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Vedder Thinking | Articles FINRA Requests Comment on Sales Practices for Complex Products—and the ICI Pushes Back


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On March 8, 2022, FINRA published a regulatory notice reminding broker-dealers of their regulatory obligations with the sale of complex products and options to retail investors and requesting comment on potential new regulations. Noting that the current regulatory framework governing sales practices of complex products and options was adopted at a time when most individuals accessed financial products through financial professionals, rather than through self-directed platforms, FINRA solicited industry comment generally on whether the current framework is appropriately tailored to address concerns raised by such products. The comment period closed on May 9, 2022.

The Investment Company Institute was among the industry participants and organizations that submitted comments. The ICI’s letter expressed support for FINRA’s overarching objective of protecting investors and ensuring the appropriateness of investments. However, the ICI “strongly oppose[d]” additional requirements on transactions in funds that FINRA may deem to be a “complex product.” The ICI asserted that imposing new requirements on fund transactions—if deemed to involve a complex product—would:
-undermine the current disclosure-based securities law framework;

-result in “unnecessary” and “unprecedented” restrictions given “the robust regulatory regime of the Investment Company Act”; and

-lead to arbitrary results given the broad description of “complex product.”

  • To illustrate its contention that the scope of “complex products” is overly broad, the ICI noted that FINRA has at one point or another deemed various investments to be “complex” or difficult for investors to understand, including, among others: closed-end funds, global real estate funds, multi-strategy funds, funds using derivatives for hedging or leverage, target-date funds, and funds investing in IPOs.
  • The ICI suggested that the scope of FINRA’s “complex products” would capture approximately two out of every five funds and 22 percent of total U.S. fund assets.

FINRA’s regulatory notice is available here. The ICI’s comment letter is available here.


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