August 12, 2022

Volume XII, Number 224

Advertisement
Advertisement

August 12, 2022

Subscribe to Latest Legal News and Analysis

August 11, 2022

Subscribe to Latest Legal News and Analysis

August 10, 2022

Subscribe to Latest Legal News and Analysis

August 09, 2022

Subscribe to Latest Legal News and Analysis

FINRA Requests Comment on Sales Practices for Complex Products—and the ICI Pushes Back

On March 8, 2022, FINRA published a regulatory notice reminding broker-dealers of their regulatory obligations with the sale of complex products and options to retail investors and requesting comment on potential new regulations. Noting that the current regulatory framework governing sales practices of complex products and options was adopted at a time when most individuals accessed financial products through financial professionals, rather than through self-directed platforms, FINRA solicited industry comment generally on whether the current framework is appropriately tailored to address concerns raised by such products. The comment period closed on May 9, 2022.

The Investment Company Institute was among the industry participants and organizations that submitted comments. The ICI’s letter expressed support for FINRA’s overarching objective of protecting investors and ensuring the appropriateness of investments. However, the ICI “strongly oppose[d]” additional requirements on transactions in funds that FINRA may deem to be a “complex product.” The ICI asserted that imposing new requirements on fund transactions—if deemed to involve a complex product—would:
-undermine the current disclosure-based securities law framework;

-result in “unnecessary” and “unprecedented” restrictions given “the robust regulatory regime of the Investment Company Act”; and

-lead to arbitrary results given the broad description of “complex product.”

  • To illustrate its contention that the scope of “complex products” is overly broad, the ICI noted that FINRA has at one point or another deemed various investments to be “complex” or difficult for investors to understand, including, among others: closed-end funds, global real estate funds, multi-strategy funds, funds using derivatives for hedging or leverage, target-date funds, and funds investing in IPOs.

  • The ICI suggested that the scope of FINRA’s “complex products” would capture approximately two out of every five funds and 22 percent of total U.S. fund assets.

FINRA’s regulatory notice is available here. The ICI’s comment letter is available here.

© 2022 Vedder PriceNational Law Review, Volume XII, Number 161
Advertisement
Advertisement
Advertisement
Advertisement
Advertisement
Advertisement

About this Author

Christina V. West Associate Chicago Vedder Price
Asscoiate

Christina V. West is an Associate in Vedder Price’s Chicago office and a member of the firm’s Investment Services group.

Ms. West focuses her practice on representing U.S.-registered investment companies and funds, their boards of directors and investment advisers in regulatory compliance and governance matters under U.S. securities laws. Ms. West received her law degree from the University of Notre Dame Law School and received her undergraduate degree from The University of North Carolina at Chapel Hill. While in law school she served as an...

312-609-7567
Jacob Tiedt,Vedder Price law firm investment services attorney
Shareholder

Jacob C. Tiedt is a Shareholder at Vedder Price and a member of the Investment Services group.

Mr. Tiedt’s practice includes the representation of registered mutual funds, closed-end funds and exchange-traded funds; private funds; investment advisers; and other financial institutions on a broad range of regulatory, governance and compliance matters. Mr. Tiedt regularly counsels clients on matters relating to SEC registration, disclosure and compliance; shareholder solicitation; NYSE, Nasdaq and FINRA regulation; corporate governance; and board administration. Mr....

312-609-7697
Nathaniel Segal Investment Attorney Vedder Price Law Firm
Counsel

Nathaniel Segal is counsel at Vedder Price and a member of the Investment Services group. He focuses his practice on investment companies and investment advisers in connection with the organization and operation of investment products and services, including traditional mutual funds, closed-end investment companies (including interval funds and listed closed-end funds), variable insurance products and registered hedge funds, as well as mutual funds utilizing complex hedging and absolute return strategies. Mr. Segal has experience in conducting transactional due diligence...

(312) 609 7747
John Marten Investment Attorney Vedder Price Law FIrm
Shareholder

John S. Marten, a Shareholder in the Chicago office of Vedder Price, has substantial experience representing clients in the investment management industry.

As a member of the firm’s Investment Services group, Mr. Marten counsels clients on a wide variety of matters involving the application of the federal securities laws to investment companies, investment advisers and broker-dealers. He has significant experience counseling investment company clients with respect to new products and was recently involved in the creation of two mutual funds...

(312) 609 7753
Advertisement
Advertisement
Advertisement