Alert April 15, 2014

FINRA Requests Comment on the Effectiveness and Efficiency of its Rules on Gifts and Gratuities and Non-Cash Compensation and its Rules on Communications With the Public

As part of an assessment of selected rules and related administrative processes, FINRA has issued Regulatory Notice14-15 and Regulatory Notice14-14 seeking public comment on the effectiveness and efficiency of its (a) Gifts and Gratuities and Non-Cash Compensation Rules and (b) Communications With the Public Rules, respectively.   These requests for public comment are part of the first phase of a review process, in which FINRA will assess the efficacy and efficiency of the rule or rule set as currently implemented, including FINRA’s internal administrative processes.  FINRA staff will report its findings to the Board of Governors and make a general staff recommendation as to whether the rule or rule set should be maintained as is, modified or deleted.  If the findings report recommends modification of rules, FINRA will separately engage in its usual rulemaking process to propose amendments to the rules based on the findings.

The Gifts and Gratuities and Non-Cash Compensation Rules consist of the following:

  • FINRA Rule 3220 (Influencing or Rewarding Employees of Others)
  • FINRA Rule 2310(c) (Direct Participation Programs)
  • FINRA Rule 2320(g)(4) (Variable Contracts of an Insurance Company)
  • FINRA Rule 5110(h) (Corporate Financing Rule – Underwriting Terms and Arrangements)
  • FINRA Rule 2830(I)(5) (Investment Company Securities)

The Communications With the Public Rules consist of the following:

  • FINRA Rule 2210 (Communications with the Public)
  • FINRA Rule 2212 (Use of Investment Company Rankings in Retail Communications
  • FINRA Rule 2213 (Requirements for the Use of Bond Mutual Fund Volatility Ratings)
  • FINRA Rule 2214 (Requirements for Use of Investment Analysis Tools)
  • FINRA Rule 2215 (Communications with the Public Regarding Securities Futures)
  • FINRA Rule 2216 (Communications with the Public Regarding Collateralized Mortgage Obligations)

FINRA seeks answers to the following questions with respect to each set of rules, along with any supporting data or evidence:

  1. Have the rules effectively addressed the problem(s) they were intended to mitigate?
  2. What have been experiences with implementation of the rule set, including any ambiguities in the rules or challenges to comply with them?
  3. What have been the costs and benefits arising from FINRA’s rules? Have the costs and benefits been in line with expectations described in the rulemaking?
  4. Can FINRA make the rules more efficient and effective, including FINRA’s administrative processes?

Comment Period.   The deadline for submission of comments on each set of rules, originally set for May 8, 2014, has been extended through May 23, 2014.