In January 2019, FINRA issued its annual “Risk Monitoring and Examination Priorities Letter.” The full text of the letter may be found here.
The letter addresses a variety of issues that must be addressed by all broker-dealers, whether or not they offer structured products. This particular asset class is not discussed at length in the letter, possibly due in part to FINRA’s note in its introduction that: “we do not [in this letter] repeat topics that have been mainstays of FINRA’s attention over the years.”
However, the letter makes it clear that sales of complex products, including structured products, must be reviewed as to whether they comply with FINRA’s suitability rules. In particular, the letter notes that:
“As the exchange-traded product (ETP) market continues to grow with novel and increasingly complex products, FINRA will evaluate whether firms are meeting their suitability obligations and risk disclosure obligations when recommending such products. These include leveraged and inverse exchange-traded funds (ETFs), floating-rate loan ETFs (also known as bank-loan or leveraged loan funds) and mutual funds that invest in loans extended to highly indebted companies of lower credit quality.”