FINRA Regulatory Notice 23-08 and Selling Private Placements
Part I of this Notice provides an overview of developments in the unregistered offering market generally. Part II discusses members’ regulatory requirements when participating in private placements. It focuses primarily on members’ critical role, when recommending private placements, in performing reasonable investigations under the reasonable basis obligations of Reg BI, the suitability rule and caselaw interpreting the antifraud provisions of the federal securities laws. Part II also examines key member obligations applicable to private placement activity irrespective of whether recommendations are involved. For instance, Part II discusses FINRA’s filing requirements for private placement memoranda (PPMs) and related documents, as well as FINRA’s communications with the public and supervision rules, including the duty to investigate and act upon “red flags” revealing irregularities or potential misconduct.
Here are the highlights of this Notice:
Best Interest and Suitability Requirements: Applicable When Recommending Private Placements
FINRA Rule 2111 - Reasonable Basis Obligations and the Duty to Conduct a Reasonable Investigation
Resasonable Investigations & Background Checks
FINRA Rule 2111 and Recommendations of Securities
Reg BI and Disclosures of Conflicts of Interest
Communications with the Publiic - FINRA Rule 2210 and when a member firm prepares offering materials
Form Filings - FINRA Rule 5122 and 5123, FINRA requires members to submit a form that contains information about the member selling the private placement securities, the issuer and the offering terms as well as any offering documents, if applicable, electronically through the FINRA Gateway (the Filer Form).
Supervision - FINRA Rule 3110, a member must establish and maintain a system to supervise the activities of each associated person, and must establish, maintain and enforce written procedures to supervise the types of business in which it engages and the activities of its associated persons that are reasonably designed to achieve compliance with applicable securities laws and regulations, and with FINRA rules.
Read the full Notice here: https://www.finra.org/rules-guidance/notices/23-08
