Firms that advise companies and private equity funds, but don't maintain customer accounts, could soon escape their current regulatory limbo. The Financial Industry Regulatory Authority is soliciting public comments on a proposed rule set that eases the regulatory burden and registration requirements for firms that meet a new definition of “limited corporate financing broker.”

Some FINRA regulated firms are solely corporate financing firms that advise companies on mergers and acquisitions, advise issuers on raising debt and equity capital in private placements with institutional investors, or provide advisory services on a consulting basis to companies that need assistance analyzing their strategic and financial alternatives.

These firms often are registered as broker-dealers because they may receive transaction-based compensation as part of their services. Nevertheless, they do not engage in many of the types of activities typically associated with traditional broker-dealers. They typically do not, for example, maintain customer accounts, handle customer funds or securities, accept orders to purchase or sell securities, exercise investment discretion on behalf of any customer, or engage in proprietary trading of securities or market-making activities. An LCFB, as defined by the proposed rule, engages in a limited range of activities, essentially advising companies and private equity funds on capital raising and corporate restructuring.

FINRA is proposing rules that apply exclusively to firms that meet the rule's definition of limited corporate financing broker. An LCFB would still be subject to its core rules, but many existing requirements would be tailored to address their specific business activities. The proposal would provide for less stringent, streamlined conduct rules, know-your-customer and suitability obligations, and standards for communications with the public (the prohibition against false and misleading statements remains as a core mandate).

The new regulatory regime for these companies would not apply to firms that carry or maintain customer accounts, handle customers' funds or securities, accept customers' trading orders, or engage in proprietary trading or market-making.

The proposed rule is open for public comment until April 28, 2014.