To minimize the potential for a conflict of interest with former FINRA employees representing persons to the Financial Industry Regulatory Authority (“FINRA”), FINRA is filing a proposed rule to prohibit:
- Any former officer of FINRA from making certain communications to or appearances before FINRA for one year.
- Former FINRA employees from making certain communications to or appearances before FINRA at any time in a particular matter involving a specific party or parties in which the employee was personally and substantially involved during his or her employment with FINRA.
- A former FINRA employee from making certain communications to or appearances before FINRA for two years in a particular matter involving a specific party or parties, that was under the employee’s official responsibility during the last year of his or her employment.
- Any current employee from disseminating or disclosing, for a purpose unnecessary to the performance of FINRA job responsibilities, or any former employee from disseminating or disclosing, for any purpose, any nonpublic information obtained in the course of his or her employment with FINRA, unless the disclosure is expressly authorized by FINRA or is required or protected by law.
Ultimately, the rule is intended to minimize conflicts of interest related to prior employment with FINRA and the utilization of confidential information. To this end, while FINRA currently prohibits former officers from appearing or providing expert testimony in a FINRA proceeding for one year following separation from FINRA, FINRA proposes to expand this prohibition by limiting a former officer of FINRA from knowingly and with the intent to influence, making any communication to or appearances before a FINRA Governor or employee within one year from the former officer’s termination of employment with FINRA, on behalf of any other person in connection with any matter on which the former officer seeks official FINRA action by any Governor or employee of FINRA.
Additionally, the rule imposes a two-year ban on “switching sides” on matters within the former employee’s official responsibility to mitigate the apparent conflict of interest and undermining of the public’s trust and confidence in FINRA. Thus, for two years after his or her employment with FINRA terminates, no former employee shall knowingly, with the intent to influence, make any communication to or appearance before a FINRA Governor or employee on behalf of any other person in connection with a particular matter involving a specific party or parties, n which FINRA is a party or has a direct and substantial interest, and which the former employee knows or reasonably should know was actually pending under the former employee’s official responsibility, within the one-year period prior to the termination of his or her employment with FINRA.
Notwithstanding that, the rule provides that a duly authorized FINRA officer may grant reasonable exceptions and waivers from this prohibition consistent with the purposes of the prohibition.
Ultimately, proposed Rule 9910 (Post-Employment Conflict of Interest Restrictions; Non-public Information) is intended to mitigate the potential conflicts of interest that FINRA officers and employees face when their employment with FINRA terminates, and that current and former employees will maintain the confidentiality of nonpublic FINRA information. As with the SEC conflicts rules, FINRA believes that the proposed rules will help instill greater confidence in FINRA.
FINRA has filed the proposed rule change for immediate effectiveness. The operative dates will be December 3, 2018 for paragraphs (b), (c) and (d) of proposed FINRA Rule 9910 and the operative date of paragraph (a) of proposed FINRA Rule 9910 will be April 1, 2019.