The Financial Industry Regulatory Authority is requesting comment on its proposals to modernize Rule 2210, involving communications with the public.
In Regulatory Notice 26-14, FINRA said the proposed changes reflect evolving communication practices and technologies, including changes in social media use and advances in artificial intelligence.
“In particular, the proposal would replace the prescriptive principal pre-use approval requirement with more modernized, risk-based standards for supervising retail communications,” the authority stated. “It also would modify and streamline the requirements related to retail communication filings and the standard for communications that contain recommendations. FINRA also seeks comment from interested parties on other ways to modernize its rules related to communications with the public.”
FINRA Rule 2210 outlines the standards and requirements for communications that broker-dealers and their associated persons have with the public.
The rule is designed to ensure that all communications are fair, balanced, and not misleading, and works to protect investors and maintain trust in the financial industry. It defines specific categories of communications, sets approval and recordkeeping standards, and lays out content guidelines to govern these interactions.
Rule 2210 defines three categories of written communications: retail communications, correspondence and institutional communications. A retail communication is a written communication to more than 25 retail customers within 30 days, while correspondence is a written communication to 25 or fewer retail customers within 30 days. An institutional communication is a written communication only to institutional investors.
Under FINRA’s proposed amendments to the rule, members would be required to establish written procedures appropriate to their business, size and structure to determine what categories of retail communications require principal pre-use approval. These procedures would have to be reasonably designed to ensure that retail communications comply with the applicable content standards.
When these procedures do not require review of all retail communications before first use or distribution, FINRA said they should include provisions for educating and training associated persons about the member’s procedures governing retail communications, as well as documentation of such education and training, and surveillance and follow-up to ensure the procedures are implemented and adhered to.
Members would also be required to maintain evidence that the supervisory procedures have been implemented and carried out, and to make the evidence available to FINRA upon request.
FINRA outlined a list of factors that would be considered when determining whether a retail communication requires pre-use principal approval:
1. nature and complexity of products or services that the communication concerns, including the member’s or associated person’s familiarity with the product or service;
2. qualifications and experience of the preparer of the communication, including persons paid for or involved in the preparation of the content or who explicitly or implicitly endorse or approve the content;15
3. whether the communication makes a financial or investment recommendation or otherwise promotes a product or service of the member;
4. whether the communication promotes a product or service offered through an affiliate of the member or another third party;
5. whether the communication appears to be tailored to a specific audience or individual;
6. the inclusion of performance data, rankings or comparisons;
7. medium and distribution method for the communication; and
8. the member’s or associated persons’ history of communication concerns identified in member reviews or regulatory reviews as to particular products, services or methods.
The amendments would remove the distinction between interactive social media and other communications. Instead, all social media communications would be assessed under the same risk-based supervisory standard applicable to retail communications.
FINRA noted that member firms using influencers and other paid promoters should consider, as part of their risk-based assessment, the qualifications, experience and conflicts of those involved in preparing or endorsing content.
Regarding AI, FINRA has said that its rules and guidance are intended to be technologically neutral and to function dynamically with evolutions in technology and members’ processes. Members are responsible for their communications, regardless of whether they are generated by a human or AI technology.
FINRA noted that firms may consider establishing processes and governance frameworks to guide development and deployment of generative AI communication tools, including risk management practices to address accuracy concerns such as hallucinations and data protection, among others, and ongoing monitoring to ensure solutions perform as expected consistent with FINRA’s review and content standards.
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