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FINRA Launches Review of High-Risk Structured Notes Sales and Supervision

Posted on August 3rd, 2026 at 11:59 AM
FINRA Launches Review of High-Risk Structured Notes Sales and Supervision

From the desk of Jim Eccleston at Ä¢¹½´«Ã½

The Financial Industry Regulatory Authority (FINRA) has launched a regulatory sweep examining the sale of high-risk structured products, with particular attention on non-principal protected "worst-of" structured notes, according to AdvisorHub.

FINRA's review will examine how member firms supervise recommendations involving these complex investments and whether those recommendations comply with the Securities and Exchange Commission's (SEC) Regulation Best Interest (Reg BI) and other regulatory requirements.

Structured products generally combine a traditional security, such as a stock or bond, with a derivative linked to the performance of one or more underlying assets. According to AdvisorHub, the review specifically targets certain "worst-of" structured notes that do not provide principal protection and base investor returns on the weakest-performing asset in a basket of investments. Structured products have faced longstanding regulatory scrutiny because of their complexity, limited liquidity, and complicated payout structures.

As AdvisorHub reports, FINRA is concerned that some investors have suffered significant losses after concentrating large portions of their portfolios in these products. The regulator also indicated that it identified multiple instances in which concentrated positions in structured notes exposed investors to losses that did not track broader market performance.

In announcing the sweep, FINRA emphasized that although structured products may offer the potential for higher returns than their underlying reference assets, they also present unique risks because of their complexity and specialized features.

The regulator's information requests cover the period from January 2022 through December 2025. As AdvisorHub reports, FINRA is seeking information regarding firms' supervisory systems, employee training, and compliance controls governing structured product recommendations.

FINRA is also asking firms to explain how they establish and monitor concentration thresholds, what surveillance alerts they use to identify potential concerns, whether supervisors review customer information before approving recommendations, and whether registered representatives receive higher compensation for selling certain structured notes, according to AdvisorHub.

Ä¢¹½´«Ã½ LLC represents investors and financial advisors nationwide in securities, employment, transition, regulatory, and disciplinary matters.

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