FINRA’s recent Regulatory Notice 18-18 requests public comments on a new proposal that, as we’ve discussed on this blog, would significantly change member firms’ supervisory obligations of activities that registered reps undertake at third party or affiliated investment advisory firms. Proposed Rule 3290 (Outside Business Activities) would streamline and replace current FINRA Rule 3270 (Outside Business Activities of Registered Persons) and Rule 3280 (Private Securities Transactions of an Associated Person).
The rule is designed to prioritize members’ attention on high risk activities of reps, while reduce or eliminate supervision of activities that may be subject to other regularly regimes (like investment advisory activities overseen by the SEC.) Per the Notice:
The proposed rule would require registered persons to provide their members with prior written notice of a broad range of outside activities, while imposing on members a responsibility to perform a reasonable risk assessment of a narrower set of activities that are investment related, allowing members to focus on outside activities that are most likely to raise investor protection concerns.
Of note related to investment advisory (IA) activities:
The proposed rule also would generally exclude from the rule …. work performed on behalf of a member’s affiliates [such as an IA affiliate]. Moreover, the proposed rule would not impose supervisory and recordkeeping obligations for most other outside activities, including IA activities at an unaffiliated third-party IA.
Instead of parsing the proposed rule in blog text, let’s look at the illuminative graphic FINRA embedded in the Notice:
The full Regulatory Notice 18-18 can be accessed here. The public comment period lasts until April 27.
