FINRA Podcast Reviews Conflict of Interest Provisions under Equity Research Rules

In the first installment of a four-part series covering its new research rules, FINRA reviewed consolidated Rule 2241 provisions governing conflicts of interest in equity research reports.

In the podcast, FINRA noted that the new rule:

• broadens firms' obligations to identify and manage research-related conflicts of interest;

• imposes an overarching requirement on firms to establish written policies and procedures to identify and effectively manage conflicts of interest related to the preparation, content and distribution of research reports and public appearances by research analysts;

• strikes communications about open-end registered investment companies that are not listed or traded on an exchange from the definition of "research report";

• modifies the restrictions on prepublication reviews of research reports by non-research personnel, including prohibiting investment bankers from conducting prepublication reviews of research reports for factual accuracy or to assist in conflict reviews;

• addresses requirements concerning research coverage and analyst compensation determinations;

• maintains separation requirements between research and investment banking; and

• requires firms to establish information barriers or other safeguards in order to insulate research analysts from the "review, pressure or oversight" by investment bankers or other personnel, including sales and trading personnel, "who might be biased in their judgment or supervision."

FINRA intends to address other aspects of the new research rules in forthcoming podcasts.