Structured Notes, Unstructured Compliance Risks: FINRA Wants to Know If Your Firm Has a Plan

On May 19, 2026, the Financial Industry Regulatory Authority (“FINRA”) announced that it is conducting a targeted review of how member firms supervise the sale of higher-risk structured products. FINRA is particularly focused on non-principal protected “worst-of” structured notes and has announced it will be sending sweep letters to targeted firms. This announcement, combined with recent high-profile settlements involving structured notes, sends a clear message: firms that treat these complex instruments as routine offerings do so at their own risk. Because FINRA is putting the spotlight on structured notes, and we anticipate other high-risk products, firms need to take steps now to ensure they stay ahead of this enforcement priority. 

What Are “Worst-of” Structured Notes?

“Worst-of” structured notes are principal-at-risk instruments that may result in a reduction or termination in interest payments and a reduced return of principal at maturity, based on the worst-performing asset in a group of two or more reference assets. Because the investor’s return is tied to the weakest link in a basket of underliers, these products carry amplified downside risk and complexity relative to standard structured notes. Instead of reducing risk by spreading it across assets, the worst-of feature increases risk by structuring the investment in such a way where any one weak link can trigger a loss. 

FINRA has made clear that highly concentrated investments in these products can pose significant risk to investors, and that risk is “heightened when the concentrated investment is a complex product.” And FINRA has gone further, stating that it has “identified multiple instances where firm representatives have concentrated their customers’ assets in structured products that increase complexity and risk,” including products with characteristics such as a lack of principal protection and worst-of features. 

So, it comes as no surprise that FINRA is now turning its focus to firms to ensure they have comprehensive written supervisory procedures (“WSPs”) in place to safeguard investors. 

FINRA Will Review Targeted Member Firms 

FINRA announced that it will be reaching out to “a subset of member firms” to evaluate their WSPs regarding concentrations in these structured notes. The review will cover firm conduct from January 1, 2022 - December 31, 2025, unless otherwise noted. Firms included in the sweep must demonstrate how their WSPs ensure compliance with the SEC’s Regulation Best Interest (“Reg BI”), including Reg BI’s care and conflict of interest obligations, as well as applicable FINRA rules.  

Importantly, FINRA has also encouraged firms that are not included in the sweep to review the letter (available on FINRA’s website) and proactively evaluate their own practices related to structured notes. 

The timing of FINRA's announcement comes right on the heels of a number of high-profile cases and settlements involving structured notes. 

These cases are significant not only because they resulted in significant awards against the firms, but also because they illustrate the types of supervisory concerns FINRA is now examining more broadly and underscore the importance of maintaining comprehensive WSPs for complex products. 

Key Areas for WSP Review

Member firms are on notice that their WSPs are going to be scrutinized. Of course, each firm’s review and potential enhancements will be unique depending on a firm’s product mix, business model, and existing compliance infrastructure, but all firms will need to pay close attention to several key areas:

• WSP Completeness and Specificity. FINRA will ask to review WSPs with a focus on structured notes and complex products. Firms should ensure they have specific, standalone procedures addressing structured notes rather than relying on general complex-product language.
• Product Risk Categorization. FINRA expects firms to have a tiered classification system that distinguishes among structured note types based on risk characteristics, including principal protection and worst-of features.
• Concentration Limits and Restrictions. Clearly defined and enforceable concentration limits at both the individual account and portfolio level, with heightened restrictions for higher-risk sub-categories such as non-principal protected worst-of notes are a must.
• Supervisory Alerts and Exception Monitoring. Firms must maintain surveillance mechanisms that flag concentration threshold breaches, risk-profile mismatches, and other red flags, with clearly specified trigger criteria.
• Training Requirements. Firms should mandate and document product-specific training for all representatives before they are authorized to recommend or sell structured notes to customers.
• Compensation Transparency. FINRA is specifically focused on how representatives are compensated for structured note sales, including commissions, markups, and selling concessions. Compensation structures must be clearly documented because of the conflict-of-interest implications they carry.
• Conflict of Interest Identification and Mitigation. Firms need a systematic process to identify and address conflicts arising from compensation, proprietary preferences, issuer relationships, and revenue-sharing. The WSPs should also clearly document mitigation measures. This ties directly to Reg BI's conflict of interest obligation.
• Customer Disclosure Practices. Firms should be prepared to demonstrate that they provide customers with clear information about structured note risks and compensation, including product fact sheets and risk disclosures delivered in a timely manner.

The Takeaway: Structured Notes Are on FINRA’s Radar and Your Firm May Be Too 

The message from FINRA is clear: structured note supervision is an area of heightened focus and firms offering complex and often high-risk products should expect scrutiny. Firms should not wait to receive a sweep letter before conducting a thorough self-assessment of their WSPs with a special focus on how the firm sells, supervises, and monitors these products. Getting this right requires more than a surface-level review and requires the assistance of experienced counsel. Each of the areas FINRA is focused on involves nuanced regulatory expectations under Reg BI and FINRA’s supervisory rules, and the right approach will look different depending on your firm’s product offerings, customer base, existing compliance infrastructure, and historical practices. Given FINRA’s intensified focus, firms need to act now to shore up their supervisory framework. 
 

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