The Financial Industry Regulatory Authority has issued a statement that seeks to clarify its new proposal that relaxes rules pertaining to brokers’ outside business activities, ThinkAdvisor reports.
FINRA Rule 3270 states, “No registered person may be an employee, independent contractor, sole proprietor, officer, director or partner of another person, or be compensated, or have the reasonable expectation of compensation, from any other person as a result of any business activity outside the scope of the relationship with his or her member firm, unless he or she has provided prior written notice to the member, in such form as specified by the member.”
The new proposal, published in March, is intended to streamline and reduce unnecessary burdens regarding the requirements on outside activities. It is meant to enhance efficiency without compromising protections for investors and members relating to outside activities. The new Rule 3290 would provide “clarity and reduces unnecessary compliance burdens for member firms in reviewing outside activities of their associated persons,” FINRA said in Regulatory Notice 25-05. “This will both increase investor protection and decrease burdens on members by eliminating the reporting and assessment of low-risk activities that create white noise.”
The clarification issued by FINRA this week followed concerns that brokers and other registered persons would be required to report a wide range of personal financial transactions, such as buying cryptocurrencies and investment property, taking out insurance or managing a personal bank account.
The proposal “explains that these types of personal activities are, in fact, excluded from the rule,” FINRA stated. The proposed rule would instead eliminate the reporting and assessment of low risk side work that does not impact customers, such as brokers refereeing sports games, driving for a car service or bartending on weekends.
The new plan “significantly reduces reporting obligations that have been in existence for decades,” FINRA said in its statement. “FINRA is proposing to reduce these obligations to help broker-dealers focus on investment-related outside activities that present higher risks to investors and firms.” Specifically, FINRA states that it’s “proposed rule language states in the ‘exclusions’ section that the rule shall not apply to an associated person’s personal investments in securities transactions subject to or delineated in Rule 3210 (which includes, among others, mutual funds, variable annuities, 529s and securities held at another broker-dealer), personal investments in non-securities (which would include Bitcoin), and the purchase, sale, rental or lease of a main home, dwelling unit or vacation home.
In its statement, FINRA said broker-dealers will not have new obligations regarding outside investment adviser activities. “The proposal does not change the existing obligations regarding unaffiliated investment adviser activity but explicitly asks whether FINRA should reduce or eliminate current obligations for unaffiliated investment adviser activity,” the statement said.
FINRA is seeking comments on the proposal, with a deadline of May 19.
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