The FINRA Board of Governors met on December 4-5, 2019 to discuss the organization’s 2020 proposed budget, reaffirm its Financial Guiding Principles, discuss several operational updates, and approve two rule proposals.

Of noted importance to our clients, the Board approved two rule proposals to be filed with the Securities and Exchange Commission (SEC). Both proposed rules will be published for public comment within the year and must be approved by the SEC before becoming effective.

The first proposed rule relates to firms with a significant history of misconduct, referred to as “Restricted Firms.” Under the proposed rule, restricted firms would have to “maintain a deposit in a segregated account from which withdrawals would be restricted, adhere to specified conditions or restrictions, or comply with a combination of such obligations.” The proposal is expected to promote investor protection by offering FINRA another tool to incentivize member firms to comply with FINRA rules and pay arbitration awards.

The second proposed rule concerns amendments to FINRA’s suitability and non-cash compensation rules to align with the SEC Regulation Best Interest rule. Under the SEC Regulation Best Interest rule, brokers must recommend products that are in their customers best interests, and must also identify any potential conflicts of interest the broker may have as it relates to the recommend products. In its meeting, the Board approved amendments to FINRA’s suitability rules “to address inconsistencies with SEC Regulation Best Interest and to mitigate potential confusion over which standards will apply with respect to recommendations to retail customers.”

We encourage our clients to review the December 2019 Board Update in detail. It serves as a useful resource in remaining up-to-date on future FINRA activities, initiatives, and rules. The next FINRA Board of Governors Meeting is March 11-12, 2020.