FINRA Releases New FAQs Related to Filing Requirements of Rules 5122 and 5123
As you know, earlier this year, the Financial Industry Regulation Authority (FINRA) announcedexpanded filling requirements for private placements. The amended rules, effective October 1, 2021, requires members to file any retail communication that “promotes or recommends private placement offerings.”
On September 24, 2021, FINRA issued the following frequently asked questions (FAQs) on its filing requirements for Rules 5122 and 5123:
FAQs Related to Filing Requirements of Rules 5122 and 5123
1. My firm filed with the Advertising Regulation Department a retail communication that promotes or recommends a private placement subject to the filing requirements of FINRA Rules 5122 or 5123. Do we now need to file the same communication with the Corporate Financing Department?
A. No. A firm that has filed a retail communication with the Advertising Regulation Department will be deemed to have met the filing requirements for retail communications under Rules 5122 or 5123 (as applicable), provided that the firm filed the retail communication within the time periods prescribed by those rules. The firm should provide the Advertising Regulation Department filing reference number assigned to a filed retail communication in the free text box at the end of the filer form for the filing with Corporate Financing.
2. My firm periodically provides investors and prospective investors with updated versions of retail communications. Do such updated communications need to be filed with the Corporate Financing Department?
A. Yes, a firm will be required to file an amended retail communication if the amendments reflect a material change to the communication. For example, FINRA would not consider amendments that are limited to updates of more recent statistical or other non-narrative information to be material changes for purposes of the filing requirements under Rules 5122 or 5123. Likewise, amendments that merely update non-predictive narrative information describing market events during the period covered by the communication, or that reflect factual changes in portfolio composition, would not be considered material changes for purposes of the filing requirements under Rules 5122 or 5123. In contrast, amending a communication to add, remove or modify narrative content related to specific offerings would be a material change under Rules 5122 and 5123 and would require filing.
3. When must a firm begin filing retail communications that promote or recommend a private placement that is subject to the Rule 5122 or Rule 5123 filing requirements?
A: Firms must file retail communications that promote or recommend a private placement that is subject to either the Rule 5122 or 5123 filing requirements when selling efforts for such private placement begin on or after October 1, 2021. FINRA reminds firms that Rule 2210 (Communications with the Public) applies to retail communications irrespective of whether the material is filed with FINRA pursuant to Rules 5122 or 5123.
4. How should retail communications that are in alternative formats such as videos and websites be submitted to the Corporate Financing Department?
A: Any retail communications that cannot be saved and submitted in .pdf format should be captured as a screenshot and converted into a .pdf format for submission. If screenshots are not possible (e.g., videos), and the content is available online, a firm must provide the hyperlink in the free text box in the filer form. If the content is not publicly accessible, a firm must include any corresponding access information, such as passwords. Filers should contact the Corporate Financing Department for assistance with any other filing concerns or problems. Corporate Financing will be working to enhance the features of the filing system to permit the filing of retail communications in additional formats.
5. If a retail communication is used to promote or recommend multiple private placement offerings, does the firm need to submit the same retail communication for each filing?
A: Yes, a firm must submit the retail communications it uses for each private placement it sells.
6. My firm submits Rule 5122 and 5123 filings on behalf of other participating firms. Is my firm responsible for submitting retail communications that are used exclusively by other firms (and not used by my firm)?
A: No. Each firm is responsible for ensuring timely submissions of retail communications it uses in connection with a private placement. A firm (the “filing firm”) may make filings under the rules on behalf of other firms participating in a private placement (“participating firms”). If the filing firm has entered into an arrangement to file the required documents on behalf of a participating firm, the filing firm may file retail communications that a participating firm uses exclusively (i.e., retail communications not used by the filing firm). Otherwise, a participating firm must file such retail communications separately.
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While the Securities and Exchange Commission (SEC) approved FINRA’s proposed amendments to Rule 5122 and 5123, the IPA will continue 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 rule is appropriately addressed.
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