FINRA Proposes Amendments to Facilitate Capital Formation

Features

• FINRA Proposes Amendments to Facilitate Capital Formation 
  As part of our FINRA Forward rule modernization initiative, we are seeking to streamline aspects of the corporate financing process via proposed changes to Rules 5110 (Corporate Financing Rule—Underwriting Terms and Arrangements) and 5123 (Private Placements of Securities). The proposed amendments would clarify parts of Rule 5110 regulating underwriting compensation, including the valuation method for and exceptions from securities acquisitions that are considered underwriting compensation. They would also expand the exemptions available in Rule 5123 to include offerings sold to accredited investors for certain family offices and certain entities with assets under management in excess of $5 million, consistent with the SEC’s treatment of those categories. These proposed rule changes, filed with the SEC on Jan. 22, reflect feedback we received in response to Regulatory Notice 24-17. The SEC will open the proposal for comment for 21 days after it is published in the Federal Register. 
   
• FINRA Blog on Firm Use of AI Agents 
  In a new blog, FINRA Chief Regulatory Operations Officer Greg Ruppert shares early observations on AI agents from FINRA’s engagement with member firms, including how they are being used today and the potential benefits and risks they may bring. “AI agents operate with varying degrees of autonomy and oversight. Yet unlike human employees, AI agents lack tacit knowledge, and they may also lack the transparency and predictability that traditional supervisory and governance practices assume,” Ruppert writes. “Member firms that establish robust GenAI supervision and governance frameworks may be better positioned to capitalize on GenAI’s opportunities and benefits while managing the associated new and unique risks.” 
   
• New FINRA/NYSE Trade Reporting Facility Fee for Non-Participants 
  FINRA established a new monthly fee for member firms that do not use the FINRA/NYSE Trade Reporting Facility for trade reporting but voluntarily elect to purchase read-only access to the NYSE TRF Portal, Drop Copy, and End of Day Journal services. The new fee was filed in a rule proposal with the SEC on Jan. 26 and will take effect Feb. 1. 
   
• Third-Party Vendor Request 
  FINRA requests that firms submit information on their vendors and banks via the 2026 Third-Party Vendor Request form in FINRA Gateway^TM by March 4. Register to attend the free webinar on Feb. 2 that will provide more information about this request, including how FINRA uses the data. 
   
• Investor Insights on ‘Smishing,’ Feeder Funds, and More 
  We invite you to explore several recent Investor Insights on timely topics. Firms are welcome to share them and others with customers.
  • SMS phishing scams are on the rise. In these “smishing” attempts, scammers send unsolicited messages to targets over text or other messaging platforms, often urging them to act quickly to avoid an adverse outcome. This Investor Insight offers tips to avoid becoming a victim.
  • Feeder funds can provide access to alternative asset classes that have typically been off limits to retail investors. But these structures have some drawbacks, as detailed in this Investor Insight.
  • This Investor Insight offers tips on how to manage money after the loss of a spouse, while this article provides guidance on setting financial resolutions. 
     
• ICYMI: SEC No Longer Accepts Paper Filings of Annual Reports 
  As a reminder, recent SEC amendments, detailed in the Information Notice on Nov. 14, require member firms to submit their annual reports electronically through the SEC’s EDGAR system. Firms should not also file hard copies, as the SEC no longer accepts paper filings of annual reports. These SEC amendments do not change how firms submit annual reports to FINRA, as electronic submission is already required.