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Outside Business Activities & Private Securities Transactions – Rule Reform
FINRA proposes to amend its rules relating to Outside Business Activities (“OBAs”) and Private Securities Transactions (“PSTs”). Before any rule changes are filed with the SEC, the regulator seeks comments – which are due no later than 4/27/18.
FINRA Rule 3270 (OBAs of registered persons) and FINRA Rule 3280 (PSTs of an associated person) would be replaced with a single streamlined rule that would reduce unnecessary burdens while strengthening investor protections relating to outside activities. Of particular note, the change would address an area of particular concern among FINRA members - firm obligations for the investment advisory activities of their registered persons.
CORE CONCEPTS OF THE PROPOSED RULE.
- Selling Private Placements Away from Member. Subject to the proposed rule, potentially to the fullest extent – prior notice by the registered person and risk assessment by the member. If the member disapproves the activity, it has no further obligation. If the member approves the activity, the activity becomes part of the member’s business and must be supervised and recorded as such.
- Activities at Third-Party IA. Subject to the proposed rule, but in an intermediate manner – prior notice by the registered person and risk assessment by the member because it is investment related and not excluded from the proposed rule, but the member is not required to supervise or keep records of the IA activities.
- Non-Investment Related Work (e.g., car service, seasonal retail). Subject to the proposed rule, but in a limited manner – a registered person must provide prior notice to the member, but the member is not required to perform a risk assessment of or supervise the activity.
- Activities at Affiliates (e.g., IA, Insurance and Banking Affiliates). Generally excluded from the proposed rule – the proposed rule excludes activities at affiliates, whether or not investment related, unless those activities would require registration as a broker or dealer if not for the person’s association with a member.
- Personal Investments (e.g., Buying Away). Excluded from the proposed rule, but potentially subject to other rules (e.g., FINRA Rule 3210) or firm-imposed notice requirements.
[Click here for a full discussion of the proposal: FINRA RegNote 18-08.]
