January 29, 2023

Volume XIII, Number 29

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Additional Guidance Provided on FINRA's Suitability Rule

In May 2012, the Financial Industry Regulatory Authority provided guidance on Rule 2111 (Suitability) by providing answers to frequently asked questions (FAQs). Answers that supersede some of these FAQs and additional FAQs have been addressed in FINRA Regulatory Notice 12-55. The new material addresses the scope of the terms “customer” and “investment strategy.”

Specifically, the following questions have new answers:

  • What constitutes a “customer” for purposes of the suitability rule?
     
  • The new suitability rule requires that a recommended investment strategy involving security or securities must be suitable. Can you provide some examples of what would and would not be considered an “investment strategy” under the rule?
     
  • Does the new rule’s “investment strategy” language cover a registered representative’s recommendation involving both a security and a non-security investment?

In addition, the following are new FAQs:

  • Does the suitability rule apply when a broker-dealer or registered representative makes a recommendation to a potential investor?
     
  • What are a broker-dealer’s supervisory responsibilities for a registered representative’s recommendation of an investment strategy involving both a security and a non-security investment?

Regulatory Notice 12-55 also notes that FINRA has created a suitability web page that locates in one place questions and answers regarding FINRA Rule 2111.

Click here for Regulatory Notice 12-55. Click here for FINRA’s suitability web page.  

©2023 Katten Muchin Rosenman LLPNational Law Review, Volume II, Number 358
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About this Author

Our Financial Services Practice advises a broad spectrum of domestic and international fund managers, trading advisors, banks, brokerages and proprietary trading firms in all aspects of exchange-traded and over-the-counter commodities, securities and derivatives transactions. We help clients find business-based solutions and make business-driven decisions that are in compliance with applicable regulatory requirements. Our lawyers have extensive experience in the financial markets and are fully attuned to the need to provide advice quickly and efficiently in light of the time-sensitive and...

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