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Regulation and Compliance > Federal Regulation > FINRA

FINRA Plan Would Allow Capital Acquisition Brokers to Register as Advisors

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The Financial Industry Regulatory Authority is seeking comments on amendments to its rules on capital acquisition brokers, or CABs, to allow, among other measures, CABs to register as investment advisors.

FINRA Regulatory Notice 20-04 requests comments by March 30 on the broker-dealer regulator’s CAB rules, which provide a simplified rulebook for CABs, which engage only in limited capital advisory, corporate restructuring and private placement activities.

FINRA said its proposed amendments to the CAB rules seek “to make them more useful to CABs without reducing investor protection.”

CABs are firms that engage in a limited range of activities, essentially acting as placement agents for sales of unregistered securities to institutional investors and advising companies and private equity funds on capital raising and corporate restructuring, FINRA explains. Firms meeting the CAB criteria may elect to be governed by the CAB rules.

The current CAB rules do not allow CABs to register as investment advisors.

Moreover, FINRA said, “associated persons of CABs may not participate in private securities transactions (PSTs), which include the forwarding of orders from investment adviser clients to a third-party broker-dealer for execution.”

The proposed changes would allow CABs to register as investment advisors, so long as the advisory services are provided only to institutional investors.

FINRA last updated its CAB rule, Rule 331, in October 2018 to reflect the Treasury Department’s Financial Crimes Enforcement Network’s adoption of a final rule on customer due diligence requirements for financial institutions.

The broker-dealer self-regulator announced in its Regulatory Notice 18-36 that it filed for “immediate effectiveness amendments” to CAB Rule 331 — its anti-money laundering compliance program.


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