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June 1st, 2017
securities
FINRA REVIEWS RULES ON OUTSIDE BUSINESS ACTIVITIES AND PRIVATE SECURITIES TRANSACTIONS

In Regulatory Notice 17-20, FINRA announced it is requesting comments on Rules 3270 and 3280 governing outside business activities and private securities transactions.  The request for comments comes as a result of FINRA’s new retrospective rule review.  The review concentrates on rules governing broker dealer employees’ business and securities activities carried out away from their firm—activities that are outside the regular course of scope of their employment with the firm.

The rules seek to protect the investing public from potentially problematic or risky activities that are unknown to broker dealers but that could be perceived by the investing public as either part of a broker dealer’s business or having the broker dealer’s permission.  The rules can also protect broker dealers from reputational and litigation risks when employees engage in business and securities activities outside of the firm.  FINRA states that the rules provide a regulatory framework for broker dealers to be informed of such activities, implement a system to assess them, determine whether to limit or place conditions on the employee’s participation in them and, in the case of private securities transactions for compensation, record and supervise the transactions.

FINRA specifically seeks comments on whether Rules 3270 and 3280 have effectively addressed the problems they were intended to mitigate; an explanation of broker dealers’ experiences with implementation of the rules; a description of the economic impacts arising from the rules, including costs and benefits; and whether FINRA can make the rules more efficient and effective.  We encourage our broker dealer clients to consider commenting to FINRA after evaluating the effectiveness and efficiency of these rules and their impact on business practices.  The deadline for comments is June 29, 2017.

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