The Financial Industry Regulatory Authority has filed a proposal to update its rule setting a $100 limit on gifts its members can give to their clients, Financial Advisor reports.
Currently FINRA Rule 3220, known as the Gifts Rule, prohibits any member or person associated with a member, directly or indirectly, from giving anything of value in excess of $100 per year to any person where such payment is in relation to the business of the recipient’s employer. The rule also requires members to keep separate records regarding gifts and gratuities. Rule 3220 is aimed at avoiding any improprieties resulting from the giving of gifts and preserving an employee’s duty to act in the best interests of that customer.
Under FINRA’s new proposal filed with the Securities and Exchange Commission, the limit on gifts to employees of an institutional customer, vendor, or counterparty would be raised to $250 to account for inflation. The $100 limit has not been raised since it was instituted in 1992. FINRA said the increase would continue to permit the exchange of business courtesies while helping to guard against excessiveness.
The plan includes other modifications to the Gifts Rule. These include codifying existing guidance that the rule does not apply to personal gifts, items of de minimis value, promotional or commemorative items, or donations due to federally declared major disasters. It also would make clear that the Gifts Rule does not apply to gifts to individual retail customers. Furthermore, it would extend the $250 limit to other rules that cover similar expenses, including those impacting direct participation programs, variable contracts, investment company securities and corporate financing.
In addition, FINRA is asking that the SEC grant it the authority to issue conditional or unconditional exemptions for “good cause shown,” so that the authority can consider unique circumstances across various types of firms.
The SEC must approve the proposal and will publish it for public comment in the Federal Register. If it is approved, FINRA said it plans to periodically review the limit to determine whether further adjustments are needed for inflation.
In 2016, FINRA proposed raising the limit on gifts to $175 per person per year and including a threshold below which firms would not have to keep records of gifts given or received. But the SEC delayed the proposal while developing its Regulation Best Interest rules and did not end up taking action on it.
FINRA has noted that its Gifts Rule does not prohibit “ordinary and usual business entertainment” (such as an occasional meal, sporting event, theater production or comparable entertainment event) provided that the entertainment “is neither so frequent nor so extensive as to raise any question of propriety.”
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