FINRA Rule 3290 Proposal

Summary

SIFMA provided comments to the U.S. Securities and Exchange Commission (SEC) in support of FINRA’s proposed rule change to adopt FINRA Rule 3290 (Outside Activities Requirements), in replacement of existing FINRA Rules 3270 (Outside Business Activities of Registered Persons) and 3280 (Private Securities Transactions of an Associated Person).

Excerpt

SIFMA ¹ submits this letter in support of FINRA’s proposed rule change to adopt FINRA Rule 3290 (Outside Activities Requirements), in replacement of existing FINRA Rules 3270 (Outside Business Activities of Registered Persons) and 3280 (Private Securities Transactions of an Associated Person). ² SIFMA has long supported FINRA’s efforts to modernize and streamline its rules.

We appreciate several specific improvements FINRA made, as they reflect a meaningful effort to enhance regulatory efficiency without compromising investor protection. In particular, we support the revised requirements for unaffiliated investment adviser activities. Under the proposal, registered persons would be required only to provide prior written notice of such activities, while members would not be required to approve, supervise, or maintain records of the activity—although they may impose conditions, limitations, or prohibitions where appropriate.

Unless and until Congress expands FINRA’s authority to oversee investment advisory activities that are currently regulated by the Commission and states, the proposal offers a workable solution for our members to supervise these activities at their discretion. Investment advisers have their own supervisory obligations too. Concerns that there would be gaps in supervision with the removal of the requirements pertaining to unaffiliated advisory activities are overblown.

We also appreciate FINRA clarifying that the real estate exclusion covers the purchase, sale, rental, or lease of a primary residence and up to two secondary residences, as well as the scope of the required customer assessment to a customer of the associated or registered person, rather than a customer of the member firm more broadly. This latter clarification improves the rule’s workability, establishing an obligation tied to relationships that firms can realistically identify and verify.

Finally, we appreciate FINRA’s acknowledgment that conforming changes to Form U4 will be necessary to ensure the effectiveness of the new rule and to avoid duplicative and misaligned disclosure obligations.3 The full benefits of Rule 3290 cannot be realized until FINRA, in coordination with the Commission and state securities regulators, harmonizes the Form U4’s “other business” disclosure requirements with the Rule 3290’s narrowed scope. Absent conforming changes, firms are unlikely to amend their policies and procedures if the Form U4 still requires disclosure of non-investment related activities that we posit are not material to investor protection. We encourage FINRA to work in haste to harmonize the Form U4 with Rule 3290.

Thank you for your consideration of our comments. If you would like to discuss our comments further, do not hesitate to contact me.

Sincerely,

Bernard V. Canepa
Managing Director & Associate General Counsel