FINRA Discusses Suitability Rule Examination Findings


The Financial Industry Regulatory Authority, Inc.  has released a Regulatory Notice regarding Rule 2111 (Suitability). Regulatory Notice 13-31 does not create or alter existing guidance and interpretations with respect to the suitability rule, rather it shares common findings and observations of effective practices implemented by member firms. Although the Regulatory Notice stresses that there is no “one-size-fits-all approach to compliance and supervision[,]” it sets forth observations regarding effective practices, such as:

  • New product vetting processes;
  • Product-focused training of associated persons, supervisors and compliance staff;
  • Updated customer account forms;
  • Use of electronic customer relationship management systems;
  • Heightened customer-specific suitability requirements or specific suitability profiles; and
  • Account opening documents tailored to institutional customers or use of certifications with respect to the institutional-customer exemption.

Additionally, FINRA noted that the most common examination deficiency was inadequate procedures with respect to recommendations to customers to hold particular investments. In this regard, the Regulatory Notice also notes effective practices with respect to hold recommendations, such as: use of hold tickets or blotters to capture recommendations, maintaining notes of discussions with customers and modification of customer account forms.

Click here for Regulatory Notice.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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