FINRA Board of Governors Approves Key Rule Proposals Impacting Member Firms

The Financial Industry Regulatory Authority (FINRA) Board of Governors recently approved three significant rule proposals that reflect continued efforts to modernize the regulatory framework and strengthen investor protections. The proposals reflect feedback FINRA has received on the rule modernization effort that is part of FINRA Forward, a series of initiatives to improve FINRA’s effectiveness and efficiency in pursuing its mission of protecting investors and safeguarding market integrity.

The approved proposals address electronic communications, customer protection from financial exploitation, and increased flexibility for collective trust funds. Together, they signal meaningful regulatory developments that broker-dealers and other member firms should understand and prepare for. 

FINRA Forward and the Modernization of Regulatory Oversight

FINRA Forward represents a series of initiatives designed to align regulatory requirements with the realities of today’s shifting financial markets. Feedback from member firms, investors, and industry stakeholders has emphasized the need for modernization without compromising investor protection.

These rule proposals present a path toward updating outdated requirements, giving some more flexibility for firms, and enhancing protections for investors. As regulatory expectations continue to shift, staying informed on these proposals, and other shifting elements of the financial sector, remains critical for compliance readiness. 

Let’s break down the specifics of the FINRA approved proposals, and how they affect broker dealers.

Electronic Delivery as the Default Option Under FINRA Rules

One of the approved proposals would allow member firms to use electronic delivery as the default method for providing information to customers under FINRA rules. This proposal reflects the growing preference among investors to receive disclosures, notices, and communications digitally rather than physically. 

While electronic delivery would become the default, note that customer choice remains preserved. Investors would still be able to opt for paper delivery if that’s what they’d prefer. Currently, FINRA plans to file this rule change with the SEC and publish additional guidance in an incoming Regulatory Notice to help firms implement the change.

For broker-dealers, this proposal is intended to streamline communications, reduce administrative burdens, and align compliance practices with modern digital expectations. This is all under the assumption that firms maintain appropriate consent, recordkeeping, and supervision controls.

Strengthening Customer Protection From Financial Exploitation

Another approved proposal focuses on enhancing protections for customers who may be vulnerable to financial exploitation. The rule changes are intended to better equip member firms to identify and respond to suspected exploitation, particularly involving seniors and vulnerable adults.

Key elements of the proposal include:

• Encouraging greater adoption and use of trusted contact information
• Providing firms with increased flexibility to extend temporary holds when exploitation is reasonably suspected
• Introducing an optional shorter temporary hold, often referred to as a “speed bump,” that could apply to customers of any age in cases of suspected fraud

FINRA plans to issue a Regulatory Notice seeking public comment on this proposal. If adopted, firms would need to ensure their supervisory procedures, training programs, and escalation processes align with the updated framework.

Expanded Flexibility for Collective Trust Funds Under New Issue Rules

The third approved proposal would provide additional flexibility for collective trust funds, also known as collective investment trusts, to receive initial public offering allocations under FINRA’s new issue rules.

These pooled investment vehicles are commonly used within qualified retirement plans. The proposed exemption would treat collective trust funds comparably to other pooled investment structures already permitted to participate in IPO allocations. Like with their electronic delivery proposal, FINRA intends to file this with the SEC for review.

For firms involved with retirement plan investment options or institutional clients, this change could expand opportunities while maintaining appropriate regulatory safeguards.

What These FINRA Rule Proposals Mean for Member Firms

While these proposals are still subject to SEC review and, in some cases, public comment, they highlight areas where firms should begin evaluating their current compliance frameworks. They signal upcoming changes in these areas, and although they may be slightly altered from their current proposals, firms should still ready themselves for the future. 

Proactive planning allows firms to assess operational impacts, update written supervisory procedures, and provide targeted training well before implementation deadlines.

Staying Ahead of Regulatory Change

Regulatory modernization efforts like FINRA Forward reinforce the importance of ongoing compliance monitoring rather than reactive adjustments. Firms that regularly review regulatory developments and align their compliance programs accordingly are better positioned to manage risk and protect investor interests.

At Quadrant Regulatory Group, we help broker-dealers and financial services firms interpret regulatory developments and translate them into practical compliance solutions tailored to real-world operations.

Have questions about how these FINRA proposals may impact your firm?
Contact Quadrant Regulatory Group to discuss regulatory readiness, compliance updates, and proactive planning!