FINRA reminded firms today of their requirements for completing due diligence and suitability reviews when participating in sales of private placements, through Regulatory Notice 10-22 and a press release announcing the issuance of the notice. A quick read through of the notice doesn't seem to find that FINRA is attempting to impose new requirements on firms; rather, the notice apparently seeks to pull together other pieces of guidance and also articulates a broker-dealer's responsibilities under current federal securities laws and industry rules, including the obligation to conduct reasonable due diligence, to document such investigation, and to make appropriate suitability determinations in the sale of private offerings, including both reasonable-basis and customer-specific suitability determinations.
If your firm participates in private offerings, then supervisors and brokers and bankers should be aware of the contents of this notice. While the requirements are not new, based on recent enforcement actions by various regulators, including FINRA, private placements remain a hot button issue that will continue to be scrutinized by the regulators.
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