Washington, D.C. – October 2025 — The Financial Industry Regulatory Authority (FINRA) has announced a targeted examination focusing on broker-dealers’ participation in small-cap offerings involving foreign issuers, particularly those with business operations in foreign jurisdictions such as China.
The initiative underscores FINRA’s continued emphasis on market integrity, due diligence, and supervisory oversight in the cross-border small-cap market—a segment historically vulnerable to manipulation and compliance lapses.
Scope of the Review
According to FINRA’s announcement, the examination will focus on member firms that participated in initial public offerings (IPOs) meeting the following criteria:
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Raised $25 million or less;
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Were priced between $4.00 and $8.00 per share;
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Occurred between January 1, 2023, and September 30, 2025.
The review also includes follow-on offerings and private placements linked to these transactions.
Specifically, FINRA will examine:
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Public and private offerings of small-cap, exchange-listed issuers with operations in foreign jurisdictions, particularly China;
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Broker-dealers serving as underwriters, bookrunners, syndicate members, selling group members, or placement agents; and
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Firms participating in secondary market trading of these securities, including those operating omnibus accounts.
Documentation Requested
FINRA has asked selected firms to submit detailed records and materials, including:
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Written supervisory procedures (WSPs) related to small-cap offerings;
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Compliance manuals, training materials, internal bulletins, and written guidance on such offerings;
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Due diligence reports and investigative records for issuers, officers, and affiliates; and
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A comprehensive list of all small-cap offerings, detailing:
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Compensation received;
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Other firms involved; and
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Names of all individuals engaged in the transactions.
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Regulatory Priorities and Risk Focus
This latest initiative aligns with FINRA’s broader agenda to curb misconduct in low-priced, thinly traded securities—a market segment often associated with pump-and-dump schemes, offshore promoters, and undisclosed beneficial ownership.
FINRA has repeatedly flagged weak anti-money laundering (AML) and know-your-customer (KYC) frameworks as significant risk factors in the microcap space. By zeroing in on small-cap foreign offerings, the regulator aims to close gaps in supervisory systems, improve due diligence practices, and protect retail investors from potential abuse.
Implications for Broker-Dealers
For firms active in small-cap and cross-border listings, FINRA’s targeted review serves as both a warning and a roadmap. Broker-dealers are encouraged to take immediate steps to reassess their compliance and supervisory systems, including:
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Identifying relevant transactions from January 2023 through September 2025 that could fall under the review’s scope;
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Reevaluating supervisory controls under FINRA Rules 2010 (Standards of Commercial Honor), 3010 (Supervision), and 3110 (Supervisory System);
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Reviewing due diligence frameworks for adequacy, documentation, and independence;
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Enhancing AML and KYC programs to ensure they are effectively scaled for higher-risk foreign offerings; and
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Improving recordkeeping and audit trails to demonstrate compliance with offering-related requirements.
Proactive internal reviews and remediation efforts may significantly reduce regulatory exposure and strengthen relationships with oversight authorities. Given FINRA’s increased coordination with the SEC on cross-border microcap investigations, firms can expect heightened scrutiny on any perceived lapses in controls or documentation.
A Signal of Stronger Cross-Border Oversight
This latest review reinforces FINRA’s long-standing message: cross-border transactions in the small-cap space demand enhanced vigilance. By scrutinizing these deals, the regulator aims to mitigate systemic risks, protect U.S. markets from foreign misconduct, and ensure fair, transparent trading practices across all jurisdictions.
As global capital markets evolve and international issuers continue seeking U.S. listings, firms involved in such offerings should expect ongoing regulatory engagement and data-driven examinations aimed at safeguarding investor confidence.