FINRA's Take On Internal Communications


Law360, New York (February 18, 2010) -- The Financial Industry Regulatory Authority recently brought four disciplinary actions that have the effect of imposing upon broker-dealers the obligation to ensure that internal-use-only materials contain the same cautions and disclaimers as pieces used with the public. Such an obligation is new.

Because the imposition of this obligation would have far-reaching consequences on compliance practice, the industry as well as the regulatory process would be better served through rulemaking, including the notice and comment procedure, rather than imposing this obligation through enforcement actions.

In fact, just several months ago, FINRA proposed extensive changes to its advertising rules, including reducing the current six categories to three (institutional communication, retail communication and correspondence) and requiring the filing of certain pieces that currently do not have to be filed. The proposal did not address the content standard for internal-use-only materials.

FINRA has, instead, brought enforcement actions that establish new standards for internal-use pieces. The theory behind these actions appears to be that unless a firm can point to specific disclaimers in internal use only material, it cannot establish that its representatives were aware of disclaimers and cautions relating to the product or to investing in general.

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