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Conflicts of Interest

Conflicts of interest represent a recurring challenge that contributes to compliance and supervisory breakdowns.  These breakdowns can compromise the quality of service that firms and representatives provide to their clients.  We issued the 

Report on Conflicts of Interest

in October 2013, and FINRA continues to monitor the efforts employed by firms to identify, mitigate and manage conflicts of interest.

Several rules govern the ethical obligations of firms and brokers: 

  • The Securities Exchange Act of 1934 broadly prohibits misstatements or misleading omissions of material facts, and fraudulent or manipulative acts and practices, in connection with the purchase or sale of securities.
  • Section 15(c) of the Act prohibits a broker from effecting any transaction in or inducing or attempting to induce the purchase or sale of any security by means of any manipulative, deceptive, or other fraudulent device or contrivance.
  • FINRA Rule 2010 (Standards of Commercial Honor and Principles of Trade) states that a firm “in the conduct of its business, shall observe high standards of commercial honor and just and equitable principles of trade.”
  • FINRA Rule 2020 (Use of Manipulative, Deceptive or Other Fraudulent Devices) provides that no firm “shall effect any transaction in, or induce the purchase or sale of, any security by means of any manipulative, deceptive or other fraudulent device or contrivance.”
  • FINRA Rule 2241 (Research Analysts and Research Reports), addresses conflicts of interest relating to the publication and distribution of equity research reports.
  • FINRA Rule 2242 (Debt Research Analysts and Debt Research Reports), which becomes effective on February 22, 2016, addresses conflicts of interest relating to the publication and distribution of debt research reports.

In addition to these broad obligations, FINRA and the SEC have implemented measures that mandate disclosures and outright prohibitions on certain activities.

In addition to examining for firms’ compliance with these and other rules that govern ethical obligations of industry participants, FINRA assesses how firms identify, mitigate and manage conflicts of interest, including conflicts related to compensation practices. 

Contact OGC

FINRA's Office of General Counsel (OGC) staff provides broker-dealers, attorneys, registered representatives, investors and other interested parties with interpretative guidance relating to FINRA’s rules. Please see Interpreting the Rules for more information.

OGC staff contacts:
Phil Shaikun, Afshin Atabaki and Meredith Cordisco
FINRA, OGC
1735 K Street, NW
Washington, DC 20006
(202) 728-8000
 

  • FINRA Requests Comment on Proposed Limited Safe Harbor From FINRA Equity and Debt Research Rules for Desk Commentary
  • SEC Approves Rule Requiring Delivery of an Educational Communication to Customers of a Transferring Representative
  • SEC Approves Consolidated Rule to Address Conflicts of Interest Relating to the Publication and Distribution of Equity Research Reports
  • SEC Approves Rule to Address Conflicts of Interest Relating to the Publication and Distribution of Debt Research Reports
  • FINRA Requests Comment on a Proposed Rule to Require Delivery of an Educational Communication to Customers of a Transferring Representative
  • SEC Approves Amendments to NASD Rule 2711 and Incorporated NYSE Rule 472 to Conform to JOBS Act Requirements
  • FINRA Provides Guidance on Prohibition Against Offering Favorable Research to Induce Investment Banking Business
  • SEC Approves New FINRA Rule to Address Abuses in the Allocation and Distribution of New Issues
  • SEC Approves Amendments to Modernize and Simplify NASD Rule 2720 Relating to Public Offerings in Which a Member Firm With a Conflict of Interest Participates
  • SEC Approves New FINRA Rule 5122 Relating to Private Placements of Securities Issued by a Member Firm or a Control Entity
  • SEC Approval and Effective Date for New Consolidated FINRA Rule on Trading Ahead of Research Reports
  • FINRA Requests Comment on Proposed Research Registration and Conflict of Interest Rules Comment Period Expired: November 14, 2008
  • Member Firm Disclosure and Supervisory Review Obligations
  • NASD and NYSE Joint Interpretive Guidance on Fixed Income Research
  • NASD and NYSE Issue Joint Guidance on Charitable Contributions
  • NASD Recommends Best Practices for Reviewing New Products
  • NASD and NYSE Provide Further Guidance on Rules Governing Research Analysts' Conflicts of Interest
  • SEC Approves Amendments to Rules Governing Research Analysts' Conflicts of Interest
  • SEC Approves Rule Governing Research Analysts' Conflicts of Interest
  • FAQ
    In March 2016, the SEC approved the adoption of FINRA Rule 2273 (Educational Communication Related to Recruitment Practices and Account Transfers).
    August 19, 2016
  • Targeted Examination Letter
    As referenced in FINRA's Annual Priorities Letter, conflicts of interest represent a recurring challenge that contribute to compliance and supervisory breakdowns which can lead to firms and registered representatives, at times, compromising the quality of service they provide to clients.
    August 01, 2015
  • A Few Minutes With FINRA
    Rick Ketchum, FINRA’s Chairman and CEO, provides background information on FINRA’s recent Report on Conflicts of Interest and discusses what firms should be thinking about with respect to managing conflicts. (8 min. 3 sec.)
    October 22, 2013
  • Targeted Examination Letter
    FINRA is reviewing how firms identify and manage conflicts of interest. As part of this review, we would like to meet with executive business and compliance staff of your firm to discuss the firm’s approach to conflict identification and mitigation.
    July 01, 2012
  • Investor Education
    Brokers, like many of us, move on to new job and career opportunities for a number of reasons. If you're thinking about whether to follow your broker or stay with your current firm, it's a good idea to examine the key issues that will help you make an informed decision.
  • Investor Alert
    Investors who need cash—or who want to tap the value of their portfolios without selling their investments—might be tempted to apply for a "stock-based loan," pledging fully paid securities as collateral for the loan. FINRA is issuing this Alert to educate investors about non-recourse stock-based loan programs, including risks and rewards and key questions to ask.
  • Investor Alert
    If you are considering rolling over money from an employer plan into an IRA—or if you have been in contact with a financial professional to do so—follow these tips to decide whether an IRA rollover is right for you.
  • Investor Alert
    Reverse convertibles are debt obligations of the issuer that are tied to the performance of an unrelated security or basket of securities. Although often described as debt instruments, they are far more complex than a traditional bond and involve elements of options trading. FINRA is issuing this alert to inform investors of the features and risks of reverse convertibles.
  • Investor Alert
    Before you consider investing in a registered fund of hedge funds, you should understand the features of these investments, how they are regulated, what risks are involved, and how you can get more information on them.
  • Investor Alert
    To raise capital, brokerage firms sometimes sell their own or an affiliate's securities. Such broker-dealer self-offerings (BDOs) can take the form of registered public offerings or private placements.