IPA Advocacy on New FINRA Filing Requirements
On July 15, 2021, the Financial Industry Regulation Authority (FINRA) announced expanded filing requirements for private placements. The requirements will soon include retail communications, as defined in FINRA Rules 5122 and 5123.
Earlier this year, we sent a comment letter to the Securities and Exchange Commission (SEC) strongly urging FINRA to clarify the application of its principles-based advertising rules before making any substantive changes to the filing requirements under FINRA Rules 5122 and 5123. However, the SEC approved the filing, ultimately siding with advocates for the new FINRA filing requirements.
With its latest announcement, the amended rules, effective October 1, 2021, requires members to file any retail communication that “promotes or recommends private placement offerings.”
While the SEC approved FINRA’s proposed amendments to Rule 5122 and 5123, the IPA will be working on requesting further interpretive guidance on the application of Rule 2210 to private placements, ensuring that retail investors are protected without undermining the ability of firms to promote private placements. We will also be engaging with FINRA to ensure that any uncertainty about the new filing requirements are appropriately addressed.
About the New Requirements
Retail communications include web pages, slide presentations, fact sheets, sales brochures, executive summaries, and investor packets, that are distributed or made available to more than 25 retail investors within any 30 calendar-day period.
Both Rules 5122 and 5123 currently require the following:
- FINRA Rule 5122 (Member Private Offerings) requires firms that offer or sell their own securities or those of a control entity to file with the Corporate Financing Department a private placement memorandum, term sheet or other offering document at or prior to the first time the documents are provided to any prospective investor.
- FINRA Rule 5123 (Private Placements of Securities) requires firms to file with FINRA’s Corporate Financing Department within 15 calendar days of the date of first sale of a private placement, a private placement memorandum, term sheet or other offering document, or indicate that no such offerings documents were used.
If you have any questions about the impact of FINRA’s expanded oversight over private offerings, please don’t hesitate to reach out to Tony or me.
SVP, Government Affairs and General Counsel
Institute for Portfolio Alternatives