FINRA Targeted Exam: Small‑Capitalization Offerings (October 2025)

In October 2025, the Financial Industry Regulatory Authority (FINRA) initiated a targeted examination letter focused on member firms’ practices involving small‑capitalization offerings, especially those linked to issuers with business operations in foreign jurisdictions such as China. This review reflects FINRA’s ongoing commitment to market integrity, due diligence, and supervisory controls in connection with small‑cap public and private offerings.

Scope of the Targeted Examination

The review applies to member firms that have participated in small‑cap offerings during the period from January 1, 2023, through September 30, 2025. Firms may be selected based on roles they have played in these transactions, including acting as:

• Underwriters
  
• Bookrunners
  
• Syndicate members
  
• Selling group members
  
• Placement agents
  

Additionally, FINRA is scrutinizing firms involved in initial or secondary market trading of small‑cap securities, including activity through omnibus accounts. 

What FINRA Is Requesting

Selected firms are being asked to provide detailed information and documentation related to their involvement in small‑cap offerings. This includes:

• Written supervisory procedures relevant to small‑cap offerings, such as policies and procedures for due diligence and approval processes
  
• Compliance manuals, training materials, and bulletins that guided staff during the relevant period
  
• Lists of all small‑cap offerings in which the firm participated, including the issuer’s name, type of offering, firm role, share price, and number of shares issued
  
• Engagement and advisory agreements with issuers or associated parties
  
• Documentation of the firm’s trading supervision tools and controls, particularly those connected to surveillance for suspicious trading or market manipulation in these securities
  

Regulatory Focus and Industry Context

FINRA’s targeted sweep is part of broader regulatory attention on low‑priced or thinly traded securities, where unusual price movements and potential manipulation have been observed in recent years. In the 2025 Annual Regulatory Oversight Report, FINRA noted significant price volatility around certain small‑cap IPOs, particularly those involving foreign issuers, underscoring the importance of strong due diligence and AML/KYC controls in these markets. 

What Firms Should Do Now

Firms that engage in small‑cap offerings or trade related securities should consider taking proactive steps to prepare for exams and mitigate regulatory risk:

• Review and update supervisory procedures to ensure they address risks associated with small‑cap offerings.
  
• Reassess due diligence processes to confirm they are robust, well‑documented, and consistently applied.
  
• Enhance compliance training, particularly around risk factors unique to small‑cap issuers and foreign operations.
  

Evaluate trading surveillance systems to detect unusual activity or trading patterns that may indicate market integrity concerns.