Advertising and Marketing Regulation | Disclosures | Regulatory Filings

FINRA Loosens Rules on Communications with Public


Contrary to the current trend of increasing regulation, the SEC recently approved some amendments to FINRA rules that will actually reduce some regulatory filings and disclosures for broker dealers.  The Rules have been amended to expand or clarify the filing and disclosure requirements related to investment company shareholder reports, offering documents for unregistered securities, communication templates, backup material for performance rankings and comparisons, generic investment company communications (Rule 2210), investment analysis tools (Rule 2214), and bond fund volatility ratings (Rule 2213).  The new rules go into effect on January 9, 2017.

The amendments came as a result of FINRA’s own assessment of the effectiveness and efficiency of its rules on communications with the public. FINRA determined that “while the rules have met their intended investor protection objectives, they could benefit from some updating to better align the investor protection benefits and the economic impact.”    Here’s a summary:

  •  Rule 2210 has been clarified so that the portion of a mutual fund’s shareholder report that contains management’s discussion of fund performance (MDFP) will no longer have to be filed with FINRA.
  • Rule 2210(c)(7)(F) has been clarified to state that offering documents concerning unregistered securities prepared by issuers are not required to be filed with FINRA.
  • Rule 2210(c)(2)(C) has been amended to eliminate the requirement to file backup material for investment company performance rankings and comparisons. Firms must maintain a copy of these back up materials.
  • Rule 2210(c)(3)(A) has been amended to exclude “generic” investment company communications from FINRA’s filing requirements. This means that generic mutual fund communications, such as a description of different types of mutual funds, do not have to be filed with FINRA, as long as the communication does not discuss the benefits of a specific fund or fund family.
  • Rule 2210(c)(7)(B) has been similarly amended to allow firms to update fund fact sheets and other similar templates with new narrative content without filing them with FINRA. Firms do not have to file retail communications that are based on templates previously filed with FINRA, where updates are limited to “non-predictive narrative descriptions of market events” or include factual descriptions of portfolio changes.
  • The requirement to file with FINRA templates for written reports produced by “investment analysis tools” has also been eliminated under Rules 2210(c)(3) and 2214(a).  Firms are still required to provide FINRA with access to the tools and their output on request.  (Rule 2214).
  • Rule 2213(b) was amended to eliminate the requirement to send a prospectus for bond funds prior to or along with a retail communication that includes a bond fund volatility rating. These communications no longer require filing and FINRA approval prior to use but rather may be filed within 10 business days of first use.
  • Amendments to 2213 also eliminate the following disclosure requirements for retail communications containing bond fund volatility ratings:
    • disclosure of all current bond mutual fund volatility ratings issued with respect to the fund;
    • an explanation of the reason for any change in the current rating;
    • a description of the criteria and methodologies use to determine the rating;
    • a statement that not all bond funds have volatility ratings; and
    • a statement that the portfolio may have changed since the date of the rating.

The disclosures also no longer have to be contained in a separate disclosure statement.