Representing financial professionals, financial institutions and investors in investment loss, employment and disclosure matters, and in regulatory investigations nationwide.

FINRA requests comment on rule changes involving capital formation

On Behalf of | May 17, 2023 | FINRA Compliance

The Financial Industry Regulatory Authority says it is requesting comment on certain actions it has taken aimed at promoting capital formation.

The authority made the request in Regulatory Notice 23-09, published on May 9. In the notice to members, FINRA stressed the importance of an efficient capital raising process for business expansion, job creation and economic growth, and said its members play a key role in helping all businesses raise capital. The authority said it fosters this process through appropriately tailored rules.

In a previous regulatory notice in 2017, FINRA asked for comment on ways to make the capital raising process making more efficient and less burdensome. “Since that time, FINRA has completed certain actions (including rule changes) and is undertaking additional actions, that promote capital formation,” the authority said. “While these actions increase efficiency and reduce unnecessary burdens on the capital-raising process, FINRA is requesting comment on whether additional changes to these or other FINRA rules, operations or administrative processes would further enhance the capital-raising process without compromising protections for investors and issuers.”

FINRA said the additional actions it has taken since 2017 have been designed to modernize its regulation of members participating in activities to raise capital, including amending rules, updating processes and providing guidance to promote the capital-raising process. Among the changes were amendments to FINRA Rule 5110, which prohibits unfair underwriting terms and arrangements in connection with the public offering of securities. FINRA said it modernized the rule by improving its administration and simplifying its requirements, without lessening important protections for market participants.

The authority said it is now interested in learning whether there are other changes to FINRA rules, operations or administrative processes that would similarly improve capital formation. FINRA said it is encouraging all interested parties to comment by August 7, either by email or mailing the comments in hard copy.

Before becoming effective, a proposed rule change must be approved by the FINRA Board of Governors and filed with the Securities and Exchange Commission.

Financial professionals who work for broker-dealers, RIAs or other financial services companies operate in a highly regulated industry overseen by the SEC, state regulators and other self-regulatory organizations such as FINRA and various exchanges. The attorneys at Lewitas Hyman understand the complexities that come with being the subject of a regulatory inquiry, and we have the experience to guide and advise you through any type of regulatory investigation. If you are the subject of a regulatory proceeding, contact Lewitas Hyman at (888) 655-6002 or through our online contact form for a free consultation.