FINRA recently issued Regulatory Notice 22-08, which Reminds Members of Their Sales Practice Obligations for Complex Products and Options and Solicits Comment on Effective Practices and Rule Enhancements. The comment period ends on May 9, 2022.
FINRA has long been concerned with retail customers purchasing complex products. FINRA is concerned that investors may not have the financial experience to understand the products, the ability to withstand the risks or that the investment may perform in unexpected ways in various market or economic conditions. These concerns may be heightened when a retail customer accesses these products through a self-directed platform without the assistance of a financial professional. While FINRA raised these concerns previously, the new guidance is timely because of the significantly increased trading in complex products, more investors trading these products online and obligations under Regulation Best Interest. FINRA is in the process of conducting targeted examinations to review members’ practices related to options accounts and related areas, including account supervision, communications and diligence. FINRA is also interested in hearing from the industry about effective practices members developed for managing the risks complex products and options raise, particularly those accessible to self-directed retail investors, and whether the current regulatory framework is appropriately tailored to address the concerns raised by complex products.
The number of accounts trading in complex products and options has increased significantly in recent years. As a result, we are again reminding members of their current regulatory obligations, including, as discussed below, the application of Regulation Best Interest (Reg BI) when broker-dealers and their associated persons make securities recommendations, and recommendations of investment strategies involving securities, to retail customers. In addition, we are soliciting comment on: (1) effective practices that members have developed for complex products and options, particularly when retail investors are involved; and (2) whether the current regulatory framework, which was adopted at a time when the majority of individuals accessed financial products through financial professionals, rather than through self-directed platforms, is appropriately tailored to address current concerns raised by complex products and options.