As they do every year, FINRA has released a letter outlining their priorities for the forthcoming year. Regulatory changes prompted by the passage and implementation of the JOBS Act are featured heavily in the letter as risks that mandate diligence on behalf of FINRA. Issues raised include…
General solicitation, which before the amendments had been permitted only in connection with public offerings registered with the SEC under the Securities Act of 1933, provides new challenges for firms to ensure advertisements and other marketing materials are based on principles of fair dealing and good faith, are fair and balanced, and provide a sound basis to evaluate the facts about securities acquired in a private placement.
Due Diligence and Suitability of Private Placements
FINRA will examine firms’ private placement activity to ascertain whether firms are taking reasonable steps to validate that investors meet accredited investor standards. Also, the recent Regulation D amendments do not diminish a firm’s responsibility to conduct adequate due diligence on its offerings to ensure any recommendations to purchase securities in a private placement are suitable.
FINRA proposed rules to streamline the registration and oversight of funding portals to reflect the limited scope of activity permitted by funding portals. The proposed rules address a number of topics, including the membership application process, fraud and manipulation, just and equitable principles of trade and more generally establishes requirements that funding portals be capable of complying with the JOBS Act, SEC and FINRA rules. The rules also contain provisions to ensure that bad actors do not enter the system. As the rules become effective, and funding portals become FINRA members, we will implement a regulatory program designed to protect investors while recognizing the distinctions between funding portals and broker-dealers.
FINRA is an acronym for the Financial Industry Regulatory Authority. It is a private self-regulatory organization (SRO) that is charged with overseeing member brokerage firms and exchange markets. FINRA is charged with oversight of crowdfunding portals under a new equity crowdfunding exemption.
The full letter may be viewed here.