Arb Bar Frets FINRA Comms Rule Reforms

The Public Investors Arbitration Bar Association is concerned about planned changes to rules governing broker/dealers’ communications with the public, arguing that the reforms would undermine regulatory oversight and could harm investors.

The Financial Industry Regulatory Authority has asked for feedback on the changes following a retrospective review conducted last year into the effectiveness and efficiency of its existing rules in the area. The self-regulatory organization in December published a report on this assessment phase of the review, giving the rules a generally clean bill of health—though it did find some industry concerns (Compliancereporter.com, 12/22).

The proposed changes cover issues including new firm communications, investment company shareholder reports and bond mutual fund volatility ratings (see box). For example, new FINRA member firms at present must, during their first year, file with the SRO retail communications used in any electronic or other public media at least 10 business days ahead of use. This requirement applies to broadly disseminated retail communications, such as generally accessible websites, print media communications and television and radio commercials.

FINRA has proposed narrowing this measure by requiring new firms, for a one-year period, to file only their websites and material changes to these sites within 10 business days of first use. In a related filing, officials noted that the SRO’s comments on new firm filings typically focus on their websites, and argued that requiring new firms to file their retail communications at least 10 business days before use “unnecessarily delays firms’ abilities to communicate with the public without a corresponding investor protection benefit beyond what post-use review would provide.”

The SRO plans to continue reviewing new firms’ communications for compliance with applicable standards by focusing on their websites after they are filed with FINRA, and by reviewing applicants’ websites as part of the new firm application process.

WHAT ABOUT TV?

Among its other concerns about the proposals, PIABA does not agree with this revised approach. “If the proposed rule goes into effect, new FINRA member firms would not have to obtain any FINRA pre-approval for common retail communications such as those in newspapers, magazines or other periodicals and/or those on the radio, television, telephone or audio recording, video display, signs or billboards or motion pictures,” the group’s president, Joseph Peiffer, wrote in a recent comment letter. “Instead, FINRA will only pre-approve the use of one form of retail communication—a firm’s website.”

Not every client or potential client uses the Internet as the primary source of information about financial advisers, brokerage firms or investments, said Peiffer, who is also managing member of Peiffer Rosca Wolf Abdullah Carr & Kane. He pointed to a recent FINRA and Securities and Exchange Commission report on senior investors (Compliancereporter.com, 4/29), in which officials wrote that firm promote senior-related investment themes “through various channels such as brochures, print and electronic advertisement, newspaper columns, radio and television commercials and seminars.” Under the proposals, FINRA would not review and approve any such communications before they go to senior investors, Peiffer wrote.

FINRA conducting “post-use” reviews of all retail communications (other than websites) “will not provide adequate investor protection for customers who lose their life savings after investing with a broker from an unknown start-up firm with flashy television or radio ads or a fancy seminar presentation,” he said.

Peiffer added, “It simply does not seem to be in the investing public’s interest to rely on FINRA to effectively regulate retail communications only after-the-fact. In light of the importance of the existing retail communication rules, and the real potential for greater harm to investors without those rules, FINRA should not eliminate the need for pre-use oversight of all but one form of retail communication.”

He argued that, if it is too much of a financial burden on a new firm to comply with existing rules related to pre-use approval of communications with the public, “then perhaps that firm should not be in the brokerage industry at this time.”

Credits: Compliancereporter

Alan Rosca (1203 Posts)

Alan is a securities lawyer. He also teaches Securities Regulation at the Cleveland-Marshall College of Law. He focuses his legal practice on complex commercial and financial litigation and arbitration, particularly in the areas of securities and investment fraud. His office is in Cleveland, Ohio.


In our legal system, every person is innocent until and unless found guilty by a court of law or a tribunal. Whenever we reference “allegations” or charges that are “alleged,” such allegations or charges have not been proven, and are merely accusations, not findings of fault, as of the date of the blog. We do not have, nor do we undertake, a duty to continue to monitor or follow cases about which we report, and/or to publish subsequent blogs regarding various developments that may occur in such cases. Readers are encouraged to conduct their own research regarding any such cases and any developments that may or may not have occurred in such cases.