• FINRA Issues Additional Guidance on the New Suitability Rule, Clarifying the Scope of Member Firms' and Registered Representatives' Suitability Obligation
  • December 21, 2012 | Author: David J. Libowsky
  • Law Firm: Bressler, Amery & Ross A Professional Corporation - New York Office
  • On December 10, 2012, the Financial Industry Regulatory Authority (“FINRA”) issued Regulatory Notice 12-55, providing updated guidance concerning the new suitability rule. See http://www.finra.org/Industry/Regulation/Notices/2012/P197436. Regulatory Notice 12-55 provides guidance with respect to the terms “customer” and “investment strategy” contained in Rule 2111, superseding in certain respects the guidance contained in Regulatory Notice 12-25. This Alert reviews the salient aspects of Regulatory Notice 12-55. Among other things, Regulatory Notice 12-25 limits the extent to which the suitability rule applies to recommendations made to a potential investor, requiring that the potential investor ultimately become a customer. Regulatory Notice 12-55 also clarifies that the suitability rule does not apply to a recommendation of a non-securities investment unless that recommendation in some way implicates a security. The notice also provides member firms with guidance on complying with their responsibility for supervising registered representatives’ recommendations of an investment strategy which involves both a security and a non-security investment. Regulatory Notice 12-25 thus eliminates some of the uncertainty concerning the scope of the terms “customer” and “investment strategy” that was created by the guidance offered by Regulatory Notice 12-25.