Regulatory shifts are usually the start of a cautionary tale. But potential changes to pre-approval workflows could be welcome news for prepared funds.
TL;DR: evaluate approval workflows and SEC Marketing Rule standards.
We have been keeping a watch on the potential modernisation of FINRA’s advertising Rule 2210. Now that the consultation period is up and we await the decision from FINRA itself, this meantime period is of great importance to any fund that distributes through US-based broker-dealers, should the rule reshape their reviewing protocols.
The speed of GenAI content production is one given reason for why the old pre-approval model no longer fits, and why these following intended reforms have been announced:
Firms would no longer be required to have a registered principal sign-off every retail communication before release.
Instead, firms would be required to list and follow their own risk-based procedures, assessing which public-facing investor communication will still need pre-use approvals.
FINRA helpfully notes what can increase risk factors, being any content involving complex products, whether the content makes a recommendation or carries performance or benchmarking data, certain mediums used to create content, and the qualifications of any producers or endorsers (such as finfluencers.)
Documented training, oversight and evidence would have to be produced for supervisory audits if/when they are requested
“Static” and “interactive” social media content become one and the same.
While there was a long-standing distinction between the two (the latter being dynamic posts that change due to user input – a poll or carousel, rather than a fixed test post, for instance), the same risk-based supervisions would apply across the board.
Self-published performance rankings no longer need to be filed ten business days before use.
Any retail communications about registered funds that include this content could be filed within ten business days after first use. This is a meaningful reduction in time-to-market for comparative fund material, based on FINRA’s own data that pre-use reviews take 17 business days on average.
Prescriptive disclosure lists for communications that reference past recommendations might be scrapped.
Instead, these may be replaced with a general ‘fair and balanced’ standard that is very similar to SEC’s Investment Adviser Marketing Rule.
So, what does this mean for fund marketers?
The SEC is of course yet to approve anything, albeit managers should see how these potential changes to review cycles could assist them to become more proactive, and speedier when distributing through broker-dealers in the future.
For one, these partners are likely to ask more from firms. Rather than a single principal’s signature, they will want to see whether content carries substantiated disclosures in line with a defensible framework, in order to deem it ‘low risk’.
Any recorded approval trails or tracked version controls should help marketing materials move quicker through partner channels. Similarly, the changes to pre-use filing could be a major upside for timelines too. Peer comparisons could go live weeks sooner, so long as they are error-free, where tighter internal checks on performance data, sources, and calculations are vital.
This is doubly true for any firms that have used GenAI anywhere for producing communications. This is an expected normal now, according to FINRA, but marketing and compliance teams need to vet and test their AI tools to keep a close guard.
Finally, although social media compliance has always been a sour subject, deeming any social content (whether promoted via external voices or not) with the same risk assessment weight as a factsheet is a great habit to get into.
Given this update’s deliberate alignment with the SEC Marketing Rule’s standard, this may mean many firms have already adopted a fair content compliance review process for dual-use materials. That is another partial win, which can be rare in moments of regulatory change!
Source
FINRA, Regulatory Notice 26-14: FINRA Requests Comment on Proposed Changes to Modernize Rule 2210
