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, including the following: 

  • 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
1700 K Street, NW
Washington, DC 20006
(202) 728-8000
 

  • Regulatory Notice 17-16
    FINRA Requests Comment on Proposed Limited Safe Harbor From FINRA Equity and Debt Research Rules for Desk Commentary
    04/12/2017
  • Regulatory Notice 16-18
    SEC Approves Rule Requiring Delivery of an Educational Communication to Customers of a Transferring Representative
    05/16/2016
  • Regulatory Notice 15-30
    SEC Approves Consolidated Rule to Address Conflicts of Interest Relating to the Publication and Distribution of Equity Research Reports
    08/26/2015
  • Regulatory Notice 15-31
    SEC Approves Rule to Address Conflicts of Interest Relating to the Publication and Distribution of Debt Research Reports
    08/26/2015
  • Regulatory Notice 15-19
    FINRA Requests Comment on a Proposed Rule to Require Delivery of an Educational Communication to Customers of a Transferring Representative
    05/27/2015
  • Regulatory Notice 12-49
    SEC Approves Amendments to NASD Rule 2711 and Incorporated NYSE Rule 472 to Conform to JOBS Act Requirements
    11/01/2012
  • Regulatory Notice 11-41
    FINRA Provides Guidance on Prohibition Against Offering Favorable Research to Induce Investment Banking Business
    09/12/2011
  • Regulatory Notice 10-60
    SEC Approves New FINRA Rule to Address Abuses in the Allocation and Distribution of New Issues
    11/29/2010
  • Regulatory Notice 09-49
    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
    08/14/2009
  • Regulatory Notice 09-27
    SEC Approves New FINRA Rule 5122 Relating to Private Placements of Securities Issued by a Member Firm or a Control Entity
    05/18/2009
  • Regulatory Notice 09-11
    SEC Approval and Effective Date for New Consolidated FINRA Rule on Trading Ahead of Research Reports
    02/17/2009
  • Regulatory Notice 08-55
    FINRA Requests Comment on Proposed Research Registration and Conflict of Interest Rules Comment Period Expired: November 14, 2008
    10/14/2008
  • Regulatory Notice 08-16
    Member Firm Disclosure and Supervisory Review Obligations
    04/07/2008
  • Notice to Members 06-36
    NASD and NYSE Joint Interpretive Guidance on Fixed Income Research
    07/31/2006
  • Notice to Members 06-21
    NASD and NYSE Issue Joint Guidance on Charitable Contributions
    05/05/2006
  • Notice to Members 05-26
    NASD Recommends Best Practices for Reviewing New Products
    04/06/2005
  • Notice to Members 04-18
    NASD and NYSE Provide Further Guidance on Rules Governing Research Analysts' Conflicts of Interest
    03/09/2004
  • Notice to Members 03-44
    SEC Approves Amendments to Rules Governing Research Analysts' Conflicts of Interest
    08/03/2003
  • Notice to Members 02-39
    SEC Approves Rule Governing Research Analysts' Conflicts of Interest
    06/26/2002
  • Guidance
    Best Execution
    The Best Execution topic of the 2024 FINRA Annual Regulatory Oversight Report (the Report) informs member firms’ compliance programs by providing annual insights from FINRA’s ongoing regulatory operations, including (1) regulatory obligations and related considerations, (2) findings and effective practices, and (3) additional resources.
    January 09, 2024
  • Guidance
    Outside Business Activities and Private Securities Transactions
    The Outside Business Activities and Private Securities Transactions topic of the 2024 FINRA Annual Regulatory Oversight Report (the Report) informs member firms’ compliance programs by providing annual insights from FINRA’s ongoing regulatory operations, including (1) regulatory obligations and related considerations, (2) findings and effective practices, and (3) additional resources.
    January 09, 2024
  • Guidance
    Private Placements
    The Private Placements topic of the 2024 FINRA Annual Regulatory Oversight Report (the Report) informs member firms’ compliance programs by providing annual insights from FINRA’s ongoing regulatory operations, including (1) regulatory obligations and related considerations, (2) findings and effective practices, and (3) additional resources.
    January 09, 2024
  • Guidance
    Reg BI and Form CRS
    The Reg BI and Form CRS topic of the 2024 FINRA Annual Regulatory Oversight Report (the Report) informs member firms’ compliance programs by providing annual insights from FINRA’s ongoing regulatory operations, including (1) regulatory obligations and related considerations, (2) findings and effective practices, and (3) additional resources.
    January 09, 2024
  • FAQ
    Frequently Asked Questions Regarding FINRA Rule 2273
    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
    Targeted Examination Letter on Conflicts of Interest Review - Compensation and Oversight
    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
  • Report / Study
    Conflict of Interest Report

    Conflicts of interest can arise in any relationship where a duty of care or trust exists between two or more parties, and, as a result, are widespread across the financial services industry. While the existence of a conflict does not, per se, imply that harm to one party’s interests will occur, the history of finance is replete with examples of situations where financial institutions did not manage conflicts of interest fairly.

    October 14, 2013
  • Targeted Examination Letter
    Targeted Examination Letter on Conflicts of Interest
    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 Insights
    What to Ask When Your Registered Financial Professional Changes Firms
    Registered financial professionals, like many of us, move on to new job and career opportunities for a number of reasons. FINRA requires brokerage firms to deliver an educational communication to former customers who are contacted about transferring their assets when their financial professional changes from one broker-dealer to another.