Concentrations in Non-Principal Protected “Worst-of” Structured Notes | FINRA.org

Concentrations in Non-Principal Protected “Worst-of” Structured Notes

May 2026

FINRA is conducting a review of firm practices related to supervision of concentrations in non-principal protected “worst-of” structured notes, a higher risk structured product. FINRA is examining how firms ensure compliance with Regulation Best Interest (Reg BI)—including Reg BI’s care and conflict of interest obligations—and with FINRA rules when they permit their registered representatives to recommend those products to their customers.

Unless otherwise noted, the relevant period for each request is January 1, 2022, through December 31, 2025 (the “Relevant Period”). In addition, if your response varies over the Relevant Period, please explain the differences in your response.

  1. Provide copies of the firm’s written supervisory procedures (WSPs) related to structured notes and complex products.
  2. Describe how the firm categorized structured notes for supervision purposes, including classifications, if any, based on product risk such as principal protection or “worst-of” features.1
  3. Describe any restrictions or limitations the firm placed on recommendations of structured notes (including non-principal protected, worst-of structured notes), including but not limited to concentration limitations.
  4. Describe any supervisory alerts/exceptions the firm had in place for structured notes (including but not limited to any concentration alerts or Reg BI/suitability alerts) and the corresponding trigger criteria.
  5. Did the firm provide structured product trainings? If so, please provide any materials and state whether the firm required representatives to complete the training prior to selling structured products.
  6. State how registered representatives were compensated for sales of structured notes.
  7. Describe how the firm identifies and mitigates product-related conflicts of interest associated with recommendations of structured notes.
  8. Did the firm provide general information to customers concerning structured notes, including non-principal protected, worst-of structured notes, and/or information about the compensation received by the firm or representatives on sales of such notes? If so, please provide copies of documents reflecting that information and explain how it was used.

1 “Worst-of” structured notes refers to principal-at-risk structured notes that may result in a reduction or cessation in interest payments, and/or a reduced return of principal at maturity, based on the worst-performing asset in a group of two or more reference assets.