FINRA has been engaged in a “stealth sweep” of firms’ untimely deliveries of mutual fund and ETF prospectuses that has resulted in formal disciplinary proceedings against twelve firms since 2011, and a total of over $5 million in fines. Oddly, FINRA has not posted the “Targeted Examination Letter” that initiated the sweep, has not issued any guidance about the sweep’s findings beyond the press release that announced the first of the eight disciplinary proceedings, nor done anything else to publicize the results and lessons of this initiative to the brokerdealer community.
- Sign up for print-on-demand, so the service provider can make copies of any prospectus for which a copy is not available.
- Obtain and review daily reports from the service provider indicating whether any prospectuses have not been delivered on time.
- Identify the cause of any late delivery and take immediate steps to fix those problems. Firms using their own representatives to provide prospectuses should:
- Clearly communicate to representatives that 100% compliance with Section 5(b)(2) is expected.
- Create a system in which representatives clearly document when they deliver a prospectus and use that information to monitor compliance on a daily basis.
- Ensure that there are alternative methods in place to provide customers with a prospectus if they do not receive one from their representative.
- Respond quickly to reports that prospectuses have not been provided on time.