Effective March 25, 2026, FINRA adopted amendments to the Capital Acquisition Broker (CAB) rules to help reduce regulatory burden for firms seeking to move to the CAB model. These changes may expand a firm’s activities and enhance their competitiveness with traditional investment banking firms.
While FINRA members are still required to maintain and enforce Written Supervisory Procedures (WSP), CABs have lower ongoing compliance and supervisory obligations, including an exemption from the annual Office of Supervisory Jurisdiction (OSJ) inspection requirement under FINRA Rule 3110 as well as the testing and verification of the firm’s supervisory control system under FINRA Rule 3120. Additionally, while independent AML Testing remains a requirement for CABs, the testing is performed every two years, instead of annually.
Key Changes to the New CAB Rules
Newly Issued and Unregistered Securities
CABs may now represent buyers, sellers, or both (with disclosure and consent), whereas they were limited to acting on behalf of an issuer or control person, in a change of control transaction prior to the change.
Secondary Transactions
Under the new CAB rules, CABs can act as a placement agent or finder for an institutional investor that is seeking to buy or sell unregistered securities, provided both the seller and buyer of such unregistered securities are:
- Institutional investors
- The sale qualifies for an exemption from registration under the Securities Act of 1933 for private secondary trades between institutional investors
Private Securities Transactions (PSTs)
Before the changes, persons associated with a CAB were prohibited from engaging in a PST. Under the updated rules, associated persons may be able to participate in PST provided they have notified the firm and obtained approval as outlined in FINRA Rule 3280.
Expanded Definition of Institutional Investor
Another component of the change was to expand the definition of institutional investor to include “eligible employees,” which are defined as officers, directors, and key employees of the issuer.
Compensation in Securities
The way a CAB may be compensated was also expanded to allow a CAB to receive equity, warrants, or other securities as compensation in lieu of cash (subject to limitations).
Conclusion
The amendments materially enhance the CAB framework and could impact those firms that are currently approved for private placement activities, as firms may wish to evaluate new business opportunities alongside updated compliance requirements. Firms wishing to convert to a CAB would need to file an application with FINRA to amend their membership agreement and update their WSP accordingly to address CAB rules.
ACA Can Help
Navigating FINRA’s evolving regulatory landscape, especially with the newly expanded CAB framework, can present both challenges and opportunities for your firm. Whether you’re evaluating a transition to the CAB model, exploring new private placement activities, or updating your WSP to reflect the amended rules, ACA’s experts are here to support you.
Our team provides comprehensive guidance across membership agreement updates, supervisory program redesign, WSP enhancements, and ongoing compliance support tailored to CAB-specific requirements. We help ensure firms remain compliant while unlocking the expanded activities and efficiencies these amendments now make possible.
Act now to evaluate your strategy and identify opportunities under the updated CAB framework.
Connect with ACA to get started.