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FINRA Announces Sweep of Broker-Dealers that Sell Non-Traded BDCs

Posted in Broker-Dealer Regulation, FINRA Enforcement

In a notice published on its website on August 4, 2016, FINRA announced that it is conducting an inquiry with respect to non-traded business development companies (BDCs).  FINRA asked that the member broker-dealers send the following documents and information by September 9, 2016:

  • A list of each BDC offered by the member firm with information about the firm’s role (dealer-manager, lead dealer, etc.);
  • For each BDC offered, a list of all participating firms that have a selling agreement with the firm with respect to each registration statement and copies of form selling agreements;
  • A spreadsheet listing all members that sold the BDCs to its customer with information about the scope of the offering; and
  • A copy of the member firm’s due diligence procedures and, if not already included, a description of those procedures that the firm conducts for the BDC initially and on an ongoing basis, together with a description of the due diligence procedures that the firm conducts with other firms with which it has a selling agreement.

The request covers the period from January 1, 2015 through June 30, 2016.

Our take

FINRA’s terse announcement may reflect a concern that non-traded BDCs are attracting more retail investors.  Although FINRA did not indicate why it is requesting this information, the notice suggests that FINRA is looking more closely into the market for non-traded BDCs.  We expect to see more from FINRA on this topic.