anticipates that these costs would likely be minimal relative to the cost savings from the proposed amendments.”
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