12 May 2023
If you’re a marketer in financial services, FINRA’s Rule 2210 is especially important for you, as it provides guidelines for communications with the public.
However, Rule 2210 can be hard to understand, especially if you’re not familiar with deciphering legal jargon. We’re here to help you get started. This post will cover both the basics of FINRA and every section of Rule 2210 in familiar language, so you can create more compliant marketing.
What Is FINRA?
The Financial Industry Regulatory Authority is a non-governmental organization that oversees activity in the financial services industry. As an SRO (a self-regulatory organization), FINRA sets industry regulatory requirements and standards.
FINRA, like many other SROs, gives companies an extra layer of defense before being officially fined by government agencies. The main purpose of FINRA is to make sure financial institutions (particularly broker-dealers) comply with the rules of the Securities and Exchange Commission (SEC). Besides ensuring fair and safe investment activity, FINRA also monitors risk management in cybersecurity, AML (anti-money laundering), and other supervisory procedures.
What Is FINRA Compliance?
FINRA compliance refers to businesses following FINRA’s rules (and, therefore, the SEC’s rules).
Without FINRA regulating the financial markets, brokerage firms would be under the discretion of SEC rules, meaning instead of fines and bans, they could find themselves facing disciplinary actions like jail time. FINRA can still pass information along to these authorities, but its existence provides an extra layer of protection from government penalties.
That being said, FINRA as an organization can issue huge fines and suspensions or bar stockbrokers or entire companies from the brokerage industry. In 2021, FINRA issued its largest fine ever of $70 million USD to Robinhood for outages and misleading customers.
What Is FINRA Rule 2210?
FINRA Rule 2210 states the content and communications standards for FINRA. As a marketer, this is the critical rule that you need to know inside and out. You’ll need to have an understanding of all of FINRA’s rules, but this section will contain most of the high level information you’ll need.
What Are the FINRA Rule 2210 Sections, and What Do They Mean?
FINRA Rule 2210 includes seven sections. Here’s a breakdown of what marketers need to know about each section of the rule.
The “Definitions” section clarifies the terms used throughout the rest of FINRA Rule 2210. Marketers need to know these definitions so they can understand the terms in Rule 2210.
For example, a “communication” is any correspondence, retail communication, or institutional communication issued—while a “retail communication” is any communication “distributed or made available to more than 25 retail investors within any 30 calendar-day period.” If a marketer understands this difference, they can avoid the headache of unnecessarily formatting a non-retail communication to the retail communication rules.
Approval, Review, and Record-keeping
The “Approval, Review, and Record-keeping” section explains the process for each of these three actions under FINRA Rule 2210. Here are the major points you need to know from each subsection:
- Retail communications: Any research reports, retail communications, or other research communications must meet FINRA’s requirements as determined by a supervisory analyst.
- Correspondence: All correspondence is subject to review according to FINRA Rule 3110 (3110(b) and 3110.06 through .09).
- Institutional communications: Every company must create written procedures that are compliant with industry standards. These written procedures must be available to be delivered to FINRA upon request.
- Record-keeping: All companies must keep a record (likely electronic records) of all retail and institutional communications for the amount of time required by SEA Rule 17a-4(b), and that record must include:
- Dates of first and last communication
- Name of the person who approved the communication and the date approved
- If the record was not approved prior to its first use—the name of the person who prepared or distributed the communication
- Information about statistical tables, charts, graphs, or other illustrations used in the communication
- If the communication did not require approval—the name of the person filing and a copy of the review letter
- A copy of any performance ranking or comparison if used in the communication
Filing Requirements and Review Procedures
There are a total of nine subsections in the “Filing Requirements and Review Procedures” section. They are all important to know, but the key takeaway is that you need to file your communication with FINRA at least 10 days prior to its public release in almost all situations. Include the date of first use, the title, name, Central Registration Depository (CRD) number of the registered person who approved the communication, and the date that the approval was given in your submission.
This is one of the most important sections for marketers to understand since these types of communications are used so commonly by marketers. Marketers should read and understand the entirety of Rule 2210 (and especially this section), but here are a few key points from each subsection to use as a reference tool.
(1) General Standards
This subsection describes the general requirements for FINRA-compliant communication. Some major rules are:
- You can’t omit any material fact or qualification.
- You can’t make false or misleading statements.
- You can only use footnotes if including the disclaimer in the body of text would confuse the reader.
- You can’t make predictions about future performance in your communications or imply that past performance is indicative of future performance.
Comparisons between investments or services must be complete and include (as applicable) costs and expenses, guarantees or insurance, investment goals, liquidity, fluctuation of principal or return, tax features and safety.
(3) Disclosure of Member’s Name
All communications must include the name of the member firm, the relationship between the member firm and non-member, and any other relevant names.
(4) Tax Considerations
Marketers must be extremely clear about taxes on income, especially when claiming income will be “tax-free” or “tax-exempt.” Your communication must distinguish between tax types (federal, state, or local) and tax liability types (postponed or deferred).
(5) Disclosure of Fees, Expenses, and Standardized Performance
Marketers must disclose fees and expenses in communications—including sales charges, their total annual fund operating expense ratio, and the gross of any expense reimbursements. These disclosures are as applicable but must be included if pertinent.
If you include any testimonials in your communication, the person giving the testimonial must have the experience and knowledge to make a valid testimonial. You must also disclose that the testimonial is just one experience and not indicative of success for others, that there is no guarantee of future success, and that the testimonial subject was paid (if applicable).
Member firms must disclose any financial interest or position they might have in the market in which they’re making a recommendation. They must also provide (or supply upon request) investment information supporting the recommendation.
BrokerCheck is a free tool FINRA provides that allows you to research the professional backgrounds of advisers, brokers, and firms. A hyperlink to BrokerCheck must be readily visible on the initial webpage that is intended to be viewed by retail investors and on any professional profile of a person who provides products or services to retail investors.
(9) Prospectuses Filed With the SEC
Prospectuses (including preliminary prospectuses), fund profiles, and other similar documents that are filed with the SEC are exempt from the “Content Standard” section of FINRA Rule 2210.
Limitations on Use of FINRA’s Name
There are clear guidelines about how you can mention FINRA’s name (or any other corporate name owned by FINRA) in your communication. Generally, you need to make it clear that by mentioning FINRA, you are not claiming that FINRA is making any endorsement, indemnification, or guarantee about your product or service. There are also specific phrases you need to use and a hyperlinking protocol to follow, which you can read more about here.
People appearing in a seminar, forum, or other public speaking activity must follow the rules of the “Content Standards” section. This includes disclosing any financial interest or other conflicts of interest when giving financial advice. Companies must create and utilize written guidelines for public speaking, provide education and training, and subsequently surveille the event and follow up to make sure the written guidelines were followed correctly. All handouts, slides, or other shared materials are considered communications and must comply with FINRA standards.
Violations of Other Rules
Violating rules of the SEC, the Securities Investor Protection Corporation, or the Municipal Securities Rulemaking Board will be deemed a violation of Rule 2210.
FINRA Compliance Tools
Here are a few other helpful resources for marketers in the securities industry:
- FINRA Rule 2210
- FINRA compliance tools page
- FINRA advertising FAQ
- What and When to File with Advertising Regulation
Make Sure You’re FINRA Compliant With Red Marker
Rule 2210 is complex and comprehensive, with many nuances. Fortunately, marketing compliance software like Red Marker can help. Red Marker’s custom-trained AI detects marketing copy that doesn’t follow FINRA’s regulatory compliance requirements, so you can fix it prior to it reaching legal or compliance, speeding up review times. In addition, our new RiskGPT functionality suggests compliant replacement options for risky content, in accordance with regulations such as FINRA, FCA, FTC’s Truth in Advertising, and other relevant guidelines.
Click here to contact us if you would like to schedule a 30-minute discovery call where we can discuss how to enhance the efficiency of your current marketing compliance processes, addressing your specific needs.
NOTE: This post isn’t a substitute for legal or regulatory advice; please seek legal counsel on compliance-related issues.