FINRA issued a Regulatory Notice providing guidance in the form of questions and answers on compliance with its new communication rules, which will become effective on February 4, 2013 (the “Effective Date”). The new rules, which were approved by the SEC on March 29, 2012, were discussed in the April 24, 2012 Financial Services Alert, and the announcement of the effective date for the new rules and other guidance provided by FINRA was described in the July 17, 2012 Financial Services Alert.
Among the topics covered in the guidance are the following:
Transitional Filing Issues
- Previously Filed Material. The guidance confirms that a firm is not required to refile an advertisement or item of sales literature that the firm previously has filed with the FINRA Advertising Regulation Department unless the firm makes material changes to a previously filed retail communication.
- Material Not Previously Filed. The guidance confirms that if a firm intends to continue to use retail communication material after the Effective Date that was not subject to a filing requirement under NASD Rule 2210 (and has not been previously filed), but will become subject to a filing requirement under the new FINRA Rule 2210, then it must file the retail communication with FINRA within ten business days of the Effective Date.
- Filings Prior to the Effective Date. The guidance confirms that if a firm files retail communications material prior to the Effective Date, FINRA will review the material under the standards contained in existing rules; however, the firm will be deemed to have met its filing requirement under the new rules and will not be required to refile the material after the Effective Date.
Changes to Filing Requirements for New Member Firms
The guidance confirms that FINRA Rule 2210 revises the filing requirements for new member firms in the following respects:
- The one-year period during which a new member must file its advertisements at least 10 business days prior to first use commences on the date reflected in the Central Registration Depository system as the date that FINRA membership became effective, and if the one-year anniversary of such date is prior to the Effective Date, then no further pre-use filings are required.
- The pre-use filing requirement for new member firms applies only to retail communications that would have been considered “advertisements” under NASD Rule 2210.
- If a retail communication is a free writing prospectus that has been filed with the SEC pursuant to Rule 433(d)(1)(ii) under the Securities Act of 1933, the firm may file the retail communication within 10 business days after first use rather than 10 business days prior to first use.
- Retail Structured Products. The guidance states that 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”), and confirms that the purpose of this requirement is to require firms to file communications about structured products that are registered under the Securities Act and not to create a duplicative requirement for retail communications that are already subject to filing, such as retail communications concerning mutual funds (including exchange traded funds), closed-end funds, variable insurance products, direct participation programs or collateralized mortgage obligations. The guidance provides examples of registered structured products, including: exchange-traded notes that are not registered under the Investment Company Act of 1940 but are registered under the Securities Act, registered reverse convertible notes, registered structured notes, registered principal protection notes, and any other registered security that includes embedded derivative-like features.
- Recommendations. The guidance confirms that the disclosure requirements related to recommendations contained in the new rules do not apply to a mutual fund portfolio manager’s discussion of the fund’s past performance (such as a manager’s discussion that accompanies an annual or semi-annual report).
- Public Appearances. The guidance also describes the extent to which a member firm must supervise a registered representative making a scripted presentation at a seminar for prospective retail investors. Among other things, the guidance states that the member firm is responsible for approving any retail communication used as part of the seminar presentation prior to its use, and that the firm must have written procedures appropriate to its business, size, structure and customers to supervise the registered representative’s appearance, including procedures related to education and training.
- Disclosure of Firm Name. The guidance confirms that the requirement in FINRA Rule 2210(d)(3) to disclose a firm’s name applies to retail communications and correspondence, and that sales scripts, slide presentations and brochures used in connection with a public appearance must disclose the firm’s name. The guidance also confirms that a registered representative is not required to disclose the firm’s name as part of non-scripted, extemporaneous remarks during a public appearance.