The Financial Industry Regulatory Authority (“FINRA”) has announced, both in Regulatory Notice 17-20, and in a session regarding the topic at the recent 2017 FINRA Annual Conference in Washington DC, that it has identified Rules 3270 and 3280, which govern outside business activities and personal securities transactions for review. The rules govern firm employees’ business and securities activities that are carried out away from their firm, and are activities that are outside the regular course or scope of their employment with a firm.
FINRA noted that the ability of firm personnel to engage in outside business activities and personal securities transactions may benefit some investors, depending on the circumstances, but may also pose risks, including to both investors and the firm. The rules seek to protect the investing public from potentially problematic or risky activities that are unknown to the firm but could be perceived by the investing public as either part of the firm’s business or having the firm’s imprimatur and to protect the firms from the concomitant reputational and litigation risks. In keeping with these purposes, the rules provide a regulatory framework for firms to be informed of such activities, implement a system to assess them, determine whether to limit or place conditions on the employee’s participation in them and, in the case of private securities transactions for compensation, record and supervise the transactions.
To that end, FINRA has requested comment in part on whether the rules have effectively addressed the problems they were intended to mitigate, and obtain feedback on the economic impact of the rules and the challenges to complying with them. Comments must be received by June 29, 2017.
“Regularly reviewing significant rules to ensure they remain effective at protecting investors in an efficient manner is a key priority that aligns with our FINRA360 initiative,” said FINRA President and CEO Robert W. Cook. “Successful self-regulation requires continuous renewal and improvement. Meaningful dialogue with stakeholders is essential to that process.”
Since assuming his role in August 2016, Cook has heard – as part of an ongoing listening tour – from investors, member firms, investor advocates, regulators, trade associations and FINRA employees, among other stakeholders, about what FINRA is doing well and what it could be doing better. FINRA360 provides a framework to address this feedback and ensure that FINRA is committed to ongoing improvement. As part of the effort, FINRA in recent weeks requested comment, on the organization’s rules impacting capital formation, as well as FINRA’s engagement programs.