FINRA proposed updating capital acquisition broker ("CAB") rules to make them more useful for CABs while maintaining investor protections.
According to FINRA the proposed amendments would:
- allow CABs to register as investment advisors if the advisory services are only provided to institutional investors;
- update the definition of (i) "knowledgeable employee" to include persons performing a role similar to that of a senior officer or director of a private fund where the CAB is acting as the placement agent and (ii) "institutional investor" to include "knowledgeable employees," as proposed;
- provide greater capabilities to a CAB to act as a placement agent for secondary trades of unregistered securities;
- codify a recently issued FINRA-interpretation allowing CABs to be compensated with securities issued by a privately held CAB client, instead of cash; and
- adopt CAB Rule 321 ("Supervision of Associated Persons' Investments") which would enforce CABs whose business model poses potential insider trading risks to establish and maintain written policies and procedures designed to mitigate the risk.
Comments on the proposal must be submitted by March 30, 2020.