On May 9, 2023, FINRA issued Regulatory Notice 23-08 (the “Notice”), which provides supplemental and updated guidance for members conducting private placements pursuant to Sections 3 or 4 of the Securities Act of 1933, as amended.
The Notice does not change any existing laws, regulations or interpretations of existing requirements. Rather, the Notice was provided as a primer on members’ obligations in light of the changes in the legal and regulatory framework since FINRA published Regulatory Notice 10-22 in 2010.
The Notice provides guidance on the distinctions between the requirements when recommending a private placement pursuant to Regulation Best Interest (“Reg. BI”) and FINRA Rule 2111 (“Rule 2111”). In particular, the Notice discusses the reasonable basis obligations and the duty to conduct a reasonable investigation pursuant to Reg. BI and Rule 2111, respectively, and client specific obligations. Additionally, FINRA discusses effective practices for members related to reasonable investigations and related supervisory practices.
Other requirements applicable to private placements covered in the Notice are: communications with the public, filings with FINRA, supervision of associated persons and private securities transactions. A detailed Client Alert summarizing the Notice will follow. The full Notice can be found here.