FINRA Announces Proposed Rule 3290
FINRA
Introduction
On March 12, 2025, FINRA, in its Notice 25-04, announced its intention to launch a broad review of its regulatory requirements and identify ways to modernize its rules.
On March 14, 2025, FINRA took a first step in that process, releasing Notice 25-05, a request for comment on proposed rule changes related to Rule 3270 Outside Business Activities (OBAs), and Rule 3280, Private Securities Transactions (PSTs). FINRA proposes combining the two rules to “streamline and reduce unnecessary burdens regarding existing requirements”. The proposed Rule would be 3290.
Key Takeaways
The proposed Rule attempts to:
- Lessen the burden on firms by identifying activities with less risk, such as:
- Refereeing sports games;
- Driving for a car service;
- Bartending on weekends.
- Allow firms to focus on activities that might either present higher risk or be more likely to be mistakenly identified by customers as activities that are part of the member’s business, for example:
- Selling crypto assets;
- Selling fixed annuities; or
- Selling private placements.
To combine the two rules, FINRA will rename OBAs and PSTs.
Non-investment related activities will be referred under the new Rule 3290 as “Outside Activities” and investment-related activities will be referred to as “Outside Securities Transactions”.
Rule Requirements
The requirements for documenting both activities are similar to those under the prior Rules with slight changes.
Outside Activities will still require registered persons to provide written notice to the member of the nature of the activity and their role. Upon receipt of the notice, the member must assess whether the activity is in fact an outside securities transaction, whether the activity involves a customer of the member, whether the activity will interfere with or otherwise compromise the registered person’s responsibilities to the member or the member’s customers, and whether the activity will be viewed by customers as part of the member’s business.
The member will review all factors and evaluate whether any conditions or limitations should be applied.
Outside Securities Transactions will require prior notice to be provided by all associated persons. The notice must include the associated person’s role, details of the proposed transaction, and whether the associated person will be compensated for such activities.
Upon receipt of the request, the member must assess, at a minimum, whether the securities transaction is a securities transaction for compensation, whether the activity involves a customer of the member, whether the activity will interfere or compromise the associated person’s responsibilities to the member or the member’s customers, and whether the activity could be viewed by the member’s customers as being part of the members’ business.
If there is no compensation, the member will provide acknowledgement and impose any conditions that the member may require.
If there is compensation, the member must determine whether to approve, and whether to impose any conditions or limitations. If approved, the member must record each transaction on the books and records of the member as if executed on behalf of the member.
Vigilant’s Conclusion
While Notice 25-05 speaks of the reduced risks of non-investment outside activities, such as refereeing, bartending, etc., the proposed Rule does not exempt those items from being reported to the member.
Firms should note that outside activities relate only to registered persons, while outside securities transactions include all associated persons, including registered persons.
The inclusion of the member’s determination as to whether an activity will involve a customer of the member is a new requirement in both the Outside Activities and Outside Securities Transactions sections of the proposed Rule.
Members should keep in mind the exemptions that exist under the Rule, which include non-broker dealer work done by an associated person on behalf of that member or its affiliate; securities transactions among immediate family members for which the associated person receives no selling compensation; and certain personal investments including security transactions under Rule 3210 (Accounts at Other Broker-Dealers and Financial Institutions), personal investments in non-securities, and activities related to the purchase, sale, rental or lease of a main home or dwelling unit or personal-use rental property.
FINRA is still determining whether activity by a person at an outside IA should be exempted in the future. FINRA will determine whether or not to amend the Rule after receiving further comments, as requested by FINRA Notice 25-05.
Prepared for informational purposes only by Vigilant Distributors, LLC, member of FINRA and SIPC. We believe the above information to be complete and accurate.
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