4.1 Communications Categories, Principal Approval, Filing, and Recordkeeping (Rule 2210)
Key Takeaways
A retail communication is distributed or made available to more than 25 retail investors within any 30-calendar-day period, and correspondence goes to 25 or fewer.
An appropriately qualified registered principal must approve each retail communication before the earlier of its use or its filing with FINRA, subject to narrow exceptions such as unaltered pieces another member filed and posts in interactive online forums.
Retail communications that promote a specific mutual fund, ETF, variable insurance product, closed-end fund or UIT must be filed within 10 business days of first use, while fund rankings or comparisons not generally published or created by the fund or its affiliates must be filed 10 business days before use.
A new member must file retail communications used in public media at least 10 business days before first use during its first year of membership.
Retail and institutional communications must be kept for the period in SEC Rule 17a-4(b), which is three years with the first two in an easily accessible place, along with dates of use and the approving principal's name and approval date.
Task 2.2 asks the principal to monitor, review and approve communications for compliance with "securities industry rules, regulations, filing requirements and firm policies." The starting point is classification, because approval, filing and supervision all follow from the category.
The Three Categories (Rule 2210(a))
| Category | Definition | Supervision |
|---|---|---|
| Retail communication | Written (including electronic) communication distributed or made available to more than 25 retail investors within any 30-calendar-day period | Principal approval before use, unless an exception applies; some must be filed with FINRA |
| Correspondence | Written communication distributed or made available to 25 or fewer retail investors within any 30-calendar-day period | Reviewed under Rule 3110(b) and 3110.06-.09; pre-approval is not required by rule |
| Institutional communication | Written communication distributed or made available only to institutional investors, excluding internal communications | Written procedures for principal review; pre-approval is optional if training and surveillance are in place |
A retail investor is anyone who is not an institutional investor, whether or not the person has an account. Institutional investors under Rule 2210(a)(4) are:
- persons described in Rule 4512(c): banks, savings and loan associations, insurance companies, registered investment companies, registered investment advisers, and any other person with total assets of at least $50 million;
- governmental entities and their subdivisions;
- 403(b) or 457 plans, and qualified plans, that in the aggregate have at least 100 participants, though not the individual participants;
- FINRA members and their registered persons; and
- persons acting solely on behalf of any of these.
A communication cannot be treated as institutional if the firm has reason to believe that it, or any excerpt, will be forwarded to a retail investor.
Principal Approval of Retail Communications (Rule 2210(b)(1))
An appropriately qualified registered principal must approve each retail communication before the earlier of its use or its filing with FINRA's Advertising Regulation Department. A Series 26 principal may approve communications about the products the registration covers. A principal must also approve any communication before the firm files it with FINRA, even if it would otherwise be excepted.
Pre-approval is not required for:
- a retail communication that another member has filed with FINRA and received a letter finding it consistent with applicable standards, if the firm has not materially altered it and uses it consistently with the letter's conditions;
- retail communications that make no financial or investment recommendation and do not otherwise promote a product or service of the member, such as a holiday greeting or an office-move notice;
- retail communications posted on an online interactive electronic forum, such as real-time social media replies; and
- certain communications excepted from the definition of research report, unless they make a recommendation.
Items 2 through 4 must still be supervised and reviewed like correspondence under Rule 3110(b) and Supplementary Material .06-.09. Static website and social-media profile content that promotes products is a retail communication and requires pre-approval.
Filing with FINRA (Rule 2210(c))
| Filing type | What must be filed | Timing |
|---|---|---|
| New member (c)(1) | Retail communications in any electronic or other public media, including websites, newspapers, magazines, radio, television, recordings, signs and billboards | At least 10 business days before first use, for one year from the membership effective date shown in CRD |
| Pre-use (c)(2) | Investment company retail communications with rankings or comparisons whose category is not generally published or is created by the fund, its underwriter or an affiliate, filed with the supporting data; retail communications about security futures | At least 10 business days before first use; the firm must withhold publication until FINRA's changes are made |
| Post-use (c)(3) | Retail communications that promote or recommend a specific registered investment company or fund family, including mutual funds, ETFs, variable insurance products, closed-end funds and UITs; public DPPs; registered CMOs; registered index- or derivative-linked securities | Within 10 business days of first use |
| Television or video (c)(4) | Final filmed version when a storyboard was filed under a filing requirement | Within 10 business days of first use or broadcast |
| Imposed pre-filing (c)(1)(B) | Any category FINRA designates for a firm that has departed from the standards | At least 10 business days before use, starting 21 days after FINRA's written notice |
Each filing must give the actual or anticipated date of first use and the name, title and CRD number of the approving principal with the approval date (Rule 2210(c)(5)). FINRA may also spot-check any communications on request (Rule 2210(c)(6)).
Exclusions from filing (Rule 2210(c)(7)) include:
- retail communications previously filed and used without material change, and template-based pieces changed only to update statistics or factual portfolio information;
- communications that make no recommendation and do not promote a product or service;
- prospectuses, fund profiles, and annual and semi-annual reports filed with the SEC. A Rule 482 advertising "prospectus" is not excluded on this basis;
- press releases made available only to the media, and qualifying independent reprints;
- correspondence and institutional communications; and
- posts on online interactive electronic forums.
Investment company communications excluded from filing are still deemed filed for purposes of Investment Company Act Section 24(b) and Rule 24b-3 (Rule 2210(c)(8)). Section 4.2 explains these.
Recordkeeping (Rule 2210(b)(4))
Firms must keep retail and institutional communications for the period required by SEC Rule 17a-4(b): three years, the first two in an easily accessible place, in a format that complies with Rule 17a-4. The record must include:
- a copy of the communication and the dates of first and, if applicable, last use;
- the approving principal's name and the approval date;
- for pieces not pre-approved, the name of the person who prepared or distributed them;
- the source of any statistical table, chart or graph;
- for pieces used in reliance on another member's FINRA letter, that member's name and a copy of the letter; and
- for pieces with an investment company performance ranking or comparison, a copy of the ranking or performance data used.
Correspondence is kept under Rules 3110.09 and 4511 (Section 4.4).
Use of FINRA's Name (Rule 2210(e))
A member may state that it is a FINRA member, but may not imply that FINRA endorses, guarantees or indemnifies its business, products or selling methods. A reference to FINRA's review of a piece may say only "Reviewed by FINRA" or "FINRA Reviewed." A member website that indicates FINRA membership must hyperlink to FINRA's home page nearby.
A representative emails the same mutual fund market commentary, which recommends one of the firm's affiliated funds, to 40 retail clients over two weeks. How is the email classified, and what approval is required?
Correspondence, because each email went to only one recipient
Correspondence; it may be reviewed after it is sent
Institutional communication; it needs no review because the recipients are existing clients
Retail communication; a registered principal must approve it before first use
An established member creates a retail advertisement comparing its affiliated fund with a peer group that the fund's adviser defined. When must the ad be filed with FINRA?
Within 10 business days after first use, like other fund advertisements
At least 10 business days before first use, together with the data on which the comparison is based
Only on request during a FINRA spot check
Never, because comparisons of funds are prohibited outright
Which item must a firm keep in its records for every retail communication under Rule 2210(b)(4)?
A copy of FINRA's review letter, even for pieces that were never filed
The name of the registered principal who approved it and the date approval was given, along with the dates of first and last use
A signed acknowledgment from each recipient
The names of every recipient of the communication
Sections you finish are checked off in the contents.