FINRA Requests Comment on Sales Practices for Complex Products—and the ICI Pushes Back

On March 8, 2022, FINRA printed a regulatory discover reminding broker-dealers of their regulatory obligations with the sale of complicated merchandise and choices to retail traders and requesting remark on potential new laws. Noting that the present regulatory framework governing gross sales practices of complicated merchandise and choices was adopted at a time when most people accessed monetary merchandise by means of monetary professionals, reasonably than by means of self-directed platforms, FINRA solicited business remark usually on whether or not the present framework is appropriately tailor-made to deal with issues raised by such merchandise. The remark interval closed on Could 9, 2022.

The Funding Firm Institute was amongst the business contributors and organizations that submitted feedback. The ICI’s letter expressed help for FINRA’s overarching goal of defending traders and guaranteeing the appropriateness of investments. Nevertheless, the ICI “strongly oppose[d]” further necessities on transactions in funds that FINRA could deem to be a “complex product.” The ICI asserted that imposing new necessities on fund transactions—if deemed to contain a posh product—would:
-undermine the present disclosure-based securities regulation framework;

-result in “unnecessary” and “unprecedented” restrictions given “the robust regulatory regime of the Investment Company Act”; and

-lead to arbitrary outcomes given the broad description of “complex product.”

  • As an instance its competition that the scope of “complex products” is overly broad, the ICI famous that FINRA has at one level or one other deemed varied investments to be “complex” or troublesome for traders to grasp, together with, amongst others: closed-end funds, world actual property funds, multi-strategy funds, funds utilizing derivatives for hedging or leverage, target-date funds, and funds investing in IPOs.

  • The ICI steered that the scope of FINRA’s “complex products” would seize roughly two out of each 5 funds and 22 % of complete U.S. fund belongings.

FINRA’s regulatory discover is accessible here. The ICI’s remark letter is accessible here.

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