The Financial Industry Regulatory Authority plans to issue changes and provide further guidance regarding its rules on communications with the public as well as gifts, gratuities and non-cash compensation after a retrospective review found those rules need updating.
FINRA announced in April that it was seeking feedback on the two rules as part of its “retrospective review” initiative. The comment period on the two rules expired May 8. On Tuesday, FINRA released the retrospective reports on the two rules, which included comments on where they need to be improved.
FINRA has said that its retrospective rule review process will be ongoing.
The self-regulator stated that while the reports “reflect widespread agreement among affected parties that the rule sets have been largely effective in meeting their intended investor protection objectives,” the rules and FINRA’s administration of them “may benefit from some updating and recalibration to better align the investor protection benefits and the economic impacts.”
Robert Colby, FINRA’s chief legal officer, said in releasing the reports that over the next several months, FINRA will explore “a combination of guidance, proposed rule modifications and administrative measures to enhance the effectiveness and efficiency of the rules.”
Suggested enhancements to FINRA’s communications with the public rule included potential “harmonization” of the regulatory standards for brokers and advisors when communicating or providing investment advice about securities to investors, particularly in the areas of projections, performance and testimonials. Firms also noted the “widespread confusion and disagreement” as to which rules apply with respect to dual registrants when they are communicating with customers, and urged FINRA to provide more guidance.
Broker-dealers also told FINRA that “more clarity and flexibility” are needed to effectively apply the self-regulator’s social media rules to online content and distribution, as technology innovations have had a “significant impact on the way broker-dealers communicate today.” In particular, BDs asked FINRA to clarify two areas: disclosure delivery and content in online, mobile and social media contexts; and obligations with respect to content controlled and managed by a third party that is linked or otherwise referenced on a firm’s website.
As to FINRA’s gifts, gratuities and non-cash compensation rule, BDs raised concerns that the gifts and non-cash compensation rules are “scattered throughout the FINRA rulebook causing difficulties from a reference and compliance standpoint,” with some suggesting that FINRA consider whether the non-cash compensation rules should be applied consistently to all securities products, rather than just to investment company securities, variable insurance products, direct participation programs and public offerings of securities.
Also, BDs asked FINRA to update the existing guidance relating to the rules and address issues not covered by prior guidance.
Another complaint was that the $100 gift limit is “too low” and that raising the limit would not undermine the purposes of the gifts and non-cash compensation rules. BDs stated that the $100 gift limit is “particularly restrictive” when member firms or their associated persons want to provide gifts to their clients for life events such as weddings, graduations, and the birth or adoption of a child, or as a sympathy or get-well gesture.
BDs also requested that FINRA provide additional guidance relating to gift giving, such as with respect to charitable contributions, personal versus professional gifts, gifts given to individual retail clients, gifts related to life events, group gifts, gift valuation (e.g., face versus market value), promotional items, raffle prizes and gift cards.