Essential FINRA Rules
The most critical FINRA rules that every broker-dealer compliance program must address. Understand the requirements, key provisions, and practical implications for your firm.
Communications with the Public
Governs all broker-dealer communications, including retail communications, correspondence, and institutional communications. Establishes content standards, approval requirements, and filing obligations with FINRA.
Key Provisions
- Principal pre-approval required for retail communications
- Fair and balanced presentation of risks and benefits
- Performance data must include standardized disclosures
- Social media and digital communications subject to same standards
- Filing requirements with FINRA Advertising Regulation department
- Prohibition on misleading or exaggerated claims
Suitability
Requires broker-dealers to have a reasonable basis for recommending securities transactions or investment strategies. For retail customer recommendations, Rule 2111 has been largely superseded by SEC Regulation Best Interest (Reg BI), effective June 30, 2020. Rule 2111 continues to apply to non-retail recommendations, such as those to institutional customers.
Key Provisions
- Reasonable-basis suitability: understand the product
- Customer-specific suitability: match to customer profile
- Quantitative suitability: no excessive trading
- Documentation of suitability analysis required
- Retail recommendations now governed primarily by Reg BI
- Applies to institutional and non-retail recommendations
Supervision
Requires broker-dealers to establish, maintain, and enforce a supervisory system and written supervisory procedures (WSPs) to oversee the activities of all associated persons.
Key Provisions
- Written supervisory procedures for each business line
- Designation of supervisory personnel at each office
- Annual compliance meeting for all registered persons
- Review system for correspondence and communications
- Branch office inspection requirements
- Internal investigation and escalation procedures
Books and Records
Requires broker-dealers to maintain books and records in compliance with SEC Rules 17a-3 and 17a-4. Specifies retention periods and accessibility requirements for regulatory examinations.
Key Provisions
- Maintenance of all required records under SEC rules
- Minimum retention periods: 3 to 6 years depending on record type
- Electronic storage must meet WORM (write once, read many) requirements
- Records must be readily accessible during first two years
- Customer account records and transaction documentation
- Communications archiving including electronic messages
Standards of Commercial Honor
Establishes the foundational ethical standard requiring that members observe high standards of commercial honor and just and equitable principles of trade in the conduct of their business.
Key Provisions
- Broad ethical obligation covering all business conduct
- Basis for disciplinary actions on unethical behavior
- Applies to both securities and non-securities business activities
- Covers dealings with customers, other members, and the public
- Foundation for enforcement of unwritten ethical standards
- Often cited alongside other specific rule violations
Outside Business Activities
Requires registered persons to provide prior written notice to their member firm of any outside business activity. Firms must evaluate whether the activity creates conflicts of interest or supervisory concerns.
Key Provisions
- Prior written notice required before engaging in OBAs
- Firm must evaluate and respond to OBA notifications
- Assessment of potential conflicts of interest
- Consideration of whether activity constitutes selling away
- Ongoing monitoring of approved outside activities
- Documentation and recordkeeping of all OBA disclosures
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