SEC Approves FINRA Capital-Formation Reforms: What Issuers and Investors Should Know

New amendments could reduce friction in public and private capital raising, with particularly relevant implications for Regulation A offerings, institutional Regulation D placements and family-office participation.

The Securities and Exchange Commission has approved targeted amendments to FINRA Rules 5110 and 5123 designed to modernize aspects of the capital-formation process. The changes are intended to make certain offering structures more predictable, reduce unnecessary administrative burdens and better align FINRA’s rules with existing SEC accredited-investor categories.

For issuers, intermediaries and sophisticated investors, the practical impact will depend on the type of offering. The amendments have direct implications for public offerings—including Regulation A offerings involving FINRA members—and for certain private placements.

The SEC approved the amendments on July 24, 2026. FINRA is expected to announce their effective date separately.

What changed?

The amendments address two distinct parts of FINRA’s capital-formation framework.

More predictable treatment of underwriting compensation

FINRA Rule 5110 governs underwriting terms and arrangements when a FINRA member participates in a public offering. The approved amendments are designed to simplify how certain securities received in connection with an offering are valued or treated for underwriting-compensation purposes.

Among other changes, the amendments:

• Replace aspects of the existing valuation methodology with a more predictable approach based on available market prices for securities traded on qualifying U.S. or offshore markets.
• Add defined treatment for certain debt-for-equity exchanges.
• Address qualifying capitalization investments involving direct participation programs and unlisted real estate investment trusts.
• Treat nonconvertible preferred securities more consistently with nonconvertible debt securities when acquired at a fair price.
• Clarify the treatment of certain tail fees under the standards that apply to termination fees.

FINRA has indicated that these changes should reduce the need for individualized exemption requests in some transactions, provide greater clarity during structuring and lower associated compliance costs without reducing investor protections.

Expanded private-placement filing exemption

FINRA Rule 5123 generally requires a FINRA member that sells securities in a private placement to file specified offering documents and retail communications with FINRA within 15 calendar days after the first sale, unless an exemption applies.

The approved amendment expands an existing exemption for offerings sold to specified institutional accredited investors. Once effective, the covered categories will include:

• Certain entities not formed for the specific purpose of acquiring the offered securities and owning more than $5 million in investments.
• A qualifying family office with more than $5 million in assets under management, provided it was not formed specifically to acquire the offered securities and the investment is directed by a person capable of evaluating its merits and risks.

This change brings FINRA’s filing exemption into closer alignment with accredited-investor categories the SEC added to Regulation D in 2020.

The amendment concerns the FINRA member’s Rule 5123 filing obligation. It does not itself create a Securities Act exemption, determine whether an offering complies with Regulation D or eliminate any applicable Form D, state notice, disclosure or other regulatory requirements.

Impact across the exempt-offering market

Regulation A

Regulation A offerings involving participating FINRA members are routinely subject to FINRA’s corporate-financing review under Rule 5110. The amendments may provide issuers and intermediaries with greater predictability when structuring compensation involving securities and may reduce the need for special relief in certain circumstances.

For issuers considering Regulation A, that could translate into a more efficient structuring and review process. The core Regulation A qualification, disclosure and ongoing-reporting requirements remain unchanged.

Regulation D

The clearest institutional-distribution opportunity arises in Regulation D offerings. Qualifying family offices and certain other entities with more than $5 million in investments will be added to the institutional accredited-investor categories covered by the Rule 5123 filing exemption.

This may reduce administrative friction when FINRA members distribute qualifying private placements exclusively within covered investor categories.

Regulation Crowdfunding

The approved amendments do not directly change Regulation Crowdfunding or the rules governing registered funding portals. Reg CF nevertheless remains an important part of the broader capital-formation landscape, particularly for issuers seeking community participation and lower offering limits.

Issuers evaluating Reg CF, Reg D and Reg A should view them as distinct pathways with different investor-eligibility rules, offering limits, disclosure requirements and distribution strategies—not as interchangeable exemptions.

Why family offices matter

Family offices have become increasingly important participants in private markets. They may offer patient capital, specialized industry knowledge and the potential for repeat participation across multiple transactions.

The FINRA amendment does not make every organization describing itself as a family office eligible for the filing exemption. The technical requirements matter, including the $5 million assets-under-management threshold, the purpose for which the family office was formed and the experience of the person directing the investment.

For issuers and intermediaries seeking to expand family-office participation, practical preparation may include:

• Building qualification questions into investor-onboarding and subscription materials.
• Maintaining documentation supporting the applicable accredited-investor category.
• Developing institutional-quality diligence materials and ongoing investor reporting.
• Matching each investor and offering with the appropriate regulatory pathway.
• Treating family-office engagement as a long-term relationship strategy rather than a single-transaction marketing effort.

What market participants should do now

The SEC’s approval is final, but market participants should not rely on the new provisions until FINRA announces their effective date.

In the meantime, issuers and intermediaries can:

1. Review potential Regulation A and other public-offering structures for provisions affected by Rule 5110.
2. Identify prospective Regulation D investors that may qualify under the newly covered institutional categories.
3. Update family-office diligence and subscription representations in preparation for the amendment’s effectiveness.
4. Review engagement-letter provisions involving securities compensation, termination fees and tail fees.
5. Preserve existing FINRA filing procedures until the effective date is confirmed.

The broader direction

These amendments are targeted rather than a wholesale rewrite of the exempt-offering framework. Even so, they reflect a broader regulatory focus on improving access to capital while retaining appropriate market and investor protections.

For issuers, the central opportunity is a more predictable path through parts of the FINRA review and filing process. For sophisticated investors—particularly qualifying family offices—the changes may support more efficient participation in broker-dealer-led private placements. For the market as a whole, the amendments are another step toward a capital-formation framework that better reflects current financing practices.

Rialto Markets continues to monitor regulatory developments affecting issuers and investors across Regulation A, Regulation D and Regulation Crowdfunding offerings.

Rialto Markets LLC (“Rialto Markets”) is a broker-dealer registered with the U.S. Securities and Exchange Commission and a member of FINRA and SIPC. This material is provided solely for general informational and educational purposes. Rialto Markets does not provide investment, legal, tax or accounting advice, and nothing herein constitutes a recommendation, an offer to sell or a solicitation of an offer to buy any security. Offers and sales of securities, where permitted, are made solely through the applicable official offering documents, which contain information concerning the issuer, the offering terms, fees, expenses and material risks.

Investments in Regulation A, Regulation D and Regulation Crowdfunding offerings may be speculative, illiquid and subject to a high degree of risk, including the possible loss of the entire investment. Prospective investors should conduct their own due diligence and consult their financial, legal, tax and accounting advisers before making an investment decision. The regulatory information presented is current as of the publication date and is subject to change. The SEC’s approval of the FINRA amendments discussed herein does not constitute an endorsement of Rialto Markets, any issuer, any securities offering or any investment strategy.

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Primary sources: SEC approval order; Federal Register publication; FINRA Rule 5110; FINRA Rule 5123