FINRA’s Top Priorities for 2021

FINRA’s Top Priorities for 2021

Early in the year, FINRA released their 2021 Report on FINRA’s Examination and Risk Monitoring Program, which is designed to inform member firms’ compliance programs by providing annual insights from FINRA’s ongoing regulatory operations.

In this report detailing FINRA’s top priorities for 2021, FINRA addresses 18 regulatory areas which are grouped into 4 categories: (1) Firm Operations, (2) Communications and Sales, (3) Market Integrity, and (4) Financial Management. From these 18 regulatory areas, FINRA highlights 6 that they feel are the most important and affect a large portion of member firms, which are as follows:

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Changing the Definition of “Accredited Investor”

Changing the Definition of “Accredited Investor”

The changes to the definition of “Accredited Investor” that the SEC approved in August of 2020 officially went into effect on December 8th. The changes now allow people to qualify based on factors other than net worth. Now individuals will be able to qualify as an Accredited Investor based on clear measures of financial sophistication, such as professional knowledge and experience or certifications in addition to the traditional test for income or net worth. The change also expanded and updated the list of entities that can meet the definition an participate in certain private offerings.

The SEC’s intentions with the change were to update and improve the definition to more effectively identify institutional and individual investors that have the knowledge and expertise to participate in private capital markets to expand investment opportunities while maintaining appropriate investor protections and promote capital formation.

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FINRA Rule 3241: Registered Person as Customer’s Beneficiary

FINRA Rule 3241: Registered Person as Customer’s Beneficiary

On October 29, 2020 FINRA released a regulatory notice detailing Rule 3241, a new rule that limits any associated person of a member firm who is registered with FINRA from being named a beneficiary, executor or trustee, or to have a power of attorney or similar position of trust for or on behalf of a customer. The rule requires the member firm with which the registered person is associated, upon receiving required written notice from the registered person, to review and approve or disapprove the registered person assuming such status or acting in such capacity. Rule 3241 does not apply where the customer is a member of the registered person’s “immediate family, and becomes effective February 15, 2021

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Acting in the Best Interest of Your Elderly Clients

Acting in the Best Interest of Your Elderly Clients

As the baby boomer generation reaches retirement age, regulators have increased their focus on protecting senior investors. A new study released by the FINRA Investor Education Foundation (FINRA Foundation), in collaboration with researchers from Duke University and Rush University Medical Center suggests that overconfidence in financial knowledge may lead to excessive risk taking among older investors. This is a good time for your firm to sit down and review your accounts held by elderly clients and determine if their portfolio and investment strategy actually fits their needs.

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SEC Rule to Simplify Exempt Offering Framework for Small Firms

SEC Rule to Simplify Exempt Offering Framework for Small Firms

On Nov. 2, 2020, the U.S. Securities and Exchange Commission (SEC) adopted final rules to simplify the exempt offering framework. The SEC’s goal with these amendments was to “simplify, harmonize, and improve certain aspects of the exempt offering framework to promote capital formation while preserving or enhancing important investor protections.”. More Specifically they aimed to:

  • Address the ability of issuers to move from one exemption to another;
  • Set clear and consistent rules governing offering communications between investors and issuers;
  • Address potential gaps and inconsistencies in their rules relating to offering and investment limits; and
  • Harmonize certain disclosure requirements and bad actor disqualification provisions.

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SEC Rule to Allow for the Use Electronic Signatures

SEC Rule to Allow for the Use Electronic Signatures

The SEC recently adopted a rule change to allow for the use of electronic signatures for documents filed with the Commission. This rule change will apply to Regulation S-T, EDGAR Filer Manual, and certain other filings under the Securities Acts of 1933 and 1934 and the Investment Company Act of 1940. This long-awaited rule change was finally put into effect after the rise of COVID-19 and after the Commission received a rule making petition regarding the use of electronic signatures as the pandemic made it significantly more difficult to obtain “wet” signatures, as was originally required by Rule 302(b). Besides adding the option to use electronic signatures, the existing requirements of Rule 302(b) will be otherwise unchanged.

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