On December 7, the U.S. Financial Industry Regulatory Authority (FINRA) published its annual report of its examination findings for broker-dealers. Although the details of FINRA’s regulatory framework differ in many ways from the framework that AUM Law’s clients face, we believe that some of the Report’s findings and recommendations are instructive. In particular, we found FINRA’s discussion of suitability for retail customers (pages 2-5) of interest.
The report also includes a section (pages 7-8) focusing on what constitutes reasonable diligence for private placements where firms have suitability obligations to clients. As the proposed amendments to National Instrument 31- 103 – Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103), with their increased emphasis on know-your-product (KYP) obligations, inch forward toward adoption, we can imagine Canadian securities regulators looking south of the border for inspiration on how to refine, interpret and enforce the new Canadian rules.