News & Insights

Finra Seeks Comment On Proposed New Rule Governing Outside Business Activities And Private Securities Transactions

FINRA launched a retrospective review of its outside business activities and private securities transactions rules in May of 2017 to assess their effectiveness and efficiency. This request for comment stems from that review of FINRA Rule 3270 (Outside Business Activities of Registered Persons) and FINRA Rule 3280 (Private Securities Transactions of an Associated Person). The proposed rule would replace FINRA Rules 3270 and 3280 and is intended to reduce unnecessary burdens, while strengthening investor protections relating to outside activities.

FINRA is proposing a single streamlined rule to address the outside business activities of registered persons. The proposed rule would require registered persons to provide their members with prior written notice of a broad range of outside activities. The rule imposes on members the responsibility to perform a reasonable risk assessment of a narrower set of activities that are investment related, allowing members to focus on outside activities that are most likely to raise investor protection concerns.

Excluded from the new rule would be activities at affiliates, such as IA, and insurance and banking affiliates, whether or not investment related, unless those activities would require registration as a broker or dealer if not for the person’s association with a member. Personal investments (also known as “buying away”) would also be excluded. The proposed rule would not impose supervisory and recordkeeping obligations for most other outside activities, including IA activities at an unaffiliated third-party IA. At the same time, the proposal would hold a member responsible for approved activities that could not take place but for the registered person’s association with a member.

FINRA indicated that while the current rules emphasize the importance of rules relating to outside activities, they could benefit from changes to better align the investor protection goals with the current regulatory landscape and business practices. FINRA believes that the current rules may be improved by changes that clarify the obligations and tailor them to better achieve investor protection. We encourage our clients who may be impacted by any proposed rule changes governing outside business activities and private securities transactions to review Regulatory Notice 18-08,, and submit their comments to FINRA by April 27, 2018.