FINRA Urges Diligence on Private-Placement Recommendations
by: Alex Padalka
FINRA has identified several problem areas and best practices for broker-dealers selling private placements. The number of private-placement filings by FINRA member firms largely doubled from 2013 to 2021, according to the industry’s self-regulator. FINRA is urging firms to ensure they’re in compliance with various aspects of the sales of these products, starting with the ways in which broker-dealers adhere to their reasonable-basis obligations and the duty to conduct a reasonable investigation, according to a recent regulatory notice. FINRA also reminded broker-dealers that, per the U.S. Securities and Exchange Commission’s Regulation Best Interest, they are required to “apply heightened scrutiny” when considering recommendations of complex or risky products.
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