In April 2014, FINRA began a review of its communications with the public rules to assess their effectiveness and efficiency. FINRA later published a report concluding 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 impacts. To this end, the SEC recently approved amendments to certain FINRA rules governing communications with the public effective January 9, 2017. The amendments revise the filing requirements in FINRA Rule 2210 and FINRA Rule 2214 and the content and disclosure requirements in FINRA Rule 2213. Below is a summary of some of these changes.
Investment Company Shareholder Reports
FINRA currently requires firms to file the management’s discussion of fund performance (MDFP) portion of a registered investment company shareholder report if the report is distributed or made available to prospective investors. FINRA has required the MDFP to be filed because firms sometimes distribute or make shareholder reports available to prospective investors to provide more information about the funds they offer. Thus, FINRA has considered the MDFP to be subject to the filing requirement for investment company retail communications.
FINRA has not required firms to file portions of shareholder reports other than the MDFP, such as the financial statements or schedules of portfolio investments, since they serve a regulatory purpose rather than promoting the sale of investment company securities. Accordingly, the amended rule excludes from the filing requirements annual or semi-annual reports that have been filed with the SEC in compliance with applicable requirements.
Offering Documents Concerning Unregistered Securities
Rule 2210(c)(7)(F) currently excludes from filing “prospectuses, preliminary prospectuses, fund profiles, offering circulars and similar documents that have been filed with the SEC or any state, or that is exempt from such registration …”. FINRA has always intended for this provision to exclude issuer-prepared offering documents concerning securities offerings that are exempt from registration. Amended Rule 2210(c)(7)(F) makes this intent clearer.
Generic Investment Company Communications
FINRA Rule 2210(c)(3)(A) requires firms to file within 10 business days of first use retail communications “concerning” registered investment companies. The amended filing requirement covers only retail communications that promote a specific registered investment company or family of registered investment companies. Thus, the amended rule no longer requires firms to file generic investment company retail communications.
[Continued in Communications with the Public – Part II]
For more posts related to communications with the public, please see Utilization of Social Media in the Securities Industry and FINRA Rule 2210: Communications.