Notice2026-02122
[Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change To Adopt FINRA Rule 3290 (Outside Activities Requirements)
Primary source
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Published
February 3, 2026
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 91 Issue 22 (Tuesday, February 3, 2026)</title>
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[Federal Register Volume 91, Number 22 (Tuesday, February 3, 2026)]
[Notices]
[Pages 5003-5012]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-02122]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-104746; File No. SR-FINRA-2026-001]
[Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Adopt
FINRA Rule 3290 (Outside Activities Requirements)
DATES: January 29, 2026.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Exchange Act'' or ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on January 22, 2026, the Financial Industry
Regulatory Authority, Inc. (``FINRA'') filed with the Securities and
Exchange Commission (``SEC'' or ``Commission'') the proposed rule
change as described in Items I, II, and III below, which Items have
been prepared by FINRA. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to adopt FINRA Rule 3290 (Outside Activities
Requirements) and to delete existing FINRA Rules 3270 (Outside Business
Activities of Registered Persons) and 3280 (Private Securities
Transactions of an Associated Person). The amended requirements focus
on outside activities appropriately within members' purview that
potentially present heightened risks for members and the public. In so
doing, the amended requirements bolster members' review of these
activities while reducing unnecessary burdens.
The text of the proposed rule change is available on FINRA's
website at <a href="http://www.finra.org">http://www.finra.org</a> and at the principal office of FINRA.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, FINRA included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. FINRA has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Existing Rules
Proposed new FINRA Rule 3290 would replace existing Rules 3270 and
3280. Current Rule 3270 prohibits a registered person from being an
employee, independent contractor, sole proprietor, officer, director or
partner of another person, or being compensated, or have the reasonable
expectation of compensation, by any other person as a result of any
business activity outside the scope of the relationship with his or her
member (``outside business activity'' or ``OBA''), unless he or she has
provided prior written notice to the member.
Once notified pursuant to Rule 3270, the member must consider
whether the proposed OBA will: (1) interfere with or otherwise
compromise the registered person's responsibilities to the member or
the member's customers or (2) be viewed by customers or the public as
part of the member's business based upon, among other factors, the
nature of the proposed activity and the manner in which it will be
offered. Based on the member's review of such factors, the member must
evaluate the advisability of imposing specific conditions or
limitations on a registered person's OBA, including where circumstances
warrant, prohibiting the activity.
The member also must assess whether a registered person's activity
properly is characterized as an OBA or whether it should be treated as
a ``private securities transaction'' (``PST'') subject to the
requirements of current Rule 3280. A PST is a securities transaction
outside the regular course or scope of an associated person's
employment with a member.
Rule 3280 provides that, prior to participating in any PST, an
associated person (which includes both registered and non-registered
persons) must provide written notice to the member with which he or she
is associated, describing in detail the proposed transaction and the
associated person's proposed role, and indicating whether the
associated person has received or may receive selling compensation in
connection with the transaction. If the PST does not involve selling
compensation, the member must provide prompt written acknowledgement of
the notice and may, at its discretion, require the associated person to
adhere to specified conditions in connection with the
[[Page 5004]]
associated person's participation in the transaction. If the PST
involves selling compensation, the member must inform the associated
person in writing whether it approves or disapproves the associated
person's participation in the transaction. If the member approves the
associated person's participation in the PST for selling compensation,
the member must record the transaction on its books and records and
supervise the associated person's participation as if the transaction
were executed on behalf of the member.
Moreover, through a series of Notices to Members issued in the
1990s, FINRA applied these PST obligations to outside investment
adviser (``IA'') activities.\3\ These Notices to Members state that an
associated person's outside IA activities constitute ``participation
in'' PSTs if he or she did more than simply recommend the securities
transactions (i.e., an IA's effecting or placing an order would
constitute ``participation in'' a PST under these Notices to Members).
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\3\ See Notice to Members 94-44 (May 1994); Notice to Members
96-33 (May 1996).
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Overview of Proposed Amendments
FINRA is proposing Rule 3290 to address the non-securities business
activities and securities transactions that are outside the scope of
individuals' association with a member. The proposed amendments would
focus the rule on investment-related activities to reduce unnecessary
burdens while maintaining the core investor protections of existing
Rules 3270 and 3280.
Proposed Rule 3290 would replace the two current rules--Rules 3270
and 3280--with one rule and is intended to enhance efficiency without
compromising protections for investors and members relating to outside
activities. Importantly, many of the requirements and treatment under
Rules 3270 and 3280 would remain the same or be substantially similar
under proposed Rule 3290. For instance, consistent with Rules 3270 and
3280, proposed Rule 3290 would maintain:
[cir] the dichotomy of covering registered persons' investment-
related outside non-securities activities and associated persons'
outside securities transactions;
[cir] the requirement that persons provide prior written notice of
investment-related outside activities and outside securities
transactions to members;
[cir] the requirement that a member, upon receiving a notice,
assess, among other things, whether the activity will interfere with or
otherwise compromise the person's responsibilities to the member or the
member's customers or be viewed by the member's customers or the public
as part of the member's business based upon, among other factors, the
nature of the proposed activity and the manner in which it will be
offered;
[cir] the requirement that members provide prior written approval
or disapproval only for outside securities transactions for selling
compensation;
[cir] the recordkeeping requirements for investment-related outside
non-securities activities under Rule 3270.01;
[cir] the supervision and recordkeeping obligations under Rule
3280(c)(2) when a member approves an associated person's participation
in a PST for selling compensation; and
[cir] the definition of ``selling compensation'' in Rule
3280(e)(2).
Proposed Rule 3290 also would codify FINRA staff's positions on the
application of the rule with respect to acting as a portfolio manager
or investment committee member for certain entities; activity pursuant
to a contractional relationship between a member and an unaffiliated
entity; certain outside securities activity at banks and other
financial institutions; and formal allocation agreements between
members.
As compared to Rules 3270 and 3280, proposed Rule 3290 would
enhance regulatory efficiency relating to outside activities
requirements by:
[cir] focusing on those outside investment-related activities
appropriately within the members' purview that are a potential risk to
members and the public--maintaining investor protection while
decreasing burdens on members by eliminating the reporting and
assessment of lower-risk activities;
[cir] providing several exclusions from the rule's coverage for
lower-risk activities, including activity conducted at an affiliate of
a member, certain personal real estate activities and personal
investments in non-securities;
[cir] revising the approach to outside unaffiliated IA activity
from requiring supervision and recordkeeping of this activity to
requiring written notice and upfront assessment obligations for such
activity; and
[cir] providing the ability for FINRA staff to grant an exemption
from the provisions of the rule subject to certain conditions.
Investment-Related Activities
Proposed Rule 3290 focuses on outside investment-related activities
that may pose a greater risk to members and the public. This would both
maintain investor protection and decrease burdens on members by
eliminating the reporting and assessment of lower-risk non-investment
related activities that create white noise (e.g., refereeing sports
games, driving for a car service, bartending on weekends). This focus
would allow members to dedicate resources to activities presenting
higher risk, particularly the risk that customers or the public would
view the activities as part of the member's business and thus under its
supervision (e.g., selling fixed annuities, commodities or private
placements away from the member).
Proposed Rule 3290(f)(3) defines ``investment-related activity'' as
pertaining to financial assets, including securities, crypto assets,
commodities, derivatives (such as futures and swaps), currency,
banking, real estate or insurance. The term includes, but is not
limited to, acting as or being associated with a broker-dealer
(``BD''); issuer; insurance agent or company; investment company; IA;
futures commission merchant; commodity trading advisor; commodity pool
operator; municipal advisor; futures sponsor; bank; savings
association; or credit union. The term also includes personal
securities transactions (sometimes referred to as ``buying away''),\4\
other than transactions in accounts that are made known to the member
under, or otherwise delineated in, Rule 3210 (e.g., securities held at
other members, as well as transactions in certain securities, such as
mutual funds, Section 529 plans and variable annuities).\5\
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\4\ When an individual makes a personal securities investment
away from the employing member, and the transaction is not otherwise
covered by Rule 3210 (Accounts at Other Broker-Dealers and Financial
Institutions), the securities transaction is considered ``buying
away,'' which is subject to Rule 3280. See, e.g., Jay Frederick
Keeton, 50 SEC. 1128, 1129-30 (1992) (finding a violation of Rule
3280's predecessor rule where respondent made undisclosed and
unapproved purchases in three partnerships); Dep't of Enforcement v.
Friedman, Complaint No. 2005000835801, 2010 FINRA Discip. LEXIS 10,
at *19 (FINRA NAC July 26, 2010), aff'd, Exchange Act Release No.
64486, 2011 SEC LEXIS 1699 (May 13, 2011) (explaining that ``[Rule
3280] applies to both purchases and sales of securities''); see also
NASD Notice to Members 75-34 (April 1975) (stating that the rule
concerning private securities applies to all securities transactions
by an associated person ``whether on behalf of themselves or on
behalf of customers and others''). The most common ``buying away''
transactions are personal investments in private placements.
\5\ FINRA Rule 3210 requires that an associated person must
obtain the prior written consent of his or her employer when opening
an account, as specified by the rule, at another member or other
financial institution. The other member must, upon written request
by the employer member, transmit duplicate copies of confirmation
and statements, or the transactional data, with respect to an
account subject to Rule 3210. The requirements of Rule 3210 do not
apply to transactions in unit investment trusts, municipal fund
securities, Section 529 plans and variable contracts or redeemable
securities of companies registered under the Investment Company Act
of 1940 or to accounts that are limited to transactions in such
securities, or to Monthly Investment Plan type accounts.
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[[Page 5005]]
Registered and Associated Persons' Prior Written Notice Obligations
Proposed Rule 3290 maintains existing requirements regarding prior
written notice. As is required today, under proposed Rule 3290(a), a
registered person who intends to participate in an outside activity
and, under proposed Rule 3290(b), an associated person (including a
registered person) who intends to participate in an outside securities
transaction, must provide prior written notice to the member. The
written notice must describe in detail the proposed activity or
transaction, the person's proposed role therein and whether the person
will receive selling compensation.\6\ Under proposed Rule 3290(a), a
registered person would be required to provide an updated prior written
notice to the member if there is a material change to the outside
activity. Similarly, under proposed Rule 3290(b)(2), an associated
person would be required to provide an updated prior written notice to
the member if there is a material change to an outside securities
transaction.
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\6\ This language comes from Rule 3280 and was favored for,
among other reasons, consistency purposes over the language in Rule
3270--the notice must be ``in such form as specified by the
member.'' The definition of ``selling compensation'' in proposed
Rule 3290 comes from the current definition in Rule 3280.
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As is true under the current rules, the proposed notice
requirements differ depending on whether the notice is of an outside
activity, an outside securities transaction not for selling
compensation, or an outside securities transaction for selling
compensation.\7\ Under proposed Rule 3290(a), a single notice is used
for an outside activity, while under proposed Rule 3290(b), a separate
notice is required for each outside securities transaction unless an
exception applies that allows the use of a single notice (e.g., a
series of related securities transactions not involving selling
compensation).
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\7\ Under Rule 3270, a registered person may use a single notice
for the proposed outside activity. Rule 3280 requires an associated
person to provide prior written notice to the member for each
proposed securities transaction, unless an exception applies. See In
re Klaus Langheinrich, Exchange Act Release No. 34107, 1994 SEC
LEXIS 3623, at *6 (May 25, 1994) (explaining that Rule 3280
``requires that an associated person must give specific prior notice
of each transaction if the associated person will receive selling
compensation. A single notice will suffice only in the case of a
series of related transactions in which no selling compensation has
been or will be received'').
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Members' Responsibilities Upon Receiving Notice
Under proposed Rule 3290(c), upon receiving written notice of a
registered person's outside activity or, under proposed Rule 3290(d),
an associated person's outside securities transaction, the member must
assess whether it:
<bullet> Is properly characterized:
[cir] A person submitting a notice of an activity may, mistakenly
or intentionally, mischaracterize it (i.e., submitting a notice of an
outside activity when it is an outside securities transaction or an
outside securities transaction for selling compensation).
[cir] Under this provision, a member must analyze whether the
activity is properly characterized to determine its obligations, which
vary depending on the proper designation of the proposed activity, as
discussed below.
<bullet> Involves the customer of such associated or registered
person.
<bullet> Will interfere with or otherwise compromise the person's
responsibilities to the member or the member's customers.
<bullet> Will be viewed by the member's customers or the public as
part of the member's business based upon, among other factors, the
nature of the proposed activity and the manner in which it will be
offered.
These assessment factors are consistent with the existing
requirements under Rule 3270 for an OBA, with the addition that the
member must consider whether the activity or transaction involves the
customer of such associated or registered person. While Rule 3280 does
not include these explicit assessment factors when considering a PST,
FINRA understands that many members perform a similar analysis today.
A member's obligations after conducting an assessment would be the
same under proposed Rule 3290 as they are under existing rules. As with
the existing rules, the member would have differing obligations
depending on the activity.
<bullet> For a registered person's outside activity, under proposed
Rule 3290(c)(2), the member must consider imposing specific conditions
or limitations on the outside activity, including where circumstances
warrant, prohibiting the activity. However, there is no acknowledgement
or approval obligation, and the member is not required to supervise the
activity.\8\
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\8\ The only requirement under proposed Rule 3290 for a member
to engage in supervision regards approved outside securities
transactions for selling compensation. However, nothing in the
proposal would alter the well-settled principle that members must
consider ``red flags'' indicating problematic activities. See, e.g.,
Dep't of Enforcement v. Fox Fin. Mgmt. Corp., Complaint No.
2012030724101, 2017 FINRA Discip. LEXIS 3, at *17-18 (FINRA NAC Jan.
6, 2017) (stating that the ``supervisory duties imposed under NASD
Rule 3010 include a responsibility to investigate and act upon 'red
flags' that reveal irregularities or the potential for misconduct''
and finding that the firm failed to investigate and act upon red
flags indicating that an outside business activity in fact involved
private securities transactions); Dep't of Enforcement v. Merrimac
Corp. Securities, Inc., Complaint No. 2009017195204, 2015 FINRA
Discip. LEXIS 4, at *9 (FINRA NAC Apr. 29, 2015) (affirming the
imposition of sanctions for the firm's failure to adequately
consider red flags of outside business activities and private
securities transactions, for example, by neglecting ``to investigate
after it learned of allegations on a website that one of the outside
businesses was a Ponzi scheme and was suffering serious financial
difficulties'').
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<bullet> For an associated person's outside securities transaction
not for selling compensation, under proposed Rule 3290(d)(2), the
member must provide the associated person prompt written
acknowledgement of such notice and may, at the member's discretion,
require the associated person to adhere to specified conditions in
connection with the associated person's participation in the
transaction. However, there is no approval obligation, and the member
is not required to supervise the activity.\9\
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\9\ See supra note 8.
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<bullet> For an associated person's outside securities transaction
for selling compensation, under proposed Rule 3290(d), the member must
make a reasonable determination of whether to approve, approve subject
to specific conditions or limitations, or disapprove each proposed
securities transaction and must notify the associated person in writing
of such determination. If approved, the member must record the
securities transaction for selling compensation on its books and
records and supervise the person's participation in the transaction as
if executed on behalf of the member.
Exclusions
Proposed Rule 3290 contains several exclusions from the rule's
coverage, including exclusions that are consistent under current Rule
3280. First, proposed Rule 3290(g)(1) provides a new exclusion for an
associated person's (including a registered person's) activity on
behalf of a member or its affiliate. This includes IA activity at a
member that is registered as both a BD and an IA (``dually registered
firm''), and IA, insurance or banking activity conducted at an
affiliate. Activity performed on behalf of a dually registered firm is
not considered activity performed away from the member. The
[[Page 5006]]
exclusion for activity conducted at an affiliate recognizes members'
and their control persons' ability to implement meaningful controls
across business lines.
Second, proposed Rule 3290 revises the member obligations imposed
via a series of Notices to Members issued in the 1990s for IA
activities performed by associated persons at an unaffiliated IA.\10\
These obligations have caused significant confusion and practical
challenges, including, for example, privacy challenges to a member
seeking account information for clients of an unaffiliated IA through
which a member's associated person may be acting in an IA capacity. In
addition, IAs generally are directly regulated by either the SEC or the
states, and subject to a fiduciary obligation to their clients.
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\10\ See supra note 3.
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Under proposed Rule 3290.03, an associated person's activity at an
IA registered either with the SEC under Section 203 of the Investment
Advisers Act or with a state securities commission (or any agency or
office performing like functions) would be considered an outside
activity and not an outside securities transaction. Therefore, the
associated person would be required to provide prior written notice of
such activity and the member would have upfront assessment obligations,
but would not be required to supervise or record the activity.
Third, consistent with Rule 3280, proposed Rule 3290(g)(2) excludes
outside securities transactions among immediate family members for
which there is no selling compensation.
Fourth, consistent with Rule 3280, proposed Rule 3290(g)(3)(A)
excludes outside securities transactions subject to Rule 3210 (e.g.,
securities in an account held at another member) and transactions
delineated in Rule 3210 (e.g., mutual funds, Section 529 plans,
variable annuities).
Fifth, proposed Rule 3290(g)(3)(B) provides an additional exclusion
for personal investments in non-securities and proposed Rule
3290(g)(3)(C) provides a new exclusion for the purchase, sale, rental
or lease of a main home and up to two secondary homes that are: (1)
solely owned by the associated person or the associated person and
immediate family; (2) owned by the associated person as a sole
proprietorship; (3) owned by a corporation, LLC, partnership, limited
partnership, or other entity that is solely owned by the associated
person or the associated person and immediate family; or (4) owned by a
trust with the associated person or the associated person and immediate
family as the sole beneficiaries. These exclusions recognize the lower
risks to customers and members associated with these activities and the
inefficiency of members' having to expend significant resources
reviewing them.
Clarifications
Proposed Rule 3290 codifies FINRA staff's positions on requirements
in several areas. For instance, an issue that has arisen is whether and
to what extent Rules 3270 and 3280 apply to portfolio managers and
investment committee members for registered investment companies (e.g.,
mutual funds, exchange traded funds, unit investment trusts, or
registered closed-end funds), unregistered investment companies,
business development companies, real estate investment trusts and
entities that are recognized as tax exempt. The proposed rule clarifies
that an associated person would need to provide prior written notice
for such activity. However, if, after providing notice, the associated
person engages in such activity, the member would not be required to
supervise and maintain records for the activity, unless the associated
person is selling such entities' shares for selling compensation and
such activity is not otherwise excluded under the proposed rule.
Proposed Rule 3290.01 also clarifies that, if an individual is
associated with more than one member and is engaged in an outside
securities transaction for selling compensation, the members may
develop a written allocation agreement regarding regulatory
obligations. FINRA provided this guidance in Notice to Members 96-33.
Furthermore, proposed Rule 3290 clarifies the application of the
proposed rule to certain non-affiliated activity including activity
that qualifies under the Gramm-Leach-Bliley Act (``GLBA'') \11\ or SEC
Regulation R.\12\ For non-affiliates, consistent with current
requirements, under proposed Rule 3290.04, an associated person's
activity that is pursuant to a contract between a member and another
entity (e.g., banking or insurance networking arrangement) would not be
subject to proposed Rule 3290 if such activity is conducted on behalf
of the member and it is within the scope of the associated person's
relationship with the member.\13\
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\11\ With GLBA, Congress eliminated banks' general exception
from the definition of ``broker'' or ``dealer'' in the Exchange Act.
In place of the general exception, GLBA amended Section 3(a)(4)(B)
of the Exchange Act to provide 11 carve-outs to allow banks to
engage in certain securities activities without being considered a
``broker'' under the securities laws. A bank would be considered a
broker for any securities activities that fall outside of the
exceptions and, accordingly, subject to regulation under the
Exchange Act or be required to ``push out'' the activities to a
broker-dealer.
\12\ On September 24, 2007, the SEC and the Board of Governors
of the Federal Reserve System jointly adopted final rules, known
collectively as Regulation R, to clarify, and in certain cases
expand upon, the statutory exceptions for banks' securities
activities under the Exchange Act, as amended by GLBA. See Exchange
Act Release No. 56501 (September 24, 2007); 72 FR 56514 (October 3,
2007); see also Exchange Act Release No. 47364 (February 14, 2003);
68 FR 8686 (February 24, 2003).
\13\ As is currently required, such activity would be subject to
broker-dealer supervision under FINRA Rule 3110.
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Similarly, under proposed Rule 3290.05, an associated person's
securities activity on behalf of a non-affiliate entity that is not
covered by a contract between the member and such entity but that
qualifies under the GLBA or Regulation R's exceptions to broker or
dealer registration requirements would be considered an outside
activity and not an outside securities transaction. Thus, this activity
would have a prior written notice and upfront assessment requirement
but would not be subject to supervision and recordkeeping.
General Exemptive Authority
To address fact-specific scenarios, proposed Rule 3290 includes
general exemptive authority allowing FINRA staff, pursuant to the FINRA
Rule 9600 Series,\14\ to conditionally or unconditionally grant an
exemption from any provision of proposed Rule 3290 for good cause
shown, after taking into account all relevant factors and provided that
such exemption is consistent with the purposes of proposed Rule 3290,
the protection of investors, and the public interest.\15\ While the
scope of proposed Rule 3290 applies to a wide range of outside
investment-related activities, there may be situations where it
ostensibly applies but the specific facts justify an exemption.
Accordingly, FINRA believes it would be useful and appropriate to have
the flexibility to provide relief from a particular provision of
proposed Rule 3290 under specific factual circumstances.\16\
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\14\ The Rule 9600 Series provides the procedures for members
that seek exemptive relief as permitted under specified rules. See
Rules 9610 through 9630.
\15\ FINRA is also proposing to amend Rule 9610 to add proposed
Rule 3290 to the list of rules under which a member may seek
exemptive relief.
\16\ FINRA notes that the proposed rule change would not impact
members that are funding portals but would impact all other members
including members that have elected to be treated as capital
acquisition brokers (``CABs''), given that the CAB rule set
incorporates the impacted FINRA rules by reference.
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[[Page 5007]]
If the Commission approves the proposed rule change, FINRA will
announce the effective date of the proposed rule change in a Regulatory
Notice.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\17\ which requires, among
other things, that FINRA rules be designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest.
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\17\ 15 U.S.C. 78o-3(b)(6).
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The proposed rule is designed to maintain the important
longstanding goal of protecting the investing public when a member's
registered or associated persons engage in potentially problematic
activities that are unknown to the member but could be perceived by the
investing public as part of the member's business. The proposed rule
change would clarify and streamline Rules 3270 and 3280 into proposed
Rule 3290 and would maintain the core investor protections of the
existing rules, addressing the non-securities business activities and
securities transactions that are outside the regular scope of
individuals' association with a member. But importantly, the proposed
rule narrows the focus to investment-related activities to reduce
unnecessary burdens on members by eliminating the reporting and
assessment of low-risk activities. This focus would allow members to
dedicate resources to activities presenting higher risk, particularly
the risk that customers or the public would view the activities as part
of the member's business.
FINRA believes that by enabling members to redirect supervisory and
compliance resources away from low-risk activities that pose minimal
investor protection concerns toward higher-risk investment-related
activities, the proposed rule change serves the public interest by
promoting more effective risk-based oversight and strengthening
protection where it matters most. Accordingly, FINRA believes that the
proposed rule would enhance the efficiency and effectiveness of outside
activities requirements and thus investor protection.
B. Self-Regulatory Organization's Statement on Burden on Competition
FINRA does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. All members would be subject to
the proposed amendments.
Economic Impact Assessment
FINRA has undertaken an economic impact assessment to analyze the
regulatory need for the proposed rule change, its potential economic
impacts, including anticipated costs, benefits, and distributional and
competitive effects, relative to the current baseline, and the
alternatives FINRA considered in assessing how best to meet FINRA's
regulatory objectives.
Economic Baseline
The economic baseline is current Rules 3270 and 3280, in addition
to related guidance and current practices. As discussed above, Rule
3270 applies to registered persons while Rule 3280 applies to
associated persons, whether registered or not. All such individuals and
members are subject to these rules, irrespective of the members'
business model, client base and product type. These rules set the
minimum standards for reporting outside activities to members, but
members may apply stricter criteria and prohibit or limit particular
activities.
The number of individuals subject to both rules (i.e., the number
of approved FINRA-registered persons) is 635,055, registered with 3,224
members. In addition, non-registered associated persons are subject to
Rule 3280 but not Rule 3270. While FINRA does not know the exact number
of non-registered associated persons, we estimate that there are about
500,000 such persons, composed of, among others, non-registered
fingerprinted individuals (``NRFs'') and non-registered owners and
officers.\18\ Both registered and non-registered persons can be
affiliated with more than one member firm.
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\18\ Figures as of March 31, 2025. The number of NRFs figure
could be both over inclusive and under inclusive. For instance, the
number of NRFs may overestimate the number of non-registered
associated persons as FINRA rules do not require reporting the
termination of an NRF's association with a member. Conversely, there
may be other non-registered associated persons who are neither
fingerprinted nor listed on Form BD who may not be captured in this
figure (e.g., certain individuals in compliance and legal
departments, certain individuals who perform back-office functions).
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In 2017, FINRA conducted a retrospective review of Rules 3270 and
3280 that included a survey of members.\19\ Approximately 80 percent of
the members that responded to the 2017 survey stated that they have
received at least one written notice in the last five years pursuant to
Rule 3270. Approximately 40 percent of the registered persons of those
members provided written notices. Based on Form U4 information, nearly
50 percent of currently registered persons report one or more other
businesses (outside their relationship with the member), covering
almost 98 percent of members. Registered persons reported a broad range
of non-investment-related activities.\20\
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\19\ The anonymized survey was conducted as part of a
retrospective review of both Rule 3270 and Rule 3280. The survey was
sent to all member firms in October 2017, and 1,024 member firms
responded. Among the firms that responded to the by-laws size
question, about half were small firms and the rest were mid-size and
large firms.
\20\ Question 13 (``Other Business'') in Form U4 requires
providing various details about outside activities, including
whether it is an investment-related activity. While the question
does not perfectly align with the activities reportable under Rule
3270, answers may be indicative of the prevalence and range of
outside activities. However, the information provided is not
structured, and it is difficult to assess the share of reported
outside activity that is investment related. The proposed rule
change does not impact reporting on Form U4.
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Rule 3280 requires associated persons to provide prior written
notice before participating in any manner in PSTs. In the 2017 survey,
approximately 40 percent of the responding members stated that they had
received at least one written notice in the prior five years pursuant
to Rule 3280. Approximately 19 percent of the associated persons with
those members provided written notices.
Economic Impacts
Relative to the baseline of current requirements, the proposed rule
change retains similar distinctions and obligations present in Rules
3270 and 3280, but reduces burdens in a number of ways and streamlines
requirements. The proposed rule change limits the scope of non-
securities related outside activities reportable by registered persons
to those that are investment related. Activities that are not
investment related are common and varied (e.g., refereeing sports
games, driving for a car service, bartending on weekends). Removing
reporting requirements for such activities would relieve both
registered persons and members from costs associated with this
reporting and its review. Members may also benefit from focusing the
freed compliance resources on those outside activities that are more
likely to raise investor protection concerns. There is likely little
risk that non-investment-related activities could be perceived by the
investing public as part of the member's business.
The proposed rule change also provides several exclusions regarding
activity on behalf of the member or its affiliates, as well as
exclusions for personal investments in non-securities
[[Page 5008]]
and certain personal real estate activity. Moreover, the proposed rule
change does not apply to an associated person's activity that is
pursuant to a contract between a member and another entity if such
activity is conducted on behalf of the member. In addition, the
proposed rule change clarifies the applicability of the rule to an
associated person's banking activity that is subject to GLBA or
Regulation R. These changes in the proposed rule change reduce burdens
while maintaining investor protections.
Under both the proposed rule change and currently for investment-
related outside activities, registered persons must provide their firms
with prior written notice of the proposed activity and members must
review the proposed activity using specified criteria. The proposed
rule change standardizes the assessment that members must conduct
across all types of reportable activities, upon receiving notice, of
registered persons' outside activities and associated persons' outside
securities transactions, borrowing from the approach used in Rule 3270.
The proposed rule change adds the consideration of whether the activity
involves the customers of the registered or associated person.
Relative to the baseline of the current requirements, the proposed
rule change provides clearer and more consistent standards for
reviewing both outside activities and outside securities transactions,
reducing regulatory uncertainty and the associated legal costs to
determine when and how the rules apply. FINRA understands that many
members already impose the proposed or equivalent requirements. To the
extent that members are applying similar or higher standards today,
there would be no material impact. For members with lower or less
consistent standards, this change would lead to more consistent review
and perhaps additional restrictions. For the associated persons in
firms that currently follow lower or less consistent standards, there
may be a cost imposed in terms of business opportunities delayed,
limited or prohibited by the member to the extent that some previously
permissible activity is no longer allowable. Investors that interact
with these associated persons may face increased search costs for those
goods or services as a result.
The proposed rule change reduces regulatory burdens regarding
affiliated and unaffiliated IA activities.\21\ Affiliated IA activities
are excluded from the rule. For unaffiliated IA activities, registered
persons would only need to provide prior written notice. In the case of
unaffiliated IA activity, members would not need to approve, supervise
or recordkeep the activity, but could impose conditions, limitations or
prohibitions on the activity. One potential risk of this approach is
that customers could be harmed if supervision by an affiliate or
unaffiliated IA is less effective than supervision by the member.\22\
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\21\ Less than three percent of registered representatives
associated to less than 17 percent of members have unaffiliated
investment advisory activity. Less than one percent of NRFs engages
in unaffiliated IA activity. These figures are based on an analysis
of Form U4, Form BD and NRF information, restricting the analysis of
affiliates to broker-dealers and registered investment advisors.
Thus, these numbers represent an upper bound to unaffiliated
activity. See supra note 18 for caveats on estimates of the number
of NRFs.
\22\ Most non-BD affiliate activity is overseen by other
regulators (e.g., the SEC and states for IA activities, various
federal banking regulators for bank activities, and state insurance
commissions for insurance activities).
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For associated persons employed by more than one member, the
proposed rule change codifies previous guidance offering the option of
formal allocation agreements for outside securities transactions for
selling compensation between the members such that at least one of the
members agrees to oversee the outside securities transactions. This
provision allows for potential efficiency gains for members that may
have been unaware of such previous guidance. Associated persons who are
overseen by a single member through an allocation agreement may also
benefit from lower burdens and simplified oversight. About 1.6 percent
of all registered persons work for more than one member, impacting 72.8
percent of members.\23\ If the registered person is associated with
multiple unaffiliated members, it could facilitate agreements. The
proportion of NRFs associated with more than one member is higher, at
about two percent, although the proportion of impacted members is lower
at 25 percent.\24\
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\23\ Figures as of March 31, 2025. Registered persons that work
for multiple members tend to hold operations professional (series
99) and financial and operations principal (series 27)
registrations, particularly among those that are registered with
more than five members.
\24\ Figures as of March 31, 2025. These percentages might
overestimate or underestimate the actual proportion. See supra note
18.
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Both members and IAs compete for individuals with similar skill
sets. The current rules and the proposed rule change impose a
regulatory burden for members that is not matched by equivalent
requirements in the IA industry. Relative to the baseline of the
current requirements, the focus on investment-related activities in the
proposed rule change reduces, but does not eliminate, this regulatory
burden. The competitive impacts of the proposed rule change on members
and their associated persons depend on the business model of the member
and the policies that the member adopts. To the extent that associated
persons may seek employment with members based on their policies
regarding outside activities, some members may face pressure to use a
light touch in their assessment of outside activities and the
associated determinations. The different treatment of outside
activities for non-registered associated persons versus registered
persons can create, on the margin, incentives for some non-registered
associated persons to remain unregistered depending on the facts and
circumstances. Under the proposed rule change, the exclusion of outside
activities that are not investment related may reduce or eliminate that
incentive to remain unregistered for some associated persons.
In summary, the proposed rule change could increase the efficiency
and effectiveness of member compliance resources by clarifying the
obligations of a member and associated persons, focusing attention on
the activities more likely to lead to investor harm, and providing
clearer and more consistent standards for the assessment that members
must conduct, upon receiving notice, of registered persons' outside
activities or associated persons' outside securities transactions. Such
changes maintain investor protection, but may also have some effect on
the investment-related opportunities offered to them. The reduction in
legal and compliance costs may also have a positive competitive impact
relative to segments of the securities industry that lack equivalent
requirements for outside activities.
Alternatives Considered
In developing rule proposals, FINRA recognizes that their design
and implementation may impose direct and indirect costs on different
market participants, including members, associated persons, regulators,
investors and the public. Among the alternatives considered:
<bullet> A principles-based approach in lieu of the prescriptive
approach set forth in the proposed rule change, which would provide
members with more flexibility in developing the systems and the
protocols to assess OBAs and PSTs. However, FINRA believes that the
approach presented here better balances the costs and benefits of
governing outside investment-related activities while providing
regulatory effectiveness, clarity and consistency.
[[Page 5009]]
<bullet> Applying outside activities requirements to all associated
persons (rather than using the existing bifurcated approach of applying
PST requirements to associated persons and OBA requirements to
registered persons) or adding a requirement for prior written approval
for all outside activities. Either one of these changes would have
further streamlined the application of the rule, but potentially would
increase regulatory costs for associated persons and members, in
particular smaller firms.
<bullet> A broader scope for the activities covered by the proposed
rule change, to include outside financial services activities beyond
investment-related activity, such as acting as an accountant, treasurer
or comptroller. The current definition of ``investment-related
activity'' focuses on outside activities that are most likely to lead
to investor confusion, conflicts of interest for the registered person
and potential investor harm.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
In March 2025, FINRA published Regulatory Notice 25-05 (the
``Notice''), requesting comment on the proposed rule change (the
``Notice Proposal''). FINRA received 216 comments in response to the
Notice, 72 of which were individualized letters and 144 of which were
one of three form letters. A copy of the Notice is available on FINRA's
website at <a href="http://www.finra.org">http://www.finra.org</a>. A list of the commenters in response
to the Notice and copies of the comment letters received in response to
the Notice are available on FINRA's website.\25\
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\25\ See SR-FINRA-2026-001 (Form 19b-4, Exhibits 2b and 2c) for
a list of abbreviations assigned to commenters (available on FINRA's
website at <a href="http://www.finra.org">http://www.finra.org</a>).
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Commenters had different views regarding several aspects of the
Notice Proposal. A summary of the comments and FINRA's response is
provided below.
Broad Support for Streamlining Rules
There was broad support from commenters for streamlining the
existing rules (Rules 3270 and 3280) into a new consolidated rule that
focuses on activities that pose the greatest risks to investors.\26\
However, several commenters opposed the proposal's objective and
advocated for maintaining the status quo, in which all outside business
activities are reported and outside investment advisory activity
involving selling compensation, including such activity with
affiliates, are supervised by member firms.\27\
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\26\ See letters from ASA, Eversheds, FSI, IRI, LPL, Monument,
Robinhood, SIFMA and St. John's Law.
\27\ See letters from Massachusetts and PIABA.
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Scope of ``Investment-Related Activity''
While there was broad support for streamlining the existing rules,
there was not agreement regarding the proper scope of activities that
firms should be required to assess. Several commenters favored
narrowing the scope of activity subject to the rule's notice and
assessment requirement. Some of these commenters recommended focusing
on securities-related activities, rather than on broader categories of
financial assets including crypto, real estate, and insurance.\28\ In
contrast, other commenters favored broadening the scope to capture a
wider range of activities.\29\
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\28\ See letters from Broadstone, GVC, LPL, Monument, Robinhood,
WEG 1, Githens and IRI.
\29\ See letters from Cornell Law, NASAA, Massachusetts and St.
John's Law.
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As an initial matter, FINRA notes that several commenters that
requested FINRA narrow the definition of ``investment-related
activity'' may have misunderstood the supervisory and recordkeeping
requirements under the proposed rule and mistakenly believed such
obligations would apply to non-securities activity.\30\ They would not.
As discussed above, the supervisory and recordkeeping requirements
would only apply if an associated person engages in an approved outside
securities transaction for selling compensation.
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\30\ See FINRA Statement to Correct Misinformation About FINRA's
Outside Activities Proposal (May 5, 2025), <a href="https://www.finra.org/media-center/newsreleases/2025/finra-statement-correct-misinformation-about-finras-outside">https://www.finra.org/media-center/newsreleases/2025/finra-statement-correct-misinformation-about-finras-outside</a>.
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FINRA believes the scope of the definition of ``investment-related
activity'' strikes the right balance regarding disclosure of activities
that may pose a greater risk to the investing public and members and
should be retained. Such scope would both maintain investor protection
and decrease burdens on members by eliminating the reporting and
assessment of low-risk activities that create white noise (e.g.,
refereeing sports games, driving for a car service, bartending on
weekends).
Limiting the definition to securities transactions would
inappropriately exclude activities that present higher risks to
customers and firms, particularly the risk that customers or the public
would view the activities as part of the member's business.
Specifically, when customers see their registered representative
offering non-securities investment-related services (e.g., selling non-
security crypto assets, fixed annuities, or commodities away from the
member), they may reasonably believe that these activities are part of
the member's business, which increases risks of customer confusion and
harm, and legal and reputational risk for the registered
representative's firm.
By encompassing both securities and non-securities investment-
related activity, the proposed definition of ``investment-related
activity'' would allow members to dedicate compliance resources to
reviewing their registered persons' activities in these higher-risk
activities.
Conversely, broadening the definition to capture a wider range of
activities would further increase burdens on members on low-risk
activities that create white noise, including those activities where a
customer or the public would not reasonably view the activities as part
of the member's business.
Bifurcated Approach Regarding Registered and Associated Persons
Similar to the bifurcated approach in Rules 3270 and 3280, in which
registered persons disclose a broader range of outside activities than
associated persons, the proposed rule change provides for a bifurcated
approach in which registered persons are required to provide their
firms with prior written notice of outside investment-related
activities and associated persons are required to provide their firms
with prior written notice of proposed outside securities transactions.
Several commenters suggested that FINRA limit the rule to only apply to
outside activities of registered persons, including with respect to
outside securities transactions, in contrast to the current application
under Rule 3280.\31\
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\31\ See letters from ASA and SIFMA.
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FINRA believes that maintaining a bifurcated approach for
registered persons' investment-related activities and associated
persons' outside securities transactions is appropriate. When an
associated person--registered or not--engages in a securities
transaction outside their member firm, it implicates regulatory
interests in the associated person's and their firm's compliance with
applicable securities laws and regulations. When an associated person
engages in a securities transaction away from their firm without
providing prior written notice of the proposed transaction, a member
cannot assess the risk that the transaction will interfere with or
otherwise compromise the associated
[[Page 5010]]
person's responsibilities to the member or the member's customers or
will be viewed by the member's customers or the public as part of the
member's business.
In addition, without this information, the firm would not be in a
position to determine whether to, in the case of an outside securities
transaction not for compensation, require the associated person to
adhere to specified conditions in connection with the associated
person's participation in the transaction, or, in the case of an
outside securities transaction for selling compensation, approve the
proposed transaction, approve the proposed transaction subject to
specific conditions or limitations or disapprove the proposed
transaction. This lack of visibility could result in significant legal
and reputational risks for the member.
Members' Obligations Upon Receiving Notice
Under both proposed Rule 3290 and currently for investment-related
outside activities, registered persons must provide their firms with
prior written notice of the proposed activity and members must review
the proposed activity using specified criteria. The Notice Proposal
standardized the assessment that members must conduct, upon receiving
notice, of registered persons' outside activities and associated
persons' outside securities transactions, borrowing from the approach
used in Rule 3270 with an addition--the consideration of whether the
activity involves the member's customers.
Several comments raised concerns about the practical challenges of
determining whether the activity involves the member's customers (as
opposed to customers of the associated person or registered
person).\32\ FINRA agrees with these concerns and has amended this
customer assessment in proposed Rule 3290 to apply only to the customer
of such registered or associated person rather than to the member's
customer. The member then would need to consider that information as
one of the assessment factors upon receiving the written notice.
---------------------------------------------------------------------------
\32\ See letters from ARM, Robinhood and SIFMA.
---------------------------------------------------------------------------
Exclusions Overview
The Notice Proposal contained several exclusions from the rule's
coverage, including an associated person's (including a registered
person's) non-BD activity on behalf of a member or its affiliate,
outside securities transactions subject to Rule 3210 and transactions
delineated in Rule 3210.03, personal investments in non-securities and
certain real estate transactions. Commenters generally supported the
proposed exclusions. However, some commenters asked for clarifications
or expansions of certain exclusions. In addition, some commenters
raised concerns with respect to personal investments in non-securities.
Those comments are discussed below.
Affiliate Exclusion and Non-Affiliated Activity
The Notice Proposal excluded an associated person's (including a
registered person's) non-BD activity on behalf of a member or its
affiliate (e.g., IA activity at a dually registered firm, and IA,
insurance or banking activity conducted at an affiliate). ``Affiliate''
was defined as any entity that controls, is controlled by, or is under
common control with the member. While commenters generally supported
the affiliate exclusion, several commenters supported expanding it to
cover certain contractual relationships with the member.\33\
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\33\ See letters from ASA, IRI, LPL and SIFMA.
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In light of the feedback received, FINRA believes that the
obligations under the proposed Rule 3290 should vary depending on the
relationship between the member and another entity.
<bullet> For affiliates, the Notice Proposal excluded an associated
person's (including a registered person's) non-BD activity on behalf of
a member or its affiliate. FINRA continues to believe this exclusion
recognizes members' ability to implement meaningful controls across
business lines and that the definition is in line with members'
abilities. However, FINRA has deleted the ``non-broker-dealer''
language in proposed Rule 3290 to make clear that all affiliate
activity is excluded.
<bullet> For non-affiliates, an associated person's activity that
is pursuant to a contract between a member and another entity (e.g.,
banking or insurance networking arrangement) is not subject to the
proposed rule change if such activity is conducted on behalf of the
member as it is within the scope of the associated person's
relationship with the member. Even though this activity has always been
considered the activity of the member, FINRA has added supplementary
material in proposed Rule 3290 to clarify the application of the
proposed rule to this activity.
<bullet> An associated person's non-affiliate securities activity
that is not covered by a contract between a member and another entity,
discussed directly above, but that qualifies under GLBA \34\ or SEC
Regulation R's \35\ exceptions to broker or dealer registration
requirements is considered an outside activity and not an outside
securities transaction. Thus, this activity would have a notice and
assessment requirement but would not be subject to supervision and
recordkeeping. FINRA has added supplementary material in proposed Rule
3290 to clarify the application of the proposed rule to this activity.
---------------------------------------------------------------------------
\34\ See supra note 11.
\35\ See supra note 12.
---------------------------------------------------------------------------
Personal Investments in Non-Securities Exclusion
The Notice Proposal contained an exclusion for an associated
person's investments in non-securities. While two commenters provided
support for the exclusion,\36\ a number of commenters raised concerns
with respect to personal investments in crypto assets, suggesting that
an associated person's personal investment in crypto assets would
require member approval.\37\
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\36\ See letters from Anonymous 2 and Sosa.
\37\ See letters from Anonymous 3, Betz, Christoforo, Form
Letter Type C, Forrester, Frazee, John 2, Messier, Pineyro,
Ripperger, Ruffolo, Smith, Sosa, Sullivan and Sweeney.
---------------------------------------------------------------------------
FINRA believes there is a misunderstanding of this exclusion. Under
the Notice Proposal and the proposed rule change, an associated
person's personal investments in non-securities are excluded.
Therefore, personal transactions in non-security crypto assets, such as
bitcoin, are excluded from coverage under proposed Rule 3290. As such,
there would not be a prior written notice requirement or an approval
requirement for these transactions. If a personal crypto asset
transaction involves a security, there would be a prior written notice
and an acknowledgment requirement. However, unless the transaction
involves selling compensation, there would be no approval requirement.
Real Estate Exclusion
The Notice Proposal also contained an exclusion for the purchase,
sale, rental or lease of a main home or dwelling unit or personal-use
rental property, as defined for purposes of the Internal Revenue Code.
Several commenters asked for clarification of this exclusion,\38\ with
FSI suggesting that FINRA revise the exclusion to cover ownership
involving the associated person or the associated person and
``immediate family,'' as recently modernized in another FINRA rule.\39\
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\38\ See letters from ARM, Eversheds, FSI, Robinhood, SIFMA and
Tobin.
\39\ FSI suggested referring to the definition of ``immediate
family'' in Rule 3240(c), which defines it as parents, grandparents,
mother-in-law or father-in-law, spouse or domestic partner, brother
or sister, brother-in-law or sister-in-law, son-in law or daughter-
in-law, children, grandchildren, cousin, aunt or uncle, or niece or
nephew, and any other person who resides in the same household as
the registered person and the registered person financially
supports, directly or indirectly, to a material extent. The term
includes step and adoptive relationships.
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[[Page 5011]]
In response, FINRA has clarified the real estate exclusion to cover
the purchase, sale, rental or lease of a main home and up to two
secondary homes. For purposes of this provision, a secondary home would
be a property that is used for residential purposes by the associated
person for at least part of the year.
FINRA has also added clarifying language stating that the exclusion
would apply if the property is: (1) solely owned by the associated
person or the associated person and ``immediate family''; (2) owned by
the associated person as a sole proprietorship; (3) owned by a
corporation, LLC, partnership, limited partnership, or other entity
that is solely owned by the associated person or the associated person
and immediate family; or (4) owned by a trust with the associated
person or the associated person and immediate family as the sole
beneficiaries. The term ``immediate family'' would use the recently
revised definition.
Member Supervision of Unaffiliated IA Activities
The Notice Proposal maintained the status quo regarding members'
recordkeeping and supervisory responsibilities for outside unaffiliated
IA activity. There was widespread opposition to the requirement for
broker-dealers to supervise outside IA activities conducted through
unaffiliated IAs.\40\ Commenters stated that this requirement is
outside FINRA's jurisdiction,\41\ creates duplicative oversight,\42\
disregards the practical barriers of acquiring the data necessary to
supervise effectively,\43\ raises privacy concerns,\44\ unfairly
creates litigation risk,\45\ and imposes significant burdens on BDs
without commensurate benefits to investor protection.\46\
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\40\ See letters from 4J Wealth, ADISA, Anonymous 5, ARM, ASA,
Becker, Form Letter Type A, Form Letter Type B, Githens, Integrated
Solutions, IAA, IRI, LPL, PKS, Robinhood, SIFMA, Sigma, Solebury,
Stavis, Tobin, WEG 1, WEG 2 and Woodworth.
\41\ See letters from Becker, Form Letter Type B, IAA and
Solebury.
\42\ See letters from 4J Wealth, ARM, Anonymous 5, ASA, Becker,
IRI, LPL, Robinhood, Stavis, Tobin, WEG 1, WEG 2 and Woodworth.
\43\ See letters from IRI and John 1.
\44\ See letters from 4J Wealth, ARM, Anonymous 5, Form Letter
Type A, Form Letter Type B, Githens, IAA, KerberRose, LPL, PKS,
Sigma, Solebury, Stavis, WEG 1, WEG 2 and Woodworth.
\45\ See letters from Anonymous 5, Broadstone and Sigma.
\46\ See letters from ADISA, Anonymous 5, Form Letter Type A,
Becker, Robinhood, SIFMA, Sigma, Solebury, Stavis, WEG 1 and WEG 2.
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In contrast, only four commenters supported maintaining BD
supervision and recordkeeping of unaffiliated IA activities.\47\ In
general, these commenters were concerned that eliminating such
supervision and recordkeeping would increase the risk of investor harm
in connection with activity occurring at an unaffiliated IA or of such
harm being undetected.
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\47\ See letters from FSI, Massachusetts, NASAA and PIABA.
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FINRA recognizes that IA activity is subject to another regulatory
regime, which creates the potential for regulatory duplication or
inconsistencies. The imposition of broker-dealer supervisory
obligations raises practical challenges, particularly for members that
do not have an affiliated IA and are unlikely to have specialized
knowledge of IA business practices and regulations, yet are currently
required to supervise their associated persons' outside IA activities.
These issues also create confusion about which regulatory standards
should apply--BD or IA requirements--which has the potential to
undermine effective supervision.
FINRA acknowledges that the supervision requirement may increase
members' litigation risk because lawyers representing clients of
unaffiliated IAs may use FINRA's supervisory requirement as the basis
for asserting claims against BDs for misconduct occurring at
unaffiliated IAs. FINRA notes that members are free to impose
supervisory obligations on their associated persons as a condition to
participating in outside unaffiliated IA activity, whether or not
required by rule.
FINRA also acknowledges the concerns that commenters articulated
about the practical difficulties and costs of supervising outside IA
activities. In addition to the questions about what supervision is
required, members may lack access to information necessary to
meaningfully supervise outside unaffiliated IA activities, creating an
untenable situation where members bear regulatory responsibility and
potential liability without adequate means to fulfill their regulatory
obligations. Furthermore, privacy concerns create substantial obstacles
for members in obtaining and safeguarding personal information of
unaffiliated IA clients and potentially raise risks for members under
various privacy laws and rules.
For these reasons, FINRA has eliminated the requirement for members
to engage in supervision and recordkeeping of outside unaffiliated IA
activities in proposed Rule 3290. Such activity would be considered
outside activity under proposed Rule 3290 that would continue to have
prior written notice and upfront assessment obligations, but not
recordkeeping and supervision obligations. FINRA has added
supplementary material in proposed Rule 3290 to clarify the application
of the proposed rule to this activity.
General Exemptive Authority
FINRA received several comments that described various scenarios
involving outside activities and requests for relief under the
proposal.\48\ Rather than address these very fact-specific scenarios in
proposed Rule 3290, FINRA has added general exemptive authority
allowing FINRA staff, pursuant to the Rule 9600 Series,\49\ to
conditionally or unconditionally grant an exemption from any provision
of proposed Rule 3290 for good cause shown, after taking into account
all relevant factors and provided that such exemption is consistent
with the purposes of proposed Rule 3290, the protection of investors,
and the public interest. While the scope of proposed Rule 3290 applies
to a wide range of outside investment-related activities, there may be
situations where it ostensibly applies but the specific facts justify
an exemption. Accordingly, FINRA believes it would be useful and
appropriate to have the flexibility to provide relief from a particular
provision of proposed Rule 3290 under specific factual
circumstances.\50\
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\48\ See letters from Cutson and GVC.
\49\ See supra note 14.
\50\ See supra note 15.
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Alignment with Form U4 Disclosures
Several commenters noted discrepancies between the proposed rule's
notification requirements and the existing Form U4 disclosures, and
urged FINRA to coordinate with the SEC and states to harmonize these
requirements.\51\ FINRA notes that Form U4 disclosures go beyond the
scope of the proposed rule change but that FINRA would endeavor to work
with the SEC and states to harmonize the requirements where
appropriate.
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\51\ See letters from ARM, Eversheds, FSI, GVC, IRI, Robinhood
and SIFMA.
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[[Page 5012]]
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#b3c1c6dfd69ed0dcdeded6ddc7c0f3c0d6d09dd4dcc5"><span class="__cf_email__" data-cfemail="c2b0b7aea7efa1adafafa7acb6b182b1a7a1eca5adb4">[email protected]</span></a>. Please include
File Number SR-FINRA-2026-001 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2026-001. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
Copies of the filing will be available for inspection and copying at
the principal office of FINRA. Do not include personal identifiable
information in submissions; you should submit only information that you
wish to make available publicly. We may redact in part or withhold
entirely from publication submitted material that is obscene or subject
to copyright protection. All submissions should refer to File Number
SR-FINRA-2026-001 and should be submitted on or before February 24,
2026.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\52\
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\52\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2026-02122 Filed 2-2-26; 8:45 am]
BILLING CODE 8011-01-P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on February 3, 2026.
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