IPA Submits Comment Letter on FINRA Proposal Regarding Filing Requirements of Retail Communications for Private Placements
The IPA today submitted a comment letter on a FINRA proposal to the SEC regarding amendments to FINRA Rules 5122 (Private Placements of Securities Issued by Members) and 5123 (Private Placements of Securities).
The proposed changes would require broker-dealers and representatives to file all “retail communications” concerning private placement offerings with the agency, including web pages that promote offerings, slide presentations, pitch decks, fact sheets, sales brochures, executive summaries and any other information broker-dealers share with retail investors when they sell private placements. FINRA said it proposed the amendments due to its concern that the current rules do not fully identify the “offering documents” that firms are required to file with the agency as a result of their private placement rules.
The IPA’s comment letter strongly urges FINRA to clarify the application of its principles-based advertising rules (Rule 2210) to retail communications concerning private placement offerings before making any substantive changes to current filing requirements under Rules 5122 and 5123. The principles set forth in Rule 2210 protect the investing public, and as such FINRA members – including IPA members – have built compliance systems and supervisory structures to ensure effective compliance. These broad principles, though, raise interpretive questions, and we urged FINRA to issue guidance to ensure that the industry understands FINRA’s various interpretations of Rule 2210 before making the proposed Rule 5122 and 5123 changes.
In providing further guidance around Rule 2210, FINRA will help ensure member companies understand the manner in which FINRA staff applies the rule’s broad principles to private placement retail communications, and as such will ensure proper compliance with necessary filing requirements.
The IPA wants to thank Darryl Steinhause, partner, DLA Piper, and Tom Selman, founder of Scopus Financial Group, for their critical contribution in preparing this letter.
The IPA looks forward to working with FINRA to provide additional input on its private placement disclosures while maintaining important investor protections.
Don’t hesitate to reach out to Tony or me if you have any questions.
SVP, Government Affairs and General Counsel
Institute for Portfolio Alternatives