FINRA rules surrounding complex products may updated

On Behalf of | Oct 26, 2021 | FINRA Compliance

Changes could be in store for the Financial Industry Regulatory Authority’s rules involving complex products, ThinkAdvisor reports. FINRA president and CEO Robert Cook was quoted as saying the authority is “close to issuing a Regulatory Notice to solicit views about whether these rules need to be updated.”

Complex products, according to FINRA, are those that may make it more difficult for investors to understand their essential characteristics and risks. These products may include a security or investment strategy with complicated or novel derivative-like features, including structured notes, junk bonds, and inverse or leveraged exchange-traded funds.

Cook, who spoke at a New York Law School event, said FINRA is evaluating whether its current rules for member firms who offer complex products provide enough protection for retail investors.

He added that any revisions in FINRA’s rules would need to be in line with the guidelines issued recently by the Securities and Exchange Commission on complex products.

In a public statement on the issue earlier this month, SEC Commissioners Allison Herren Lee and Caroline A. Crenshaw outlined three principles that should apply to an updated regulatory framework due to potential systemic risks. The three were as follows:

  • Ensure strong, consistent regulatory oversight of all complex exchange-traded, products.
  • Take a consistent, holistic approach to the review of exchange-traded products.
  • Provide heightened protections with regard to investors’ trading of complex exchange-traded products.

The attorneys at Lewitas Hyman regularly monitor SEC, FINRA and other SRO rule-making activities to help ensure that our clients are aware of any new policies, while assisting them in implementing any recommended changes. If you are in need of knowledgeable counsel regarding securities regulatory, compliance and enforcement matters, please contact us at (312) 291-4600, or through our online contact form.

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