FINRA Rule 2111 (Suitability) has made explicit the reasonable-bais suitability requirement that existed in Notices to Members and Regulatory Notices for well over a decade.
The reasonable-basis suitability component of Rule 2111 addresses how broker-dealers and their associated persons must perform due diligence on investments (as opposed to customers) before they recommend them. The first level of due diligence is performed at the firm level and requires the member firm to determine that the investment is at least suitable for some of its investors.
Methods employed by firms to determine this first level of suitability will “vary depending on, among other things, the complexity of and risks associated with the security or investment strategy and the member's or associated person's familiarity with the security or investment strategy.”
The second reasonable basis suitability determination is carried out by the broker when she educates herself about the investment. This is how the broker comes to “know the investment”.
One of the primary goals of the reasonable basis suitability obligation is that:
A failure to “know the investment” makes the recommendation unsuitable. FINRA clearly states this in the Supplementary Material to Rule 2111:
The lack of such an understanding (about the potential risks and rewards of the recommending security or strategy) when recommending a security or strategy violates the suitability rule.
Due diligence expert Tom Brakke and CEO Jack Duval will be publishing a white paper on the reasonable-basis suitability requirement and due diligence standards of broker-dealers.
 See supra Note 34. FINRA Rule 2111 Supplementary Material .05 Components of Suitability Obligations.
 Id. See also FINRA NTM 05-26 for suggested best practices for vetting new products.