The Financial Industry Regulatory Authority said it has filed a proposed change relaxing its rules pertaining to brokers’ outside business activities.
In SR-FINRA-2006-001, FINRA said it has filed the proposed rule change with the Securities and Exchange Commission. The authority proposes to adopt FINRA Rule 3290 (Outside Activities Requirements) and to delete existing FINRA Rules 3270 (Outside Business Activities of Registered Persons) and 3280 (Private Securities Transactions of an Associated Person).
The intent is to streamline and reduce unnecessary compliance burdens regarding requirements that address the outside activities of member firms’ associated persons, specifically low-risk and non-investment-related activities.
Currently 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.”
But with more brokers taking on outside work, or ‘side hustles’, FINRA has seen the need for a rule revision in which outside investment-related activities would not be monitored as strictly as before. The proposal would eliminate the reporting and assessment of low-risk side work that does not impact customers.
The proposal would replace two rules—Rules 3270 and 3280—with Rule 3290, which would amend the requirements to focus on outside activities that potentially present heightened risks for members and the public. FINRA said of the consolidated new rule, “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 proposal would eliminate the reporting and assessment of activities such as brokers refereeing sports games, driving for a car service or bartending on weekends. Brokers would be allowed to proceed with those activities without acquiring their firms’ approvals, including a securities transaction, if no compensation is at stake. Among the activities excluded from reporting requirements are personal real estate transactions such as rentals and sales of homes.
As a result, FINRA said, firms would be able focus on more substantive potential conflicts that could include brokers selling away potentially risky products such as crypto assets, fixed annuities, commodities or private placements.
After the rule change was initially proposed last year, FINRA amended it to remove a classification that would have required additional recordkeeping for broker-dealers serving advisors at third party registered investment advisors.
The SEC will solicit public comments for 90 days before deciding whether the rule change should be approved.
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