FINRA Proposes to Limit Regulation of Outside Activities

FINRA proposed adopting a new consolidated rule and deleting existing rules on outside business activities and private securities transactions.

The proposal would delete existing FINRA Rules 3270 ("Outside Business Activities of Registered Persons") and 3280 ("Private Securities Transactions of an Associated Person") and consolidate their requirements into FINRA Rule 3290 ("Outside Business Activities") focused on "investment-related" activities. In doing so, it would eliminate the requirement to report non-investment-related outside activities—such as driving for a car service or refereeing sports games—to reduce unnecessary burdens on members.

Under the proposal:

• Registered persons must provide prior written notice of "investment-related" outside activities, while associated persons must provide prior written notice of outside securities transactions;
• Members must assess whether a reported activity will interfere with the person’s responsibilities or be viewed by customers as part of the member's business, but are only required to approve, record, and supervise outside securities transactions for which the associated person receives selling compensation;
• Activity at an unaffiliated investment adviser would be classified as an "outside activity" rather than a private securities transaction, meaning members must conduct an upfront assessment of the activity, but are no longer required to supervise or maintain records of it; and
• The rule provides specific exclusions for activities conducted on behalf of a member’s affiliate, personal investments in non-securities (including non-security crypto assets), and personal real estate transactions involving a main home and up to two secondary homes.

FINRA stated that these changes are intended to eliminate the reporting of "white noise" activities that pose low risks to the public, while addressing the practical challenges and privacy concerns associated with the current requirement for members to supervise outside unaffiliated IA activities.

If approved by the SEC, FINRA will announce the effective date of the proposed rule change in a Regulatory Notice.