FINRA Adopts Amendments to Streamline Capital Formation

The Financial Industry Regulatory Authority (FINRA) has announced another milestone in its FINRA Forward initiative with the U.S. Securities and Exchange Commission (SEC) approval of amendments to Rule 5110 (Corporate Financing Rule Underwriting Terms and Arrangements) and Rule 5123 (Private Placements of Securities).

Approved by the SEC on July 24, these amendments are designed to modernize existing rules, reduce unnecessary regulatory burden, and support more efficient capital formation while maintaining investor protections.

FINRA will announce the effective dates for these changes in a future Regulatory Notice.

Why FINRA Updated These Rules

Capital formation is an essential part of healthy financial markets, allowing businesses to raise funds while providing investment opportunities for qualified investors.

The approved amendments seek to:

• Clarify existing regulatory requirements
• Improve consistency in applying FINRA rules
• Reduce unnecessary compliance complexity
• Better align FINRA requirements with current SEC standards

These updates are part of FINRA’s broader effort to modernize its regulatory framework without compromising market integrity.

Changes to Rule 5110: Greater Clarity Around Underwriting Compensation

Rule 5110 governs underwriting terms and arrangements for public offerings and helps ensure underwriting compensation remains fair and reasonable.

The approved amendments provide additional clarity regarding:

• How certain securities acquisitions should be valued when determining underwriting compensation
• Which securities acquisitions qualify for existing exceptions
• How underwriting compensation should be evaluated under the rule

These revisions are intended to reduce uncertainty for firms while promoting more consistent application of Rule 5110.

Firms involved in public offerings should review these updates as part of their broader FINRA compliance programs.

Expanded Exemptions Under Rule 5123

The SEC also approved amendments to Rule 5123, which governs filing requirements for private placements.

The revised rule expands exemptions from certain filing requirements to include offerings sold to:

• Certain accredited investors acting through qualifying family offices
• Certain entities with more than $5 million in assets under management

These changes bring FINRA’s rule into closer alignment with how the SEC treats these investor categories.

For firms involved in private placements, the amendments may simplify compliance obligations for qualifying offerings while maintaining appropriate regulatory oversight.

What This Means for Member Firms

Although FINRA has not yet announced the implementation date, firms involved in underwriting activities or private placements should begin familiarizing themselves with the approved amendments.

Areas worth reviewing include:

• Underwriting compensation policies
• Corporate financing procedures
• Private placement filing requirements
• Internal compliance documentation
• Supervisory procedures

Firms may also wish to evaluate how these updates fit within broader broker-dealer compliance services and internal regulatory frameworks.

Supporting More Efficient Capital Formation

The amendments reflect FINRA’s continued effort to modernize its rules while supporting efficient capital markets.

By clarifying existing requirements and expanding certain exemptions, the updated rules aim to reduce administrative complexity for firms without weakening investor protections.

As additional FINRA Forward initiatives continue to emerge, firms should remain attentive to changes that may affect underwriting, private placements, and capital-raising activities.

Many organizations incorporate these developments into ongoing regulatory exam preparation and compliance reviews to ensure policies remain current.

Key Takeaways

• The SEC has approved FINRA’s amendments to Rules 5110 and 5123.
• Rule 5110 now provides greater clarity around underwriting compensation valuation and applicable exceptions.
• Rule 5123 expands certain filing exemptions for qualifying private placement offerings.
• The amendments are intended to streamline capital formation while maintaining investor protections.
• FINRA will announce the implementation date in a future Regulatory Notice.

Contact Us

Questions about FINRA’s latest capital formation amendments or how they may affect your firm’s compliance obligations?

Contact Quadrant Regulatory Group to learn how our team helps broker-dealers navigate regulatory changes, update supervisory procedures, and maintain compliance with evolving FINRA and SEC requirements.