On February 26, the Financial Industry Regulatory Authority released Regulatory Notice 18-08, which solicits comments on a proposed new rule to address the outside business activities of registered persons. The proposed rule would replace existing Rule 3270 (Outside Business Activities of Registered Persons) and Rule 3280 (Private Securities Transactions of an Associated Person) with a single rule governing outside business activities.
As proposed, new Rule 3290 (Outside Business Activities) would require registered persons to provide members with prior written notice of investment-related or other business activities and require members to conduct a reasonable risk assessment of the investment-related activities. A registered person’s personal investments are not subject to the proposed rule. Additionally, the proposed rule excludes activities performed on behalf of a member’s affiliate, unless those activities would require registration as a broker-dealer but for the person’s association with a member.
The proposed rule also imposes supervisory obligations on the member in two circumstances. First, if a member has imposed conditions on a registered person’s investment-related activities, the member must reasonably supervise the registered person’s compliance with those conditions. Second, if a registered person’s approved participation in an investment-related activity would require registration as a broker-dealer but for the registered person’s association with the member, the member must treat such investment-related activities as the member’s own business. Consequently, the member must comply with all applicable laws with respect to such activity. In addition to supervisory requirements, the proposed rule has certain recordkeeping obligations.
FINRA is now seeking commentary on all aspects of the proposal by April 27, 2018. More information is available in Regulatory Notice 18-08.