In August 2016, the SEC approved FINRA’s proposal to permit firms conducting only enumerated corporate financing activities (“capital acquisition brokers” or “CABs”) to operate under a more limited FINRA rule set, a move intended to relieve those limited purpose firms from certain regulatory burdens. The implementation date will be no later than February 14, 2017.
The more limited CAB rule set may be of interest to firms, depending on their business model. While CABs are limited in their permitted functions, and while CABs are not eligible for any specialized exemption from SEC or FinCEN regulation of securities broker-dealers, broker-dealers that limit their business to investment banking advisory and certain private placement businesses may benefit from certain aspects of the rule set. In particular, private fund placement agents may include predictions or projections of performance in communications to prospective investors, and certain compliance responsibilities are not applicable to CABs, including holding an annual compliance meeting, maintaining a fidelity bond or business continuity plan, conducting internal inspections, and CEO certification of supervisory processes.
One hurdle for certain firms will be the CAB rule set’s prohibition on CAB associated persons engaging in securities transactions away from the firm, which will limit firms’ ability to use dual-hatted personnel, depending on their responsibilities away from the CAB.
View full memo, FINRA Capital Acquisition Broker Proposal Approved