FINRA Rule 2210 Explained: Communications with the Public
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Looking to understand FINRA Rule 2210? This guide provides a comprehensive overview of the rules governing communications with the public, which strive to make them fair, balanced, and not misleading.
You'll find detailed insights on the different types of communications—such as Retail Communication, Institutional Communication, and Correspondence—along with the approval, filing, and recordkeeping requirements for each. The guide also covers the content standards that all communications must meet to align with FINRA’s principles of fair dealing.
Whether you're involved in marketing, compliance, or investment advisory services, understanding FINRA Rule 2210 will help you effectively manage your firm's public communications and uphold regulatory standards.
InnReg is a global regulatory compliance and operations consulting team serving financial services companies since 2013. If you need assistance with compliance or fintech regulations, click here.
What Is FINRA Rule 2210?
FINRA Rule 2210 outlines the standards and requirements for communications that broker-dealers and their associated persons have with the public.
The rule is designed to ensure that all communications are fair, balanced, and not misleading, and works to protect investors and maintain trust in the financial industry. It defines specific categories of communications, sets approval and recordkeeping standards, and lays out content guidelines to govern these interactions.
Categories of Communications
1. Correspondence
Correspondence includes any written or electronic communication that is distributed to 25 or fewer retail investors within 30 calendar days.
All correspondence is subject to the supervision and review requirements outlined in FINRA Rules 3110(b)(4) and 3110.06-09. Firms must implement procedures to ensure that these communications comply with applicable standards and, under certain circumstances, correspondence does not require pre-use approval by a principal.
2. Retail Communications
Retail Communications are any written or electronic communications distributed to more than 25 retail investors within any 30-calendar-day period.
Generally, the rule requires pre-use approval by a qualified registered principal, except for specific cases, such as:
When another Member filed the material with FINRA Advertising and has received a letter from FINRA stating it appeared to be consistent with applicable standards.
If the Member using the material has not materially altered it and will not use it in a manner inconsistent with the FINRA letter.
Also, provided the following Retail Communications are supervised in the same manner as the correspondence, the following communications do not require pre-use approval:
Retail Communication that is posted on an online interactive electronic forum,
Retail Communication that does not make any financial or investment recommendation or promote a product or service of the firm.
Some retail communications must be filed with FINRA at least 10 business days before their first use, especially registered investment company communications that include performance rankings or comparisons, security futures, or complex products. Others may be filed within 10 business days of first use.
3. Institutional Communications
These communications are distributed exclusively to institutional investors, such as banks, insurance companies, registered investment companies, and investment advisors. They do not include internal communications within a firm.
Institutional communications do not require the same pre-use approval as retail communications but must be subject to written procedures appropriate to the firm's size, structure, and business. These procedures should include education and training of associated persons, documentation of the review, and surveillance to ensure compliance.
Approval, Review, and Recordkeeping Standards
Approval and Review
Retail communications must be generally approved by a registered principal prior to use, except in specific cases where pre-approval is not required, as noted above. Communications may be exempt from this requirement if they are based on templates already filed with FINRA or if they fall under specific categories, such as educational materials.
Institutional communications must be reviewed according to the firm’s internal procedures, which must be reasonably designed to ensure compliance with applicable standards. These procedures do not require pre-approval but must involve training, documentation, and follow-up.
Recordkeeping Requirements
Firms must maintain records of all retail and institutional communications, including the name of the principal who approved them, the date of approval, and any associated materials, such as statistical data or performance rankings.
Firms must maintain records of all correspondence including the name of the person preparing the correspondence and the name of the person who reviewed the correspondence. These records must be kept for the period required by SEC Rule 17a-4 and must be available for FINRA inspection upon request.
Filing Requirements and Procedures
Pre-Use Filing Requirements
Certain retail communications must be filed with FINRA at least 10 business days before their first use. These include communications regarding registered investment companies that incorporate performance rankings or performance comparisons and communications concerning securities futures.
Post-Use Filing Requirements
Other types of retail communications must be filed within 10 business days after their first use. This includes materials that promote or recommend a specific registered investment company (or family of registered investment companies), direct participation programs, collateralized mortgage obligations and securities derived from or based on a single security, a basket of securities, an index, a commodity, a debt issuance, or a foreign currency that does not fall into the categories requiring pre-use filing.
Exemptions and Spot Checks
FINRA may grant exemptions from filing requirements for good cause or require additional filings from firms that fail to meet communication standards. Firms should also be prepared for spot-check requests by FINRA to review any written communications.
Content Standards
These are some general principles of content standards:
Fair Dealing and Good Faith: All communications must be based on fair dealing and good faith. They must be balanced, providing a sound basis for evaluating the facts about any security industry, or service. Communications must not contain false, exaggerated, unwarranted, promissory, or misleading statements.
Disclosures: Disclosures must prominently identify the name of the broker-dealer and must reflect any relationship between the broker-dealer and any non-broker-dealer that is also named. When a communication includes other names, the material must reflect which products or services the broker-dealer offers.
Investment Comparisons: Comparisons between investments or services must disclose all material differences between them, including investment objectives, costs and expenses, liquidity, safety, guarantees or insurance, fluctuation of principal or return, and tax features.
Use of Testimonials: For testimonials concerning a technical aspect of investing, the firm should ensure the person providing the testimonial has the knowledge and experience to form a valid opinion. Additionally, testimonials must prominently disclose that the testimonial may not represent other customers’ experiences and that the testimonial is not a guarantee of future performance or success. When compensation of more than $100 is paid for the testimonial, the communication must disclose this fact.
Restrictions on Performance Projections: Communications cannot predict or project performance unless they meet specific conditions, such as hypothetical illustrations or research reports that meet FINRA’s standards.
Use of FINRA's Name and Disclosures
Members can reference their FINRA membership in communications but must avoid implying that FINRA endorses, indemnifies, or guarantees their services or products. Any use of FINRA’s name must comply with Article XV, Section 2 of the FINRA By-Laws and specific guidelines for advertisements and other public materials.
Public Appearances and Additional Requirements
When associated persons engage in public speaking activities, they must follow the same content standards that apply to other forms of communication. If recommending securities, the associated person must have a reasonable basis for the recommendation and must disclose any financial interest in any of the recommended securities of the issuer and any material conflicts of interest.
Additionally, any communication that presents investment company performance data must prominently disclose all fees, expenses, and standardized performance information in accordance with SEC rules.
Consequences for Non-Compliance
Any violation of SEC rules, the Securities Investor Protection Corporation, or the Municipal Securities Rulemaking Board relating to public communications is also considered a violation of FINRA Rule 2210. Non-compliance may result in fines, additional filing requirements, or other disciplinary actions.
FINRA Rule 2210 aims to foster transparency, protect investors from misleading information, and promote ethical standards in all communications with the public. By adhering to these guidelines, broker-dealers can maintain investor trust and operate within regulatory boundaries.
Insight from the Experts
"While Rule 2210 sets boundaries for communications, it also opens up opportunities for innovation. The emphasis on clarity, accuracy, and balanced perspectives can drive firms to rethink how they convey complex information in simpler, more creative ways. Firms that embrace these requirements creatively can transform regulatory obligations into compelling storytelling that strengthens brand credibility."
What Is the Purpose of Rule 2210?
FINRA Rule 2210 aims to protect investors by promoting transparency and maintaining high standards of integrity across all types of communications in the financial industry.
Its key objectives include:
Investor Protection
The rule protects investors from potentially misleading or fraudulent information by setting strict content standards for all communications. These standards require that communications be based on fair dealing, accurately reflect the risks and benefits of investments, and include all necessary disclosures to prevent misunderstandings or deception.
Promote Fair and Ethical Practices
Rule 2210 enforces ethical practices by ensuring that all member communications are truthful, balanced, and provide a sound basis for evaluating investments. The rule prohibits exaggerated or misleading statements, guarantees against future performance, and any form of misrepresentation. It also ensures that firms present information in a way that is appropriate for their audience, taking into account their level of financial knowledge and experience.
Maintain Market Integrity
By regulating communications with both retail and institutional investors, the rule aims to maintain the overall integrity of financial markets. It prevents practices that could lead to unfair advantages, such as undisclosed compensation or conflicts of interest, which could distort market behavior or investor decisions.
Enhance Transparency and Accountability
Rule 2210 requires firms to keep detailed records of all communications, including approvals, revisions, and supporting materials. This requirement fosters transparency and allows for effective regulatory oversight. The rule also mandates that firms establish internal procedures for reviewing communications, which helps ensure accountability and adherence to regulatory standards.
Support Effective Supervision and Compliance
The rule helps firms develop robust supervisory systems to monitor and manage all public communications. By mandating review and approval processes, along with ongoing training and surveillance, the rule supports firms in maintaining compliance with regulatory standards and reducing the risk of violations.
Example 1
Balanced Marketing Materials
A brokerage firm launches an ad campaign for a high-yield bond fund. To comply with FINRA Rule 2210, the firm highlights both the potential returns and the risks, such as default and interest rate changes. This balanced approach aligns with the rule's standards for fair communication, enabling clients to make informed decisions.
Example 2
Transparent Social Media Posting
A financial advisor posts about a new stock offering on social media. The post includes the firm’s name, a disclosure of the advisor's interest in the stock, and a link to BrokerCheck, ensuring compliance with Rule 2210’s guidelines for transparency and accuracy in public communications.
Note: The practical examples are fictional and created solely to enhance understanding of FINRA Rule 1210. They are not based on actual events or individuals and should not be interpreted as real-life scenarios.
FINRA Rule 2210 Violations and Cases
Understanding how FINRA Rule 2210 is applied to real-world situations can provide valuable insights into compliance and regulatory expectations. Below are examples of violations and cases that illustrate the consequences of non-compliance and the importance of adhering to the rule's requirements.
01
Social Media Violations
A financial firm was fined $850,000 by FINRA for violations related to a social media influencer program. From January 2020 to April 2023, the firm engaged approximately 1,700 influencers to promote its services, compensating them for each new account opened through unique referral links. However, many of these influencer posts contained misleading or exaggerated claims, such as suggesting that margin loans could be repaid at any time without restriction while failing to disclose the firm’s rights to demand immediate repayment or sell securities without notice.
The firm did not review, approve, or retain the influencers' content as required, nor did it have adequate supervisory systems to oversee these communications. These failures constituted violations of multiple FINRA rules, including Rule 2210 on communications, Rule 2010 on ethical standards, Rule 3110 on supervision, and Rule 4511 on recordkeeping. The firm settled with FINRA by agreeing to remedial actions and implementing measures to ensure compliance going forward.
02
Misleading Communications in Securities Lending Program
A broker-dealer faced disciplinary action for failing to comply with FINRA Rule 2210 regarding public communications. From January 2019 to March 2023, the firm distributed misleading documents to over two million retail investors containing false statements about the compensation they would receive for participating in a fully paid securities lending program. These communications violated Rule 2210(d)(1)(B), which prohibits making exaggerated or misleading claims, and Rule 2010, which mandates adherence to high standards of commercial honor.
The firm's communications falsely assured customers that they would receive a loan fee for lending their securities. In reality, no compensation was provided. Additionally, the firm's failure to establish an effective supervisory system and maintain proper procedures for this lending business resulted in further violations of FINRA’s supervisory rules. As a result, the firm was fined $500,000, censured, and ordered to pay $198,282.39 in restitution, highlighting the critical need for clear, honest communication and robust supervision in all customer interactions.
Insight from the Experts
"By emphasizing fair and balanced communications, Rule 2210 can help firms proactively reduce customer complaints, aligning with the objectives of FINRA Rule 4513, which requires firms to maintain accurate records of customer grievances. Clear and transparent communications can minimize misunderstandings and disputes, ultimately decreasing the volume of complaints and enhancing client trust. This proactive approach not only supports compliance but also fosters a more positive client experience."
Frequently Asked Questions About FINRA's Communications with the Public Rule
Understanding how FINRA Rule 2210 is applied in real-world situations can provide valuable insights into compliance and regulatory expectations. Below are examples of violations and cases that illustrate the consequences of non-compliance and the importance of adhering to the rule's requirements.
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