FINRA Proposes Rule 4522 Amendment Easing Monthly Position Statement Requirements for Private Fund H

Key Takeaways

• FINRA has filed a proposed amendment to Rule 4522(b)(1) that would except uncertificated investments in unregistered investment funds from the monthly position statement and reconciliation requirement, replacing it with a quarterly cadence.
• The change codifies and broadens the relief in a January 2026 SEC staff no-action letter that covered only capital balance funds.
• Carrying and clearing firms that custody private fund interests should assess how the exception affects their reconciliation procedures, while remembering that SEA Rule 17a-13 quarterly counts and the "prudent business practice" standard still apply.

Deep Dive

Under current Rule 4522(b)(1), carrying and clearing members subject to SEA Rule 17a-13 must receive position statements from custodians and other organizations at least monthly and reconcile them monthly. Issuers of many alternative investments cannot meet this cadence. Some report ownership as a capital account balance rather than as units or shares. The SEC staff no-action letter to Raymond James (January 6, 2026) addressed only capital balance funds, and FINRA's interim FAQ deemed compliance with that letter's conditions to satisfy Rule 4522(b)(1). The proposal would extend relief to all uncertificated investments in unregistered investment funds, such as hedge funds, venture capital funds, and private investment companies relying on Sections 3(c)(1) and 3(c)(7) of the Investment Company Act.

Key changes: the first sentence of (b)(1) would exclude these investments from the monthly position statement requirement, but only where ownership by the member or its customers is directly recorded on an issuer-maintained registry (kept by the issuer or its agent) or, if no registry exists, is directly recognized by the issuer. The second sentence would allow reconciliation at least quarterly for these excepted investments. The proposal does not change SEA Rule 17a-13's quarterly count and verification obligations. Rule 4522(b)'s general requirement to conduct more frequent counts and reconciliations where prudent business practice requires would continue to apply. Funding portals and capital acquisition brokers are not subject to Rule 4522 and are unaffected.

Timing: FINRA filed on August 25, 2026, and the SEC published notice on September 3, 2026. Comments are due 21 days after Federal Register publication. The SEC must approve, disapprove, or institute proceedings within 45 days of publication, extendable to up to 90 days. If approved, FINRA will announce the effective date in a Regulatory Notice. Until then, current Rule 4522(b)(1) remains in force, and the FAQ-based relief covers only capital balance funds on the letter's conditions.

Recommended actions: (1) Inventory uncertificated private fund positions held or carried, and confirm whether ownership is recorded on an issuer registry or directly recognized by the issuer. (2) Evaluate current monthly reconciliation practices and document a risk-based determination of which products can move to quarterly cycles. (3) Update written supervisory procedures, systems, and monitoring to show how prudent business practice is assessed for excepted products, since this is the likely examination focus. (4) For capital balance funds, keep meeting the no-action letter conditions, including maintaining the issuer reporting schedule, reconciling within five business days of receipt, and giving customer statement disclosures, until the rule is effective. (5) Consider submitting comments to the SEC, particularly on registry-recognition conditions.

Risk implications: The change reduces compliance burden and legal uncertainty. FINRA estimates about 70 carrying and clearing firms may hold such products, and it expects one-time implementation costs. The residual risk is operational: less frequent reconciliation could delay detection of breaks, valuation staleness, or recordkeeping errors, and firms that default to quarterly cycles without documented analysis may face examination findings. Customer disclosure about the age and realizability of reported values remains an important mitigant.

Source: Financial Industry Regulatory Authority