customer communication

On October 16, the Financial Industry Regulatory Authority (FINRA) published its 2019 Report on Examination Findings and Observations (Report). Unlike previous years, the Report delineates between examination “findings” and examination “observations.” “Findings” describe violations of a rule or regulation, whereas “observations” refer to suggestions regarding how firms can improve controls and mitigate risk. The annual Report summarizes various findings and observations from recent examinations of its member firms on a range of topics, including the following:
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On September 26, the Securities and Exchange Commission adopted a new rule to allow all issuers, not just emerging growth companies, to utilize “test-the-waters” communications in connection with an initial public offering or other securities offering.

The rule implements the proposal put forth by the SEC in February 2019, discussed in the March 1, 2019 edition of Corporate & Financial Weekly Digest.
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On September 19, the Financial Industry Regulatory Authority (FINRA) issued Regulatory Notice 19-31 (Notice) addressing disclosure innovations in advertising and other communications with the public. The Notice responds specifically to questions that FINRA has received from member firms about how they can comply with FINRA rules when communicating with their customers. FINRA’s goal in issuing the Notice is to help facilitate simplified and more effective disclosures.
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On May 14, the Joint Audit Committee (JAC), a representative committee of US futures exchanges and the National Futures Association (NFA), released two regulatory alerts of particular importance to futures commission merchants (FCMs) that clear for customers whose accounts are managed by third-party advisers. The regulatory alerts “reconfirm and reiterate” the JAC’s view of existing law regarding guarantees against loss and margin in the context of multiple accounts of a single beneficial owner at an FCM, which accounts are managed by different advisers and/or traded pursuant to different programs of the same adviser.
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National Futures Association (NFA), Futures Industry Association (FIA) and other industry professionals have collaborated to launch an FIA training course on safeguarding customer funds. The course, which is designed to assist futures commission merchants in meeting their training requirements under Commodity Futures Trading Commission Rule 1.11, covers the basics of segregation, residual interest, investment of

On April 7, the UK Financial Conduct Authority (FCA) updated part of its website on the meaning of “durable medium,” aiming to clarify the meaning and intention of the phrase as well as to explain its origin in EU law.

Various EU regulatory provisions require that a firm must provide certain information to a client in writing, either on paper or in another “durable medium.” Many recordkeeping requirements, including under the revised Markets in Financial Instruments Directive (MiFID II), also require firms to store information in a durable medium. Citing the lack of clarity on how innovative and new forms of media could meet the durable medium standard, the FCA states that it will update its handbook definition of the term.
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The Financial Industry Regulatory Authority (FINRA) is seeking comment with respect to proposed amendments (the “Proposed Amendments”) to FINRA Rule 2210 (Communications with the Public). The Proposed Amendments would create an exception to FINRA’s general prohibition on projected performance and would be applicable to all FINRA-member firms. The Proposed Amendments would allow firms to present to prospective and current customers illustrations that show the projected performance of an asset allocation or investment strategy (although it remains impermissible to present the projected performance of individual securities).
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The Financial Industry Regulatory Authority recently released Regulatory Notice 16-18, which describes the newly adopted FINRA Rule 2273 (Rule). The Rule requires a firm that hires or associates with a registered representative to provide former customers of the representative an educational communication prepared by FINRA (“Communication”) when: (x) the firm, directly or through a representative, contacts such former customers individually to transfer assets to the firm, which includes (i) informing the former customer that he is now associated with the new firm, (ii) informing the former customer that the new firm may offer better or different products and services, or (iii) sending a mass mailing of information about the new firm to former customers; or (y) such former customer, without being individually contacted, transfers his assets to the representative at the firm.
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