Series 6 FINRA Filing and Review

7.3.2 FINRA Filing and Review

Navigating the regulatory landscape of the securities industry involves understanding the requirements and processes established by the Financial Industry Regulatory Authority (FINRA). One critical aspect of this is the filing and review process for communications, as outlined under FINRA Rule 2210. This section will provide a comprehensive overview of the filing requirements, the types of communications that must be submitted, and the review process, including potential revisions.

Understanding FINRA Rule 2210

FINRA Rule 2210 governs communications with the public, aiming to ensure that all communications are fair, balanced, and not misleading. This rule categorizes communications into three main types: retail communications, correspondence, and institutional communications. The filing and review requirements primarily focus on retail communications due to their broad distribution and potential impact on investors.

Filing Requirements: A Detailed Overview

Types of Communications That Must Be Filed

1. New Member Communications:

   • Firms that have recently become FINRA members must file their initial retail communications with FINRA at least 10 business days prior to use. This requirement helps ensure that new members adhere to regulatory standards from the outset.

2. Mutual Fund Retail Communications:

   • Communications concerning mutual funds, variable insurance products, and other investment companies must be filed with FINRA. These communications include advertisements and sales literature that promote these products to retail investors.

3. Options Communications:

   • Any communication regarding options must be filed with FINRA. This includes advertisements, sales literature, and educational materials. Given the complexity and risk associated with options, these communications are subject to stringent review.

4. Public Appearance Scripts:

   • Scripts or outlines for public appearances, such as seminars or webinars, that promote specific securities or investment strategies must be filed if they are used in retail communications.

5. Television and Video Advertisements:

   • These must be filed within 10 business days of first use. Given their wide reach, it’s crucial that these communications accurately represent the products or services being advertised.

Timeframes for Filing

• Pre-Use Filing: Certain communications, such as those from new members or those related to options, must be filed with FINRA at least 10 business days before they are first used. This pre-use filing allows FINRA to review and provide feedback before the material reaches the public.

• Post-Use Filing: Most other retail communications must be filed within 10 business days of first use. This ensures that FINRA can monitor ongoing compliance with its standards.

The FINRA Review Process

Once communications are filed, FINRA conducts a thorough review to ensure compliance with Rule 2210 and other applicable regulations. The review process involves several key steps:

1. Initial Assessment:

   • FINRA staff evaluate the communication for compliance with content standards. They check for misleading statements, omissions of material facts, and ensure that the communication is fair and balanced.

2. Feedback and Comments:

   • If FINRA identifies any issues, they will provide comments or requests for revision. These comments are typically aimed at clarifying information, correcting inaccuracies, or ensuring compliance with regulatory standards.

3. Revisions and Resubmission:

   • Firms must address FINRA’s comments and resubmit the revised communication. This iterative process continues until FINRA is satisfied that the communication complies with all applicable rules.

4. Final Approval:

   • Once FINRA approves the communication, it can be used in the manner intended. However, firms must retain records of all communications and any related correspondence with FINRA for a specified period.

Practical Examples and Scenarios

Example 1: Mutual Fund Advertisement

A brokerage firm plans to launch a new mutual fund and create an advertisement to promote it. Before releasing the advertisement, the firm must file it with FINRA for pre-use review. FINRA may request revisions to ensure that the advertisement accurately represents the fund’s objectives, risks, and fees. Once the firm addresses these comments and receives approval, the advertisement can be distributed to the public.

Example 2: Options Seminar

A financial advisor plans to host a seminar on options trading. The seminar script, which includes specific investment strategies and product recommendations, must be filed with FINRA. During the review, FINRA may request changes to ensure that the information is balanced and not misleading. After making the necessary adjustments and obtaining approval, the advisor can proceed with the seminar.

Common Pitfalls and Best Practices

Pitfalls

• Omissions of Material Information: Failing to include important information, such as risks associated with an investment, can lead to misleading communications.

• Misleading Claims: Overstating potential returns or understating risks can result in non-compliance with FINRA standards.

• Delayed Filing: Missing filing deadlines can lead to regulatory scrutiny and potential sanctions.

Best Practices

• Thorough Review Before Filing: Conduct an internal review to ensure that all communications are complete and accurate before filing with FINRA.

• Clear and Balanced Content: Ensure that all communications present a fair and balanced view of the investment opportunities and associated risks.

• Timely Filing: Adhere to filing deadlines to avoid regulatory issues and ensure smooth communication with FINRA.

Regulatory References and Resources

• FINRA Rule 2210: FINRA’s Rule 2210 provides detailed guidance on the requirements for communications with the public.

• FINRA Advertising Regulation Department: This department oversees the review of communications and provides resources to help firms comply with regulatory standards.

• Securities Act of 1933 and Securities Exchange Act of 1934: These acts provide the foundational legal framework for securities regulation in the United States.

Conclusion

Understanding the FINRA filing and review process is essential for compliance in the securities industry. By adhering to the requirements of Rule 2210 and implementing best practices, firms can ensure that their communications are compliant, effective, and beneficial to investors. This knowledge is not only crucial for passing the Series 6 Exam but also for maintaining a successful career in the securities industry.

Series 6 Exam Practice Questions: FINRA Filing and Review