Notice2026-19126
Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving a Proposed Rule Change, as Modified by Partial Amendment No. 1, To Adopt FINRA Rule 3290 (Outside Activities Requirements)
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
September 18, 2026
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 91 Issue 180 (Friday, September 18, 2026)</title>
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[Federal Register Volume 91, Number 180 (Friday, September 18, 2026)]
[Notices]
[Pages 59259-59278]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-19126]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-106381; File No. SR-FINRA-2026-001]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Order Approving a Proposed Rule Change, as Modified by
Partial Amendment No. 1, To Adopt FINRA Rule 3290 (Outside Activities
Requirements)
September 15, 2026.
I. Introduction
On January 22, 2026, the Financial Industry Regulatory Authority,
Inc. (``FINRA'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to adopt FINRA Rule 3290 (Outside
Activities Requirements) to replace existing FINRA Rules 3270 (Outside
Business Activities of Registered Persons) and 3280 (Private Securities
Transactions of an Associated Person).
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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The proposed rule change was published for comment in the Federal
Register on February 3, 2026.\3\ The public comment period closed on
February 24, 2026. The Commission received comment letters in response
to the Notice.\4\ On March 13, 2026, FINRA consented to an extension of
the time period in which the Commission must approve the proposed rule
change, disapprove the proposed rule change, or institute proceedings
to determine whether to approve or disapprove the proposed rule change
to May 4, 2026.\5\ On May 1, 2026, FINRA responded to the comment
letters received in response to the Notice and filed a partial
amendment to modify the proposed rule change (``Amendment No. 1'').\6\
On May 1, 2026, the Commission published a notice of the filing of
Amendment No. 1 and an order instituting proceedings (``OIP'') to
determine whether to approve or disapprove the proposed rule change, as
modified by Amendment No. 1 (hereinafter referred to as the ``proposed
rule change'' unless otherwise specified).\7\ The public comment period
closed on May 27, 2026. The Commission received additional comment
letters in response to the notice of the filing of the amendment and
OIP.\8\ On June 11, 2026, FINRA responded to the comment letters
received in response to the OIP.\9\ On July 24, 2026, FINRA consented
to extend until October 1, 2026, the time period in which the
Commission must approve or disapprove the proposed rule change.\10\
This order approves the proposed rule change, as modified by Amendment
No. 1.
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\3\ See Exchange Act Release No. 104746 (Jan. 29, 2026), 91 FR
5003 (Feb. 3, 2026) (File No. SR-FINRA-2026-001) (``Notice'').
\4\ The comment letters are available at <a href="https://www.sec.gov/rules-regulations/public-comments/sr-finra-2026-001">https://www.sec.gov/rules-regulations/public-comments/sr-finra-2026-001</a>.
\5\ See letter from Alicia Goldin, Vice President and Associate
General Counsel, Office of General Counsel, FINRA (dated Mar. 13,
2026), <a href="https://www.finra.org/sites/default/files/2026-03/SR-FINRA-2026-001-Extension1.pdf">https://www.finra.org/sites/default/files/2026-03/SR-FINRA-2026-001-Extension1.pdf</a>.
\6\ See letter from Matthew E. Vitek, Associate General Counsel,
Office of General Counsel, FINRA (dated May 1, 2026) (``FINRA I''),
<a href="https://www.sec.gov/comments/SR-FINRA-2026-001/srfinra2026001-765807-2350615.pdf">https://www.sec.gov/comments/SR-FINRA-2026-001/srfinra2026001-765807-2350615.pdf</a>; see also Amendment No. 1.
\7\ See Exchange Act Release No. 105355 (May 1, 2026), 91 FR
24613 (May 6, 2026) (File No. SR-FINRA-2026-001).
\8\ See supra note 4.
\9\ See letter from Matthew E. Vitek, Associate General Counsel,
Office of General Counsel, FINRA (dated June 11, 2026) (``FINRA
II''), <a href="https://www.sec.gov/comments/SR-FINRA-2026-001/srfinra2026001-814261-2480673.pdf">https://www.sec.gov/comments/SR-FINRA-2026-001/srfinra2026001-814261-2480673.pdf</a>.
\10\ See letter from Alicia Goldin, Vice President and Associate
General Counsel, Office of General Counsel, FINRA (dated July 24,
2026), <a href="https://www.finra.org/sites/default/files/2026-07/FINRA-2026-001-Extension-2.pdf">https://www.finra.org/sites/default/files/2026-07/FINRA-2026-001-Extension-2.pdf</a>.
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II. Description of the Proposed Rule Change
A. Background
1. FINRA Rule 3270 (Outside Business Activities of Registered Persons)
Subject to several exemptions, FINRA 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 having 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 firm (outside business
activities or ``OBA''), unless he or she has provided
[[Page 59260]]
prior written notice to the member, in such form as specified by the
member.\11\
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\11\ FINRA Rule 3270 exempts from its operative requirements
passive investments and private securities transactions subject to
the requirements of FINRA Rule 3280.
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Upon receipt of a written notice, FINRA Rule 3270.01 requires the
member to consider whether the proposed activity will: (1) interfere
with or otherwise compromise the registered person's responsibilities
to the member and/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 whether to condition, limit, or
prohibit a registered person's outside activity.\12\ FINRA Rule 3270.01
also requires a member to evaluate the registered person's proposed
activity to determine whether the activity is properly characterized as
an OBA or a private securities transaction (``PST'') subject to the
requirements of FINRA Rule 3280. Additionally, FINRA Rule 3270.01
requires a member to keep a record of its compliance with these
obligations with respect to each written notice received and must
preserve this record in accordance with the time and accessibility
requirements of Exchange Act Rule 17a-4(e)(1).
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\12\ See FINRA Rule 3270.01.
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2. FINRA Rule 3280 (Private Securities Transactions of an Associated
Person)
FINRA Rule 3280(a) prohibits an associated person of a member from
participating in any manner in a PST \13\ except in accordance with the
following requirements:
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\13\ FINRA Rule 3280(e)(1) defines a PST as any securities
transaction outside the regular course or scope of an associated
person's employment with a member, excluding: (1) transactions
subject to the notification requirements of FINRA Rule 3210
(Accounts at Other Broker-Dealers and Financial Institutions); (2)
transactions among immediate family members (as defined in FINRA
Rule 5130 (Restrictions on the Purchase and Sale of Initial Equity
Public Offerings)) for which no associated person receives any
selling compensation; and (3) personal transactions in investment
company and variable annuity securities. FINRA Rule 3280(e)(2)
defines ``selling compensation'' as any compensation paid directly
or indirectly from whatever source in connection with, or as a
result of, the purchase or sale of a security.
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<bullet> FINRA Rule 3280(b) requires an associated person, prior to
participating in any private securities transaction, to provide written
notice to the member with which he or she is associated, describing in
detail the proposed transaction and the person's proposed role therein
and stating whether he or she has received or may receive selling
compensation in connection with the transaction; \14\
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\14\ In the case of a series of related transactions in which no
selling compensation has been or will be received, an associated
person may provide a single written notice. FINRA Rule 3280(b).
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<bullet> FINRA Rule 3280(c)(1) requires a member that has received
notice from one of its associated persons regarding a proposed
transaction for which the associated person has received or may receive
selling compensation to advise the associated person in writing whether
it approves or disapproves the person's participation in the proposed
transaction;
<bullet> FINRA Rule 3280(c)(2) requires a member that approves its
associated person's participation in a proposed transaction to record
the transaction on its books and records supervise the associated
person's participation in the transaction as if the transaction were
executed on behalf of the member;
<bullet> FINRA Rule 3280(c)(3) prohibits an associated person from
participating in a transaction if the member disapproves its associated
person's participation in the proposed transaction; and
<bullet> FINRA Rule 3280(d) requires a member that has received
notice from one of its associated persons regarding a proposed
transaction or series of related transactions for which the associated
person has not and will not receive any selling compensation to provide
the associated person prompt written acknowledgment of his or her
notice.\15\
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\15\ The member may also require the associated person to adhere
to specified conditions in connection with his or her participation
in the transaction. See FINRA Rule 3280(d).
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B. The Proposed Rule Change
The proposed rule change would replace current FINRA Rules 3270 and
3280 with new FINRA Rule 3290. Proposed FINRA Rule 3290 would retain,
or be substantially similar to, many of the existing requirements of
the current rules under two distinct categories of activities: (1)
outside investment-related activities of registered persons and (2)
outside securities transactions of associated persons.\16\ Similar to
the obligations imposed under current Rules 3270 and 3280, associated
persons generally would be required to report outside securities
transactions, while only registered persons would be required to report
outside activities.
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\16\ The term ``associated persons'' includes ``registered
persons.'' See Notice at 5005.
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As discussed in more detail below, the proposed rule would narrow
the scope of reportable activities of registered persons from outside
business activities to outside investment-related activities (defined
as ``outside activities'' of registered persons). Under proposed FINRA
Rule 3290, ``investment-related activity'' would cover a range of
activities involving financial assets beyond securities but would be
subject to certain exclusions and exceptions. The proposed rule change
would also: (1) recharacterize certain associated person activities
(such as those involving an unaffiliated investment adviser) that are
currently treated as PSTs under FINRA Rule 3280 as outside activities
(rather than as outside securities transactions); (2) codify the
treatment of certain activities as outside activities; and (3) exclude
from the rule's coverage activity conducted by associated persons
(including registered persons) on behalf of an affiliate of a member,
certain personal real estate activities, and personal investments in
non-securities.
While the proposed rule change would change the scope of activities
covered by, or the characterization of certain activities under (i.e.,
as an outside activity instead of as an outside securities transaction)
the proposed rule, many of the obligations imposed on outside
activities or outside securities transactions would either be retained
or would be substantially similar to the existing requirements for an
OBA or a PST, including: (1) requiring that a registered person who
intends to participate in certain outside activities and an associated
person who intends to participate in outside securities transactions
(as defined below) provide prior written notice to the member; (2)
requiring members receiving a notice to assess, among other things,
whether to permit, prohibit, or limit the person's participation in the
identified proposed activity; (3) requiring members' prior written
approval or disapproval of certain activities; and (4) requiring member
supervision and recordkeeping of certain activities.\17\
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\17\ Notice at 5004. The proposed rule change would also retain
the definition of ``selling compensation'' set forth in FINRA Rule
3280(e)(2).
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FINRA stated that, consistent with existing FINRA Rules 3270 and
3280, both the notice requirements and member obligations upon
receiving the notice would differ depending on the type of activity
(outside activity, outside securities transaction not for selling
compensation, or outside securities transaction for selling
compensation).\18\ The member's obligations after conducting an
assessment would also depend on the type of activity, with the
[[Page 59261]]
greatest member obligations applying to outside securities transactions
for selling compensation.\19\
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\18\ Notice at 5005.
\19\ Id.
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Importantly, the proposed rule change would not limit a member's
ability to expand the scope of its assessment for reportable activities
beyond the minimum requirements established in the proposed rule change
or to exercise discretion to apply stricter criteria and impose
conditions or prohibitions based on the member's own assessment of the
risk presented by the identified activity.\20\ Additionally, nothing in
the proposed rule change would alter the well-settled principle that
members must investigate ``red flags'' indicating problematic
activities.\21\
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\20\ Id. at 5007.
\21\ See id. at 5005, note 8.
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FINRA stated that by merging the two existing rules, the proposed
rule change would enhance members' regulatory efficiency without
compromising protections for investors and members relating to outside
activities.\22\ FINRA stated that reducing or eliminating the
regulatory burden on members for activities that FINRA believes are
lower risk would enable members to redirect supervisory and compliance
resources away from activities that pose fewer investor protection
concerns and toward higher-risk investment-related activities.\23\ For
example, FINRA stated that the proposed rule would focus on those
outside activities that are appropriately within the members' purview
that are a potential risk to members and the public.\24\ At the same
time, FINRA stated that the proposed rule would provide exclusions for
certain activities that FINRA has assessed pose lower risk to its
members or the public, including activity conducted at an affiliate or
activities such as bartending or refereeing sports games.\25\ As such,
FINRA stated that the proposed rule change would serve the public
interest by maintaining the core investor protections of the existing
rules and addressing the treatment of business activities and
securities transactions that are outside the regular scope of
individuals' association with a member, while narrowing the scope of
reportable activities to those that present higher risk, particularly
the risk that customers or the public would view the activities as part
of the member's business.\26\ In this way, FINRA stated, the rule would
promote more effective risk-based oversight and, as a result, enhance
investor protection.\27\
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\22\ Id. at 5004.
\23\ Id. at 5007.
\24\ See id. at 5004.
\25\ Id.
\26\ Id. at 5007.
\27\ Id.
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Each of the proposed rule changes is discussed below in turn.
1. Outside Activities
a. Registered Person's Obligations
Proposed FINRA Rule 3290(a) (Obligations of a Registered Person for
Outside Activity) would require a registered person who intends to
participate in an ``outside activity'' (that is, an investment-related
activity \28\ outside the scope of such person's relationship with the
member that is not in connection with a securities transaction) to
provide prior written notice to the member regarding such outside
activity. In addition, proposed FINRA Rule 3290(a) would require a
registered person to update any prior written notice to the member if
there is a material change to the outside activity. For any notice
provided pursuant to the proposed rule, the registered person would be
required to describe in detail the proposed outside activity and the
person's proposed role therein.\29\
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\28\ Proposed FINRA Rule 3290(f)(3) would define the term
``investment-related activity.'' See infra Section II.B.3. (Proposed
Definition of Investment-Related Activity). Proposed FINRA Rule 3290
also contains exclusions and exceptions for certain activities that
would otherwise fall within the definition of ``investment-related
activity.'' See infra Section II.B.5 (Exclusions from Proposed FINRA
Rule 3290); Section II.B.6. (Associated Person Activities Subject to
a Contractual Arrangement).
\29\ Proposed FINRA Rule 3290(a).
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b. Obligations of a Member for a Registered Person's Outside Activity
Proposed Rule 3290(c) (Obligations of a Member for a Registered
Person's Outside Activity) would require a member receiving written
notice of a registered person's outside activity to assess, at a
minimum, whether the outside activity: (1) is an outside securities
transaction; \30\ (2) involves a customer of the registered person; (3)
will interfere with or otherwise compromise the registered person's
responsibilities to the member or the member's customers; and (4) 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.\31\ FINRA
stated that the proposed rule change would add factor (2) (regarding
whether the outside activity involves a customer of a registered
person) to factors (1), (3), and (4) above, which are consistent with
the existing requirements for an OBA under FINRA Rule 3270.\32\
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\30\ FINRA stated that a person may, mistakenly or
intentionally, mischaracterize an activity. For this reason, among
others, a member must analyze whether the activity is properly
characterized to determine its obligations, which vary depending on
the activity. See Notice at 5005. If the member determines that the
activity is an outside securities transaction, the member would be
required to comply with the obligations listed in proposed FINRA
Rule 3290(d), as discussed below.
\31\ Proposed FINRA Rule 3290(c)(1).
\32\ Notice at 5005.
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Based on the member's review of such factors, the member would be
required to evaluate whether to condition, limit, or prohibit a
registered person's outside activity.\33\
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\33\ See proposed FINRA Rule 3290(c)(2).
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If a member imposes conditions or limitations on an associated
person's participation in such an outside activity, proposed FINRA Rule
3290.06 would require the member to reasonably supervise the person's
compliance with such conditions or limitations.\34\ FINRA stated that
this obligation is already implicit in existing FINRA Rule 3270, but
would be made explicit in proposed FINRA Rule 3290.\35\
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\34\ See Amendment No. 1.
\35\ See FINRA I at 16; see also Amendment No. 1.
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2. Outside Securities Transactions
a. Associated Person's Obligations
Proposed FINRA Rule 3290(b) (Obligations of an Associated Person
for Outside Securities Transactions) would require an associated person
who intends to participate in an ``outside securities transaction''
(that is, an investment-related activity \36\ outside the scope of the
associated person's relationship with the member that is in connection
with a securities transaction) to provide prior written notice to the
member, describing in detail the proposed transaction, the person's
proposed role therein, and whether the person will receive selling
compensation.\37\ In addition, FINRA
[[Page 59262]]
Rule 3290(b)(2) would require an associated person to update any prior
written notice if there is a material change to the outside securities
transaction described in such notice. Where the associated person
intends to participate in an outside securities transaction for selling
compensation, the associated person also would need to obtain prior
written approval from the member (including approval for any material
change to any information provided pursuant to proposed FINRA Rule
3290(b)(1)).\38\
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\36\ See infra Section II.B.3. (Proposed Definition of
Investment-Related Activity) for discussion of ``investment-related
activity.''
\37\ Proposed FINRA Rules 3290(b)(1) and (3). A separate notice
would be required for each outside securities transaction unless an
exception applies that allows the use of a single notice. See Notice
at 5005. Proposed FINRA Rule 3290(b)(1)(A) would permit an
associated person who intends to participate in an outside
securities transaction that is in connection with a series of
related securities transactions not for selling compensation to
provide a single prior written notice to the member. Similarly,
proposed FINRA Rule 3290(b)(1)(B) would permit an associated person
acting as portfolio manager or investment committee member for
registered investment companies, unregistered investment companies,
business development companies, real estate investment trusts, and
entities that are recognized as tax exempt, and who is not selling
an entity's shares for selling compensation, to provide a single
prior written notice to the member. See proposed FINRA Rule 3290.02;
see also infra Section II.B.4.a. (Associated Persons Acting as
Portfolio Managers and Investment Committee Members).
\38\ See proposed FINRA Rules 3290(b)(1), (2). FINRA Rule
3290(f)(5) would define ``selling compensation'' as any compensation
paid directly or indirectly from whatever source in connection with
or as a result of the purchase, sale or exchange of a security. The
proposed definition of ``selling compensation'' is consistent with
the definition in FINRA Rule 3280(e)(2).
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b. Obligations of a Member for an Associated Person's Outside
Securities Transactions
Proposed Rule 3290(d)(1) would require a member receiving written
notice of an associated person's outside securities transaction to
assess, at a minimum, whether the outside securities transaction: (1)
is a securities transaction for selling compensation; \39\ (2) involves
a customer of the associated person; \40\ (3) will interfere with or
otherwise compromise the associated person's responsibilities to the
member or the member's customers; \41\ and (4) 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.\42\ FINRA stated that while
existing FINRA Rule 3280 does not require consideration of the four
factors identified in proposed FINRA Rule 3290(d) when assessing a PST,
FINRA understands that the proposed rule change is consistent with
members' current practices.\43\
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\39\ Proposed FINRA Rule 3290(d)(1)(A).
\40\ Proposed FINRA Rule 3290(d)(1)(B).
\41\ Proposed FINRA Rule 3290(d)(1)(C).
\42\ Proposed FINRA Rule 3290(d)(1)(D). Pursuant to proposed
FINRA Rule 3290(d)(1), a member would not be required to assess an
outside securities transaction for selling compensation when
disapproving it under proposed Rule 3290(d)(3)(C).
\43\ See Notice at 5005.
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A member's obligations for an associated person's outside
securities transactions would depend, in part, on whether the outside
securities transaction is for selling compensation. If the outside
securities transaction is not for selling compensation, proposed FINRA
Rule 3290(d)(2) would require the member to: (1) provide the associated
person prompt written acknowledgement of such notice; \44\ and (2) at
the member's discretion, require the associated person to adhere to
specified conditions \45\ in connection with the associated person's
participation in the transaction. If, instead, the outside securities
transaction is for selling compensation, proposed FINRA Rule 3290(d)(3)
would require the member to notify the associated person in writing of
the member's decision to: (1) approve the proposed transaction after
making a reasonable determination based on the criteria enumerated in
proposed FINRA Rule 3290(d)(1); (2) approve the proposed transaction
subject to specific conditions or limitations after a reasonable
determination based on the criteria enumerated in proposed FINRA Rule
3290(d)(1); or (3) disapprove the proposed transaction.\46\
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\44\ A single written acknowledgement may be used in the case of
a series of related outside securities transactions not for selling
compensation. See proposed FINRA Rule 3290(d)(2).
\45\ See Amendment No.1 (FINRA stated that adding a reference to
``limitations'' in proposed FINRA Rule 3290(d)(2) would improve
consistency with proposed FINRA Rules 3290(c)(2) and (d)(3)).
\46\ Proposed FINRA Rule 3290(d)(3)(A)-(C).
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If a member imposes conditions or limitations on an associated
person's participation in such an outside securities transaction,
proposed FINRA Rule 3290.06 would require the member to reasonably
supervise the person's compliance with such conditions or
limitations.\47\ FINRA stated that this obligation is already implicit
in existing FINRA Rule 3280, but would be made explicit in proposed
FINRA Rule 3290.\48\
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\47\ See Amendment No. 1.
\48\ See FINRA I at 16; see also Amendment No. 1.
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Further, proposed FINRA Rule 3290(d)(4) would require a member to
record each approved outside securities transaction for selling
compensation on the books and records of the member and supervise the
person's participation in the transaction as if executed on behalf of
the member. However, if a member approves an associated person's
participation in an outside securities transaction involving selling
compensation and that person is associated with more than one member,
proposed FINRA Rule 3290.01 would permit members to develop a written
allocation arrangement whereby at least one member agrees to be
responsible for compliance with respect to all applicable securities
laws and regulations and FINRA rules regarding the proposed activity,
including those requiring member supervision and recordkeeping.\49\
FINRA stated that the proposed rule change would codify existing
guidance in NASD Notice to Members 96-33, allowing for potential
efficiency gains for members that may have been unaware of such
previous guidance.\50\
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\49\ Proposed FINRA Rule 3290.01.
\50\ See Notice at 5006, 5008.
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3. Proposed Definition of Investment-Related Activity
The obligations of proposed FINRA Rules 3290(a)-(d) are triggered
by the participation of a member's associated person in an investment-
related activity that is outside the scope of the associated person's
or registered person's relationship with the member. Proposed FINRA
Rule 3290(f)(3) would define the term ``investment-related activity''
as pertaining to financial assets including, but not limited to,
securities, crypto assets, commodities, derivatives (such as futures
and swaps), currency, banking, real estate or insurance. The term
includes, but is not limited to: (1) acting as or being associated with
a broker-dealer, issuer, insurance agent or company, investment
company, investment adviser, futures commission merchant, commodity
trading advisor, commodity pool operator, municipal advisor, futures
sponsor, money services business, bank, savings association, or credit
union; and (2) an associated person's participation in any manner in a
personal investment involving a securities transaction (sometimes
referred to as ``buying away''), other than transactions indicated in
proposed FINRA Rule 3290(g)(3)(A).\51\ FINRA stated that by focusing
the application of proposed Rule 3290 on activities involving financial
assets, the proposed rule change would eliminate the burdens associated
with the reporting and assessment of activities that FINRA
[[Page 59263]]
views as having lower risk (such as refereeing sports games and
bartending), allowing members to dedicate resources to activities
presenting higher risk to investors, particularly the risk that
investors or the public would view the activities as part of the
member's business and thus under its supervision.\52\
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\51\ Proposed FINRA Rule 3290(g)(3)(A) would exclude from the
definition of ``investment-related activity'' an associated person's
personal investments involving securities transactions subject to or
delineated in FINRA Rule 3210. FINRA Rule 3210 applies to securities
transactions effected by the associated person or their related
persons, as delineated in FINRA Rule 3210.02, at any financial
institution other than the member that employs the associated
person. FINRA Rule 3210.03 excludes some transactions and accounts
from that rule: transactions in unit investment trusts, municipal
fund securities as defined under MSRB Rule D-12, qualified tuition
programs pursuant to Section 529 of the Internal Revenue Code,
variable contracts or redeemable securities of companies registered
under the Investment Company Act of 1940, or accounts that are
limited to transactions in such securities, or monthly-investment-
plan-type accounts, or accounts pursuant to Section 530A of the
Internal Revenue Code. FINRA Rule 3210.03 (Transactions and Accounts
not Subject to this Rule).
\52\ See Notice at 5004.
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4. Specific Activities Treated as Outside Activities for Purposes of
Proposed FINRA Rule 3290
a. Associated Persons Acting as Portfolio Managers and Investment
Committee Members
Proposed FINRA Rule 3290.02 states that an associated person would
not be considered to be participating in an outside securities
transaction to the extent the associated person's activities are
limited to acting as portfolio manager or investment committee member
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. Such activity would be treated as an outside activity and not
an outside securities transaction.\53\
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\53\ As an ``outside activity,'' such activity would be subject
to the notice and assessment requirements of proposed FINRA Rules
3290(a) and (c).
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However, proposed FINRA Rule 3290.02 also states that the proposed
exception would not include an associated person's activities related
to purchasing or selling such entities' shares. Those activities would
instead be considered an outside securities transaction subject to the
applicable notice and assessment requirements in proposed FINRA Rule
3290(b) and (d) unless otherwise excluded under proposed FINRA Rule
3290(g) (discussed infra).
FINRA stated that this proposed rule change would codify FINRA
staff's position that: (1) an associated person would need to provide
prior written notice for activities related to purchasing or selling
such entities' shares, and (2) 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.\54\
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\54\ See Notice at 5006.
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b. Associated Person Activity at an Unaffiliated Registered Investment
Adviser (``RIA'')
Proposed FINRA Rule 3290.03 states that an associated person's
activity at an investment adviser registered either with the Commission
under Section 203 of the Investment Advisers Act (``Advisers Act'') or
with a state securities commission (or any agency or office performing
like functions) would be treated as an outside activity of a registered
person (and not an outside securities transaction).\55\
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\55\ Such activity would be subject to the requirements of
proposed FINRA Rules 3290(a) and (c). See supra note 53.
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FINRA stated that the proposed rule change would eliminate members'
supervision and recordkeeping obligations for investment advisory
activities performed by associated persons at unaffiliated investment
advisers, which were set forth in FINRA guidance issued in the
1990s.\56\ FINRA stated that this prior guidance has caused significant
confusion and practical challenges, including privacy challenges to
members seeking account information for clients of an unaffiliated
investment adviser through which the member's associated person may be
acting in an investment advisory capacity.\57\ FINRA stated that
without access to information necessary to meaningfully supervise
outside unaffiliated investment advisory activities, members would
unreasonably bear regulatory responsibility and potential liability
without adequate means to fulfill their regulatory obligations.\58\ In
addition, FINRA stated that such investment advisers are generally
directly regulated by either the Commission or the states, and subject
to fiduciary obligation to their clients.\59\
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\56\ See, e.g., Notice at 5006; NASD Notice to Members 94-44
(May 1994) and 96-33 (May 1996).
\57\ See Notice at 5006.
\58\ Id. at 5011.
\59\ Id. at 5006.
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c. Associated Person Outside Securities Activity Subject to the Gramm-
Leach-Bliley Act (GLBA) or Exchange Act Regulation R
Proposed FINRA Rule 3290.05 states that an associated person's
securities activity that qualifies under the GLBA or SEC Regulation R's
exception to broker or dealer \60\ registration requirements and that
is not otherwise covered by proposed FINRA Rule 3290.04 \61\ would be
treated as an outside activity (and not an outside securities
transaction).\62\ FINRA stated that the proposed rule change would
codify FINRA staff's position with respect to this outside
activity.\63\ Specifically, it would clarify that an associated
person's securities activity under proposed Rule 3290.05 would have a
prior written notice and assessment requirement but would not be
subject to member supervision and recordkeeping by the member.\64\
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\60\ The GLBA amended the Exchange Act to except specified
securities activities conducted by banks from broker or dealer
registration. See Exchange Act Section 3(a)(4)(B). See also
Definitions of Terms and Exemptions Relating to the ``Broker''
Exceptions for Banks, Exchange Act Release No. 56501, 72 FR 56514
(Oct. 3, 2007); Definition of Terms in and Specific Exemptions for
Banks, Savings Associations, and Saving Banks Under Sections 3(a)(4)
and 3(a)(5) of the Securities Exchange Act of 1934, Exchange Act
Release No. 47364 (Feb. 14, 2003), 68 FR 8686 (Feb. 24, 2003).
\61\ See infra Section II.B.6 (Associated Person Activities
Subject to a Contractual Arrangement).
\62\ Such activity would be subject to the requirements of
proposed FINRA Rules 3290(a) and (c). See supra note 53.
\63\ See Notice at 5006.
\64\ Id.
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5. Exclusions From Proposed FINRA Rule 3290
a. Associated Person Activity on Behalf of a Member or an Affiliate
Proposed FINRA Rule 3290(g) would exclude from proposed FINRA Rule
3290 an associated person's activity on behalf of a member or its
affiliate.\65\ Proposed FINRA Rule 3290(f)(1) would define
``affiliate'' as any entity that controls, is controlled by, or is
under common control with a member. According to FINRA, this exclusion
would include activity such as investment advisory activity at a member
that is registered as both a broker-dealer and an investment adviser,
as well as investment advisory, insurance, or banking activity
conducted on behalf of an affiliate.\66\ FINRA stated that this
exclusion for activity conducted on behalf of a member or its affiliate
recognizes members' and their control persons' ability to implement
meaningful controls across business lines.\67\
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\65\ Proposed FINRA Rule 3290(g)(1).
\66\ See Notice at 5005.
\67\ Id. at 5005-6.
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b. Securities Transactions Among Immediate Family Members of an
Associated Person
Proposed FINRA Rule 3290(g) would exclude from proposed FINRA Rule
3290 an associated person's securities transactions among immediate
family for which the associated person receives no selling
compensation.\68\ Proposed FINRA Rule 3290(f)(2) would define
``immediate family'' to have the same meaning as in paragraph (c) of
Rule
[[Page 59264]]
3240 (Prohibition on Borrowing from or Lending to Customers).\69\ FINRA
stated that this exclusion recognizes the lower risks to investors and
members associated with this activity and the inefficiency of members'
having to expend significant resources reviewing it.\70\
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\68\ Proposed FINRA Rule 3290(g)(2).
\69\ FINRA Rule 3240 defines the term ``immediate family'' 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.''
\70\ Notice at 5006.
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c. Certain Personal Investments of an Associated Person
Proposed FINRA Rule 3290(g)(3) would exclude from proposed FINRA
Rule 3290 the following personal investments of an associated person:
(1) securities transactions subject to or delineated in FINRA Rule 3210
(Accounts at Other Broker-Dealers and Financial Institutions); \71\ (2)
personal investments in non-securities; and (3) the purchase, sale,
rental or lease of a main home and up to two secondary homes \72\ that
are: (a) solely owned by the associated person or the associated person
and immediate family; \73\ (b) owned by the associated person as a sole
proprietorship; (c) 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; \74\ or (d) owned
by a trust with the associated person or the associated person and
immediate family as the sole beneficiaries.\75\ FINRA stated that these
exclusions recognize the lower risks to investors and members
associated with these activities and the inefficiency of members'
having to expend significant resources reviewing them.\76\
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\71\ See supra note 51.
\72\ Proposed FINRA Rule 3290(f)(4) would define ``secondary
home'' as a property that is used for residential purposes by the
associated person for at least part of the year.
\73\ See supra note 69 and accompanying text.
\74\ Proposed FINRA Rule 3290(g)(3)(C)(3).
\75\ Proposed FINRA Rule 3290(g)(3)(C)(4).
\76\ Notice at 5006.
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6. Associated Person Activities Subject to a Contractual Arrangement
Proposed FINRA Rule 3290.04 states that 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 FINRA Rule 3290 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. FINRA stated that the proposed
rule change is consistent with current requirements and, as is
currently required, such activity already would be subject to broker-
dealer supervision under FINRA Rule 3110.\77\
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\77\ Id. at 5006 n.13 (and accompanying text).
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7. Recordkeeping
Proposed FINRA Rule 3290(e) would require a member to keep a record
of its compliance with the obligations under proposed FINRA Rule 3290
and preserve this record in accordance with the time and accessibility
requirements of Exchange Act Rule 17a-4(e)(1).\78\
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\78\ Rule 17a-4(e)(1) states that members subject to Exchange
Act Rule 17a-3 must maintain and preserve in an easily accessible
place all records required under Rule 17a-3(a)(12) until at least
three years after the associated person's employment and any other
connection with the member has terminated.
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8. General Exemptive Authority
Proposed FINRA Rule 3290(h) would authorize FINRA staff, for good
cause shown after taking into consideration all relevant factors, to
conditionally or unconditionally grant an exemption pursuant to the
FINRA Rule 9600 Series from any provision of proposed FINRA Rule 3290
to the extent that such exemption is consistent with the purpose of the
rule, the protection of investors, and the public interest. FINRA
stated that while the proposed rule change is broadly applicable,
having the flexibility to provide relief from a particular provision of
proposed Rule 3290 where specific factual circumstances justify an
exemption would be useful and appropriate.\79\ FINRA also proposed a
conforming amendment to FINRA Rule 9610 to add proposed FINRA Rule 3290
to the list of FINRA rules for which members may seek exemptive
relief.\80\
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\79\ Notice at 5006.
\80\ Id. at 5006 n.15.
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III. Discussion and Commission Findings
After careful review of the proposed rule change, comment letters
received, and FINRA's responses to the comments, the Commission finds
that the proposed rule change is consistent with the requirements of
the Exchange Act and the rules and regulations thereunder that are
applicable to a national securities association.\81\ Specifically, the
Commission finds that the proposed rule change is consistent with
Section 15A(b)(6) of the Exchange Act, 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.\82\
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\81\ In approving this rule change, the Commission has
considered the rule's impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
\82\ 15 U.S.C. 78o-3(b)(6).
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The proposed rule change is reasonably designed to focus member
supervisory and compliance resources on the types of outside
activities--that is, investment-related activities--of a member's
registered or associated persons that are appropriately within the
member's purview, particularly where the activities are most likely to
be viewed by investors or other members of the public as part of the
member's business and thus under its supervision. The proposed rule
change reasonably imposes on members different obligations depending on
the nature of the identified activity and its associated risk to the
member, investors, and the public. The member's obligation is greatest
for those activities that present heightened potential risk to
investors and to the public, namely when the activity is an associated
person's outside securities transaction for selling compensation.
Other categories of activity--an associated person's outside
securities transaction not for selling compensation and a registered
person's outside activity that is outside the scope of their employment
with the member (including activity that is subject to another
regulatory regime such as activity at an unaffiliated registered
investment adviser or a bank)--require the member to assess or restrict
the activity as the member determines is necessary but does not require
the member to explicitly approve or supervise that activity. For these
categories of activity, the risk to investors or the public, including
the risk that they will view the activity as part of the member's
business and under its supervision, is lower, and reasonably calibrates
a member's obligations in accordance with that risk. The proposed rule
change also enables a member to impose conditions or limitations, which
could include subjecting the activity to the member's supervision, if
the member deems it necessary to manage its own risk. Finally, the
proposed rule change eliminates reporting obligations for outside
activities that are lower risk, either because the activities are
inherently unlikely to pose risks to investors or the public (e.g.,
refereeing sports games), or the member is likely
[[Page 59265]]
either to be already aware of the activity or to have ready access to
information about the activity (e.g., activities on behalf of an
affiliate).
The overall process established by the proposed rule, under which
the member's obligations vary based on the nature of the activity, will
allow individual members to tailor their oversight of outside
activities based on the member's business model, supervisory structure,
and the member's risk assessment of the outside activity at issue.
Importantly, the proposed rule change would not limit a member's
ability to impose more robust supervision of, or to condition, limit,
or prohibit, as appropriate, outside activities at the member's
discretion. For example, a member may expand the scope of its
assessment or implement additional appropriate safeguards, limitations,
or prohibitions, beyond the minimum requirements established here.\83\
In addition, although the affiliate exclusion in proposed FINRA Rule
3290(g) permits members to exclude activity on behalf of a member or
its affiliate, members are free to impose a notice and assessment
requirement for this activity if the member has determined additional
safeguards are appropriate for its business.\84\ Similarly, the
proposed rule change does not alter members' overarching supervisory
responsibilities under the federal securities law and FINRA Rule 3110
to supervise its business and to investigate and act upon red flags
indicating potential misconduct. Accordingly, and as explained in more
detail below, the Commission finds that the proposed rule change is
consistent with Section 15A(b)(6) of the Exchange Act.\85\ The
Commission addresses the proposed rule change's specific provisions,
and any related comments, in turn.
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\83\ See, e.g., Notice at 5011; FINRA I at 9; FINRA II at 4.
\84\ See FINRA I at 9.
\85\ 15 U.S.C. 78o-3(b)(6).
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A. Proposed FINRA Rule 3290(a)-(d)
As stated above, the proposed rule change would replace current
FINRA Rules 3270 and 3280 with proposed FINRA Rule 3290. Proposed FINRA
Rule 3290(a)-(d) would retain many of the existing requirements of the
current rules as part of two distinct categories of activities: (1)
outside activities of registered persons, and (2) outside securities
transactions of associated persons. Specifically, proposed FINRA Rule
3290(a) and (c) would address the obligations of registered persons and
members, respectively, with respect to outside activities of registered
persons; proposed FINRA Rule 3290(b) and (d) would address the
obligations of associated persons and members, respectively, with
respect to outside securities transactions of associated persons. The
discussion below addresses the obligations triggered by these two
categories.
1. Outside Activities of Registered Persons--Obligations of Registered
Persons (Proposed FINRA Rule 3290(a)) and Members (Proposed FINRA Rule
3290(c))
As stated above, the proposed rule change would, among other
things, require a registered person who intends to participate in an
outside activity that is not in connection with a securities
transaction to provide prior written notice to the member describing in
detail the proposed outside activity and the person's proposed role
therein.\86\ In the event of a material change to the outside activity,
a registered person would be required to provide an updated prior
written notice.\87\
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\86\ Proposed FINRA Rule 3290(a).
\87\ Id.
---------------------------------------------------------------------------
The proposed rule change would require a member receiving a notice
to assess, at a minimum, whether the outside activity: (1) is an
outside securities transaction; (2) involves a customer of the
registered person; (3) will interfere with or otherwise compromise the
registered person's responsibilities to the member or the member's
customers; and (4) 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.\88\ Based on the member's review of such factors, the
member would be required to evaluate whether to condition, limit, or
prohibit a registered person's outside activity.\89\ If a member
imposes conditions or limitations on a registered person's outside
activity, proposed FINRA Rule 3290.06 would require the member to
reasonably supervise the person's compliance with such conditions or
limitations.\90\
---------------------------------------------------------------------------
\88\ Proposed FINRA Rule 3290(c)(1).
\89\ Proposed FINRA Rule 3290(c)(2).
\90\ Proposed FINRA Rule 3290.06.
---------------------------------------------------------------------------
2. Outside Securities Transactions of Associated Persons--Obligations
of Associated Persons (Proposed FINRA Rule 3290(b)) and Members
(Proposed FINRA Rule 3290(d))
As stated above, the proposed rule change would require an
associated person of a member who intends to participate in an outside
securities transaction to provide prior written notice to the member,
describing in detail the proposed transaction, the person's proposed
role therein, and whether the person will receive selling
compensation.\91\ The associated person must provide prior written
notice (and if the transaction is for selling compensation, receive
prior written approval) for each separate transaction, with two
exceptions: (1) a series of related securities transactions not for
selling compensation; and (2) where the associated person is acting as
a portfolio manager or investment committee member for an entity as
described in proposed FINRA Rule 3290.02 and is not selling the
entity's shares for selling compensation.\92\ In those two cases, the
associated person may provide a single prior written notice.\93\ In the
event of a material change to the outside securities transaction, an
associated person would be required to update any prior written notice
and, if the outside securities transaction is for selling compensation,
obtain prior written approval from the member for the material
change.\94\
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\91\ Proposed FINRA Rule 3290(b)(1), (3).
\92\ Proposed FINRA Rule 3290(b)(1)(A)-(B).
\93\ Proposed FINRA Rule 3290(b)(1)(A)-(B).
\94\ Proposed FINRA Rule 3290(b)(2).
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Upon receiving the notice, the proposed rule change would require a
member to assess, at a minimum, whether the securities transaction: (1)
is a securities transaction for selling compensation; (2) involves a
customer of the associated person; (3) will interfere with or otherwise
compromise the associated person's responsibilities to the member or
the member's customers; and (4) 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.\95\
---------------------------------------------------------------------------
\95\ Proposed FINRA Rule 3290(d)(1).
---------------------------------------------------------------------------
If the outside securities transaction is not for selling
compensation, the proposed rule change would require the member to: (1)
provide the associated person prompt written acknowledgement of such
notice, and (2) 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.\96\
---------------------------------------------------------------------------
\96\ Proposed FINRA Rule 3290(d)(2).
---------------------------------------------------------------------------
If the outside securities transaction is for selling compensation,
proposed FINRA Rule 3290(d)(3) would require the member to notify the
associated person in writing of the member's
[[Page 59266]]
decision to: (1) approve the proposed transaction after making a
reasonable determination based on the criteria enumerated in proposed
FINRA Rule 3290(d)(1); (2) approve the proposed transaction subject to
specific conditions or limitations after a reasonable determination
based on the criteria enumerated in proposed FINRA Rule 3290(d)(1); or
(3) disapprove the proposed transaction.\97\ In addition, proposed
FINRA Rule 3290(d)(4) would require a member to record each approved
outside securities transaction for selling compensation on its books
and records and to supervise the person's participation in the
transaction as if executed on behalf of the member.\98\ Further, if a
member imposes conditions or limitations on an associated person's
participation in an outside securities transaction (whether or not for
selling compensation), proposed FINRA Rule 3290.06 would require the
member to reasonably supervise the person's compliance with such
conditions or limitations.\99\
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\97\ Proposed FINRA Rule 3290(d)(3).
\98\ Proposed FINRA Rule 3290(d)(4).
\99\ Proposed FINRA Rule 3290.06.
---------------------------------------------------------------------------
As stated above, proposed FINRA Rule 3290.01 would provide that if
a member approves an associated person's participation in an outside
securities transaction involving selling compensation and that person
is associated with more than one member, the members may develop a
written allocation arrangement whereby at least one member agrees to be
responsible for compliance with respect to all applicable securities
laws and regulations and FINRA rules regarding the proposed activity,
including those requiring member supervision and recordkeeping.
3. Comments on Proposed FINRA Rule 3290(a)-(d) and FINRA's Response,
Including Amendment
Many commenters supported the proposed consolidation of FINRA Rules
3270 and 3280 into proposed FINRA Rule 3290(a)-(d),\100\ stating that
consolidating the OBA and PST reporting requirements and member
obligations would promote efficiency and allow compliance personnel to
focus on higher-risk activities.\101\
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\100\ See, e.g., letters from Bernard V. Canepa, Managing
Director & Associate General Counsel, Securities Industry and
Financial Markets Association (``SIFMA''), at 1 (dated Feb. 24,
2026), <a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-715007-2237915.pdf">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-715007-2237915.pdf</a> (``SIFMA I''); Alyssa Pompei, Vice
President & Assistant General Counsel, SIFMA, at 1 (dated May 27,
2026), <a href="https://www.sec.gov/comments/SR-FINRA-2026-001/srfinra2026001-791999-2397527.pdf">https://www.sec.gov/comments/SR-FINRA-2026-001/srfinra2026001-791999-2397527.pdf</a> (``SIFMA II''); Jessica R. Giroux,
Chief Legal Officer, American Securities Association, at 1 (dated
Feb. 24, 2026), <a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-714947-2237677.pdf">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-714947-2237677.pdf</a> (``ASA I''); Clifford Kirsch and
Eric Arnold, Eversheds Sutherland (US) LLP for the Committee of
Annuity Insurers, at 2 (dated Feb. 25, 2026), <a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-715747-2239634.pdf">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-715747-2239634.pdf</a>
(``CAI''); David T. Bellaire, Executive Vice President & General
Counsel, Financial Services Institute, at 1 (dated Feb. 24, 2026),
<a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-715027-2237882.pdf">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-715027-2237882.pdf</a> (``FSI I''); Matthew Morningstar, Group Managing
Director, Chief Legal Officer, LPL Financial at 2 (dated Feb. 24,
2026), <a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-712287-2235534.pdf">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-712287-2235534.pdf</a> (``LPL I''); Mark Quinn, Director
of Regulatory Affairs, Cetera Financial Group, at 1 (dated Feb. 23,
2026), <a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-710532-2232937.pdf">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-710532-2232937.pdf</a> (``Cetera I''); Matt Billings,
President, Robinhood Financial LLC and Robinhood Securities, LLC, at
2 (dated Feb. 24, 2026), <a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-714489-2237294.pdf">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-714489-2237294.pdf</a> (``Robinhood''); Jennifer
Brunner, Alicia Strout, Susan La Fond, and Gordon Taylor, Chief
Compliance Officers, ACA Foreside, at 1 (dated Feb 24, 2026),
<a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-715308-2238374.pdf">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-715308-2238374.pdf</a> (``ACA''); Seth A. Miller, General Counsel,
President, Advocacy & Administration, Cambridge Investment Research,
Inc., at 2 (dated Feb. 24, 2026), <a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-712247-2235514.pdf">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-712247-2235514.pdf</a> (''Cambridge I'');
Katherine M. Flouton, CEO, PKS Securities (dated Feb. 24, 2026),
<a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-716667-2242714.pdf">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-716667-2242714.pdf</a> (``PKS''); Elissa Germaine and Christine Lazaro,
Supervising Attorneys, Securities Arbitration Clinic at St. John's
University School of Law, at 1 (dated Feb. 24, 2026), <a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-715267-2238295.pdf">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-715267-2238295.pdf</a> (``St. John's Law''); Frank C. Lawrance, Wealth Advisor,
Seacrest Wealth Management, at 1 (dated Feb. 21, 2026), <a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-712989-2236235.pdf">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-712989-2236235.pdf</a> (``Lawrance''); Ben Shamberger, Independent Financial
Advisor, at 1-2 (dated Feb. 21, 2026), <a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-708847-2231674.pdf">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-708847-2231674.pdf</a>
(``Shamberger''); Ryan Naugle, Independent Financial Advisor, Advice
& Planning Services, at 2 (dated Feb. 22, 2026), <a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-708347-2229754.pdf">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-708347-2229754.pdf</a> (``A&P Services''); Jaime Benedetti, Managing Partner,
BEAM Wealth Advisors (dated Feb. 23, 2026), <a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-2231114.htm">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-2231114.htm</a>
(``Benedetti''); Form Letter A, <a href="https://www.sec.gov/comments/SR-FINRA-2026-001/srfinra2026001-typea.htm">https://www.sec.gov/comments/SR-FINRA-2026-001/srfinra2026001-typea.htm</a>; Form Letter B, <a href="https://www.sec.gov/comments/SR-FINRA-2026-001/srfinra2026001-typeb_1.htm">https://www.sec.gov/comments/SR-FINRA-2026-001/srfinra2026001-typeb_1.htm</a>;
Form Letter C, <a href="https://www.sec.gov/comments/SR-FINRA-2026-001/srfinra2026001-typec_0.htm">https://www.sec.gov/comments/SR-FINRA-2026-001/srfinra2026001-typec_0.htm</a>; and Form Letter D, <a href="https://www.sec.gov/comments/SR-FINRA-2026-001/srfinra2026001-typed_0.htm">https://www.sec.gov/comments/SR-FINRA-2026-001/srfinra2026001-typed_0.htm</a>.
\101\ See, e.g., FSI I at 1, 4 (stating that streamlining two
rules into proposed Rule 3290 would make a time-consuming process
for broker-dealer compliance departments more efficient and focus
the efforts of compliance personnel on activities that are likely to
impact investor protection); letter from David T. Bellaire,
Executive Vice President and General Counsel, Financial Services
Institute, at 2 (dated May 27, 2026), <a href="https://www.sec.gov/comments/SR-FINRA-2026-001/srfinra2026001-791919-2397389.pdf">https://www.sec.gov/comments/SR-FINRA-2026-001/srfinra2026001-791919-2397389.pdf</a> (``FSI II'');
CAI at 2; Cambridge I at 1, 2; ASA I at 1, 2; LPL I at 2; letter
from Matthew Morningstar, Group Managing Director, Chief Legal
Officer, LPL Financial at 1 (dated May 27, 2026), <a href="https://www.sec.gov/comments/SR-FINRA-2026-001/srfinra2026001-790579-2395826.pdf">https://www.sec.gov/comments/SR-FINRA-2026-001/srfinra2026001-790579-2395826.pdf</a> (``LPL II''); Robinhood at 2 (stating that the
consolidation of the OBA and PST regimes into a single rule promotes
clarity and simplifies supervisory analysis).
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Specifically, commenters supported the proposed requirement under
FINRA Rule 3290(c)(1) and (d)(1) that a member assess whether a
proposed activity involves a customer of the registered person or
associated person, respectively, rather than a customer of the
member.\102\ One of these commenters stated that the more limited
assessment would establish an obligation tied to a relationship that
members can realistically identify and verify.\103\ In contrast,
another commenter recommended that FINRA expand the assessment
requirements to include consideration of whether the activity or
transaction involves a customer of the member or, at a minimum, to
specify that the involvement of a member's customer after the initial
notice is a ``material change'' that would require an updated notice
and assessment, stating that as proposed, the proposed rule change
would increase the risk that members will fail to adequately consider
potential risks to their customers, such as the risk presented by the
outside securities transactions of an associated person employed in an
operational role with access to customer information or member
systems.\104\
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\102\ See, e.g., Cambridge I at 2, FSI I at 4, SIFMA I at 2.
\103\ See SIFMA I at 2.
\104\ See letter from Marni Rock Gibson, President and
Commissioner, North American Securities Administrators Association,
Inc, at 5-6 (Feb. 24, 2026), <a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-713528-2236594.pdf">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-713528-2236594.pdf</a> (``NASAA'').
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FINRA responded that customer confusion and the associated
reputational and legal risks to the member are most acute when the
customer has a direct relationship with the associated person
conducting the outside activity.\105\ As such, requiring members to
assess whether the activity involves a customer of the associated
person is a targeted approach that focuses on situations presenting
heightened risk.\106\ Additionally, FINRA stated that requiring members
to assess whether the proposed activity involves customers of a member
(as opposed to customers of a registered person or associated person)
would not meaningfully enhance investor protection, as customers who
have no relationship with the particular associated person conducting
the outside activity face lower risk of
[[Page 59267]]
confusion about the member's involvement in the proposed activity.\107\
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\105\ See FINRA I at 7.
\106\ See id. at 8.
\107\ Id. at 7. Further, FINRA stated that a broader requirement
could present practical challenges. For example, some members may
face operational challenges cross-referencing outside activity
participants against the member's entire customer base. Id. at 7-8
and n.20.
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FINRA also stated that the proposed rule change would standardize
the minimum assessment that members must conduct upon receiving notice
of registered persons' outside activities and associated persons'
outside securities transactions to include the assessment required by
FINRA Rule 3270, and add a new requirement to assess whether the
activity involves the customer of the registered or associated
person.\108\ FINRA stated, however, that the proposed rule change would
not limit a member's ability to expand the scope of its assessment if
the member determines a broader scope is appropriate for its
business.\109\
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\108\ Id. at 7.
\109\ Id. at 8.
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Other commenters recommended that FINRA expand or clarify other
aspects of the assessment requirement through amendments to the
proposed rule change or additional guidance. Specifically, one
commenter recommended that FINRA require members to inspect the
personal and operating bank accounts of its independent registered
representatives.\110\ Several commenters also made various requests for
further guidance, including whether the rule would limit a member's
ability to conduct a more robust assessment or implement safeguards
beyond the minimum required by the proposed rule change,\111\ and what
would constitute a ``material change'' to an outside activity.\112\
---------------------------------------------------------------------------
\110\ See letter from Michael Hill, Esq., Menzel & Hill, P.A.,
(dated Feb. 24, 2026), <a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-713728-2236715.html">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-713728-2236715.html</a> (``Hill'').
\111\ See ASA I at 3-4; letter from Jessica Giroux, Chief Legal
Officer, American Securities Association, at 2 (dated May 27, 2026),
<a href="https://www.sec.gov/comments/SR-FINRA-2026-001/srfinra2026001-791659-2397067.pdf">https://www.sec.gov/comments/SR-FINRA-2026-001/srfinra2026001-791659-2397067.pdf</a> (``ASA II'').
\112\ See Robinhood at 2-3.
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In response, FINRA stated that the proposed rule change would not
limit a member's ability to expand the scope of its assessment or to
implement safeguards beyond the minimum requirements established in
proposed FINRA Rule 3290.\113\ That is, under the proposed rule change,
members would maintain the flexibility to develop and implement
supervisory systems that reflect their respective business models. For
these reasons, FINRA declined to amend the proposed rule change to
provide the additional guidance requested by commenters.\114\ FINRA
stated, however, that if the Commission approves the proposed rule
change, it will consider providing additional guidance as
appropriate.\115\
---------------------------------------------------------------------------
\113\ See FINRA II at 4.
\114\ See FINRA I at 9; FINRA II at 4.
\115\ See FINRA I at 17; FINRA II at 4.
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FINRA also declined to modify the proposed rule change to require
members to inspect the personal and operating bank accounts of its
independent registered representatives, stating that a blanket bank
account inspection requirement would raise ``significant privacy
concerns and be operationally infeasible.'' \116\
---------------------------------------------------------------------------
\116\ See FINRA I at 8.
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Finally, one commenter recommended that FINRA explicitly require
members to supervise any conditions or limitations they impose on
approved outside activities.\117\ In response, FINRA amended the
proposed rule change to include proposed FINRA Rule 3290.06
(Supervision of Imposed Conditions or Limitations) to state if a member
imposes conditions or limitations pursuant to paragraphs (c)(2), (d)(2)
or (d)(3) of Proposed Rule 3290, the member would be required to
reasonably supervise compliance with such conditions or
limitations.\118\ FINRA stated that, while this obligation has always
been implicit in the existing rules, the amendment would provide
greater clarity to its members.\119\
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\117\ See FSI I at 3-4 (stating that supervision of any
conditions or limitations is implied but stating it plainly would
provide ``regulatory cover'' to members that impose them).
\118\ See FINRA I at 16.
\119\ See Amendment No. 1 at 5; see also FINRA I at 16.
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Three commenters supported this amendment, stating that although
this obligation was already implicit under FINRA Rules 3270 and 3280,
explicitly codifying it in proposed FINRA Rule 3290.06 would remove
ambiguity and reinforce that a member's imposition of conditions or
limitations on an outside activity carries a supervisory obligation to
assess compliance with those conditions or limitations.\120\
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\120\ See ASA II at 3; see also SIFMA II at 2-3; FSI II at 2.
---------------------------------------------------------------------------
Another commenter opposed this amendment, stating that the proposed
supervisory requirement is ``irreconcilable with the legal and ethical
obligations that govern law firm outside business activities''
(``professional OBAs'').\121\ This commenter recommended that FINRA
amend proposed Rule 3290.06 to: clarify that members' obligations to
supervise conditions or limitations on licensed professionals' outside
activities does not require such members to obtain or review privileged
material; establish safe harbors from the proposed supervision
obligation for members that impose certain good faith limitations or
conditions on licensed professionals' outside activities; and,
highlight that members may seek an exemption from proposed Rule 3290.06
pursuant to proposed FINRA Rule 3290(h).\122\ In addition, the
commenter requested that FINRA provide guidance to help members design
conditions and limitation on supervising professional activities that
would not require access to privileged information.\123\
---------------------------------------------------------------------------
\121\ See letter from Jeffrey Burg, President, AlphaTrust
Advisors, at 1 (dated May 15, 2026), <a href="https://www.sec.gov/comments/SR-FINRA-2026-001/srfinra2026001-779208-2374616.pdf">https://www.sec.gov/comments/SR-FINRA-2026-001/srfinra2026001-779208-2374616.pdf</a>
(``AlphaTrust'').
\122\ Id. at 3-4.
\123\ See id.
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In response, FINRA stated that proposed FINRA Rule 3290.06 would
not require that a member impose conditions or limitations on
professional OBAs; rather, it would require that if a member imposes
conditions or limitations, it must reasonably supervise for compliance
with the conditions or limitations.\124\ As such, members would have
discretion to determine whether to impose any conditions or
limitations, and if they do, what types of conditions or limitations
would be appropriate given the nature of the activity.\125\ FINRA also
noted that proposed Rule 3290(h) would include general exemptive
authority to permit FINRA staff to conditionally or unconditionally
grant an exemption for good cause shown pursuant to the FINRA Rule 9600
Series.\126\ Consequently, FINRA stated that a general safe harbor or
exemptive relief for professional OBAs is not necessary.\127\ For these
reasons, FINRA declined to modify the proposed rule change in this
respect. FINRA stated, however, that it remains open to considering
whether to provide additional guidance or exemptive relief on a case-
by-case basis where specific facts and circumstances demonstrate that
such guidance or relief is appropriate.\128\
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\124\ See FINRA I at 14; FINRA II at 8.
\125\ See FINRA II at 8.
\126\ Id.
\127\ Id.
\128\ Id.
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4. Commission Findings on Proposed FINRA Rule 3290(a)-(d), 3290.01, and
3290.06
The proposed rule change is reasonably designed to establish
uniform minimum standards by which
[[Page 59268]]
registered persons report outside activities, associated persons report
outside securities transactions, and members assess and supervise such
activities. In doing so, the proposed rule change would both maintain
and build on many of the existing requirements for the notice and
assessment process in existing FINRA Rules 3270 and 3280. This approach
would permit associated persons, registered persons, and members to
leverage established supervisory practices designed to comply with
existing obligations where applicable, enhancing regulatory and
compliance efficiency.
The proposed rule change would incorporate existing obligations by
requiring that a registered person or associated person provide prior
written notice to the member describing in detail the proposed outside
activity or outside securities transaction, respectively, and the
person's role therein. The proposed rule change would also add a
requirement for associated and registered persons to update their
notice prior to continuing the activity in case of a material change
prior.
By enumerating the information that must be included in such
notices the proposed rule will set a minimum information requirement so
that members have the information that they need to discharge their
supervisory obligations. Further, the obligation to provide an updated
prior written notice in case of a material change will help ensure that
members have current information necessary to fulfill their supervisory
obligations. In addition, with respect to the commenter's request for
guidance on what constitutes a material change, FINRA will consider
providing additional guidance as appropriate if the Commission approves
the proposed rule change.
Turning to a member's obligations upon receiving a notice of an
outside activity or outside securities transaction, by requiring a
member to assess an outside activity or outside securities transaction,
the proposed rule change provides a uniform regulatory framework with
respect to risk assessment, requiring members to consider the potential
risks associated with an outside activity or securities transaction and
whether to limit, condition or prohibit the outside activity or outside
securities transaction.
Specifically, requiring a member to assess whether an activity is
properly characterized as an outside activity, rather than an outside
securities transaction, or, if it is an outside securities transaction,
whether it is for selling compensation, should help members address any
mistaken or intentional mischaracterization by their associated
persons, and help ensure the appropriate obligations apply to the
proposed activity.
By requiring a member to consider whether the outside activity or
outside securities transaction involves a customer of the registered
person or an associated person, respectively, rather than a customer of
the member as a commenter suggested, the proposed rule change
reasonably focuses a member's attention on the relationships where the
risk of customer confusion, and the associated reputational and legal
risks to the member, are greatest--those where the customer has a
direct relationship with the registered person or associated person
engaged in the outside activity or outside securities transaction.
Further, by requiring the member to assess whether the activity or
transaction would be viewed by the member's customers or the public as
part of the member's business, a member would be required to more
broadly consider the potential for confusion to the member's customers
or the public. Moreover, the proposed rule would require a member to
assess whether the outside activity or outside securities transaction
will interfere with or otherwise compromise the registered person's or
associated person's responsibilities to the member or the member's
customers, which again imposes a broad obligation on the member to
evaluate the risk of the proposed activity to the member and the
member's customers. Finally, the obligations imposed by the proposed
rule change are a floor, not a ceiling. Accordingly, a member can
expand the scope of its assessment if the member determines a broader
scope is appropriate for its business.
Also, it was reasonable for FINRA to decline to impose an
overarching obligation for members to inspect personal bank accounts of
its independent registered representatives, given that such an
obligation could create privacy challenges and could be operationally
difficult to implement without a commensurate benefit to the
supervisory program of the member. Moreover, even without such an
explicit requirement, a member would still be subject to its general
supervisory obligations under federal law or FINRA Rule 3110, including
responsibility to investigate and act in light of ``red flags''
suggesting possible misconduct such as an undisclosed outside
securities transaction.
Requiring a member to evaluate the advisability of imposing
specific conditions or limitations on a registered person's outside
activity, including where circumstances warrant, prohibiting the
activity, will require members to reasonably consider the facts and
circumstances associated with the outside activity, to evaluate the
nature of the risk associated with the activity, and to determine what
conditions and limitations, if any, are appropriate, or whether the
activity should be prohibited. In doing so, the proposed rule would
impose a uniform minimum assessment process for members, while also
providing flexibility to members to determine whether to condition,
limit, or prohibit an activity, based on the member's assessment of the
risks to customers and the member presented by the activity in light of
the member's business model and risk profile.
Further, delineating a member's obligations related to an outside
securities transaction based on whether the associated person will
receive selling compensation maintains existing requirements under
FINRA Rule 3280 and is reasonably calibrated to require the member to
focus the most supervisory and compliance resources on those activities
that pose greater risks to members and their customers. Specifically,
for transactions not involving selling compensation, the proposed rule
change would reasonably impose fewer obligations--notably requiring a
member to assess the proposed transaction and acknowledge the notice--
and would leave to the member's discretion to determine whether to
impose any conditions on the transaction based on the member's
assessment of the enumerated factors set forth in proposed FINRA Rule
3290(d)(1). For transactions involving selling compensation, however,
the proposed rule change would impose more stringent obligations on
members, reflecting the increased risks associated with an outside
securities transaction involving selling compensation, and the
corresponding need for heightened scrutiny. In particular, members
would be required to assess the proposed transaction and, based on that
assessment, approve (with or without limitations or conditions) or
disapprove the transaction. If a member approves a proposed securities
transaction for selling compensation, the member would be required to
record the transaction on its books and records and supervise the
associated person's participation in the transaction as if it was
executed on behalf of the member.
As the proposed rule change permits, but does not require, members
to limit or condition an outside activity or an outside securities
transaction (and gives members flexibility in determining any
[[Page 59269]]
such limitations or conditions), and enables members to seek an
exemption from any provision of the proposed rule change for unique
factual scenarios (as discussed further below), it is reasonable for
FINRA not to address all unique factual scenarios at the outset, such
as those associated with professional licenses.
In addition, as discussed more fully below, the proposed rule
change would require a member to supervise any imposed limitations or
conditions on an outside activity or outside securities transaction,
which will help ensure that any limitations and conditions that a
member determines are necessary are observed. Moreover, as noted, the
obligations imposed by the proposed rule change are a floor, not a
ceiling. Accordingly, the proposed rule change does not restrict a
member's ability to limit, condition, or prohibit any outside
activities or outside securities transactions where the member has
determined such a prohibition is appropriate for its own risk
management.
Finally, by permitting members to develop a written allocation
agreement regarding regulatory obligations for an associated person's
participation in an outside securities transaction involving selling
compensation, the proposed rule change promotes regulatory efficiency
and minimizes duplicative regulatory oversight, while preserving
investor protection.
For these reasons, the proposed rule change is reasonably 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.
B. Proposed Definition of Investment-Related Activity
As stated earlier, the obligations of proposed FINRA Rules 3290(a)-
(d) are triggered based on the participation of a member's associated
person in ``investment-related activity.'' As originally proposed, the
term would have been defined as ``pertaining to financial assets,
including securities, crypto assets, commodities, derivatives (such as
futures and swaps), currency, banking, real estate or insurance.'' The
term would have included but not have been limited to, ``acting as or
being associated with a broker-dealer; issuer; insurance agent or
company; investment company; investment adviser; futures commission
merchant; commodity trading advisor; commodity pool operator; municipal
advisor; futures sponsor; bank; savings association; or credit union.''
\129\ The proposed definition also included ``an associated person's
participation in any manner in a personal investment involving a
securities transaction, sometimes referred to as ``buying away,'' other
than transactions indicated in proposed FINRA Rule 3290(g)(3)(A).''
\130\
---------------------------------------------------------------------------
\129\ See proposed FINRA Rule 3290(f)(3)(A).
\130\ See supra note 51.
---------------------------------------------------------------------------
Many commenters supported the proposed definition of ``investment-
related activity'' as originally proposed, stating that it would
streamline the process of reporting outside activities by eliminating
the obligation to report routine activities (such as volunteer youth
sports coaching, serving on a local civic board, and farming) that do
not cause harm to members or investors and the reporting of which
diverts member resources.\131\ In particular, commenters stated that
the current reporting requirements require members to expend compliance
resources on reviewing disclosures of low-risk, non-financial
activities that ultimately result in increased costs for financial
advisors and their clients.\132\
---------------------------------------------------------------------------
\131\ See Form Letter A (identifying volunteer youth sports
coaching, serving on a local civic board, and farming as examples of
such low risk activities); Form Letter B (stating the definition
focuses reporting requirements on activities that matter for
investor protection and removes obligations to report low-risk
activities); FSI I at 4 (noting that narrowing the focus to
investment-related activities will benefit investor protection by
allowing compliance personnel to spend their time on higher-risk
activities); Robinhood at 2 (stating that the focus on investment-
related activities will reduce unnecessary burdens while maintaining
core investor protections of the existing FINRA Rules 3270 and
3280). See also CAI at 2; LPL II at 1-2; ACA at 1-2. Commenters also
recommended that FINRA amend Form U4 to align with the proposed rule
change because requiring registered representatives to disclose non-
investment-related outside activities pursuant to Question 14 of
Form U4 would negate the benefits of the proposed rule change. See,
e.g., SIFMA I at 2; SIFMA II at 3; see also CAI at 3; FSI I at 5;
NASAA at 2, n.5; Robinhood at 2. In response, FINRA declined to
amend the proposed rule change, stating that Form U4 disclosures are
outside the scope of the proposed rule change; but FINRA also stated
that it would endeavor to work with the Commission and state
regulators to harmonize the Form U4 disclosure obligations where
appropriate. See FINRA I at 16; FINRA II at 8-9. FINRA reasonably
declined to amend the proposed rule change in response, as the
comment is outside the scope of the proposed rule change.
\132\ See, e.g., Form Letter B; SIFMA II at 2; see also
Robinhood at 2 (stating that narrowing the proposed rule change to
investment-related activities reduces the administrative and
operational burdens of reporting low-risk activities).
---------------------------------------------------------------------------
Some commenters requested that the proposed definition be
broadened, narrowed, or clarified.\133\ More specifically, with respect
to broadening the definition, some commenters opposed the proposed
definition as too narrow, stating that disclosures of OBAs should be
robust and not limited to investment-related activity in order to
ensure that members can evaluate the OBAs for potential conflicts of
interest and the risk of securities fraud.\134\ One commenter stated in
particular that the boundary between investment-related and non-
investment-related activity is rarely clear, so restricting the type of
activities that could be reported to, and assessed by, members, would
create gaps in supervision that could obscure misconduct.\135\ One
commenter opposed the definition because it excluded significant
categories of agent conduct that may pose risks to investors.\136\ One
commenter recommended broadening the proposed definition to include,
among other things, activities pertaining to money transmission,
collectibles, and lending, and to add the phrase ``but not limited to''
before the list of examples to clarify that the examples are
illustrative rather than exhaustive.\137\ Another commenter recommended
broadening the proposed definition to include, among other things,
financial planning, tax advice, and business advice, stating that
[[Page 59270]]
investors could perceive these activities as part of a member's
business.\138\
---------------------------------------------------------------------------
\133\ See, e.g., CAI at 3; NASAA at 2-3; St. John's Law at 2;
ASA I at 1.
\134\ See, e.g., letters from Michael C. Bixby, President,
Public Investors Advocate Bar Association (``PIABA''), at 9 (dated
Feb. 18, 2026), <a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-704987-2220895.pdf">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-704987-2220895.pdf</a> (``PIABA I''); Michael C. Bixby,
President, PIABA, at 2 (dated June 10, 2026), <a href="https://www.sec.gov/comments/SR-FINRA-2026-001/srfinra2026001-811619-2471170.pdf">https://www.sec.gov/comments/SR-FINRA-2026-001/srfinra2026001-811619-2471170.pdf</a>
(``PIABA II''); Nicholas J. Guiliano, The Guiliano Law Group, at 2-3
(dated Feb. 24, 2026), <a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-715187-2238215_0.pdf">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-715187-2238215_0.pdf</a> (``Guiliano''); Courtney M.
Werning, Principal, Meyer Wilson Werning, at 1 (dated Feb. 19,
2026), <a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-706827-2225236.pdf">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-706827-2225236.pdf</a> (``Werning''); Peter J. Mougey,
Levin Papantonio Proctor Buchanan O'Brien Barr Mougey P.A., at 1
(dated Feb. 25, 2026), <a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-716067-2240135.pdf">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-716067-2240135.pdf</a> (``Mougey''); Samuel B.
Edwards, Shepherd Smith Edwards & Kantas, LLP, at 1-2 (dated Feb.
19, 2026), <a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-706147-2223534.pdf">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-706147-2223534.pdf</a> (``Edwards''); Robert Savage,
Savage Villoch Law, PLLC, at 1 (dated Feb. 19, 2026), <a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-706367-2223934.pdf">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-706367-2223934.pdf</a> (``Savage''); Robert H. Rex, Esq., Rex Securities Law,
at 1-2 (dated Feb. 19, 2026), <a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-706188-2223574.pdf">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-706188-2223574.pdf</a> (``Rex''); Richard A.
Lewins, Lewins Law, PC, at 1-2 (dated Feb. 19, 2026), <a href="https://www.sec.gov/comments/SR-FINRA-2026-001/srfinra2026001-706327-2223876.pdf">https://www.sec.gov/comments/SR-FINRA-2026-001/srfinra2026001-706327-2223876.pdf</a> (``Lewins''); Melinda Jane Steuer, at 1 (dated Feb. 19,
2026), <a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-706547-2224354.pdf">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-706547-2224354.pdf</a> (``Steuer'').
\135\ See Werning at 1.
\136\ See letter from William Galvin, Secretary of the
Commonwealth, Commonwealth of Massachusetts, at 3 (dated Feb. 24,
2026), <a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-713987-2236877.pdf">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-713987-2236877.pdf</a> (``Massachusetts'').
\137\ See NASAA at 2-3.
\138\ See St. John's Law at 2 (stating that including these
activities within the definition of ``investment-related activity''
would help avoid confusion and potential conflicts regarding the
nature of such services); see also Massachusetts at 3 (stating that
the proposed rule change excludes consulting, legal, tax, and
marketing functions, as well as accountancy and financial control
positions that can be precursors to larger fraudulent activity).
---------------------------------------------------------------------------
By contrast, one commenter suggested narrowing the proposed
definition to securities transactions in order to exclude transactions
with which a member may not have familiarity, such as transactions in
non-securities insurance or banking products.\139\ Another commenter
suggested narrowing the proposed definition to exclude fundraising for
non-profit organizations and the receipt of residual insurance
commissions.\140\
---------------------------------------------------------------------------
\139\ See LPL I at 3.
\140\ See CAI at 3.
---------------------------------------------------------------------------
With respect to clarifying the proposed definition, one commenter
requested guidance regarding the scope of categories such as banking,
insurance, and real estate.\141\ Another commenter requested guidance
regarding whether the proposed definition included real estate, and in
particular rental properties.\142\
---------------------------------------------------------------------------
\141\ See Robinhood at 3.
\142\ See ASA I at 3; ASA II at 3-4.
---------------------------------------------------------------------------
In response to commenters generally opposed to the proposed
definition because they viewed it as too narrow, leading to an unduly
limited application of the proposed rule change's operative provisions,
FINRA stated that the framework under current FINRA rules, in which all
OBAs, including those that are non-investment-related, are reported
creates significant compliance burdens without commensurate investor
protection benefits.\143\ FINRA also stated that by eliminating the
notice and assessment requirements for non-investment-related
activities, which present minimal investor protection concerns, the
proposed rule change would free members to focus resources and
attention on activities more likely to involve potential customer
confusion or harm.\144\ FINRA stated that members would still be
required to maintain a system to supervise activities that is
reasonably designed to achieve compliance with applicable securities
laws and regulations and FINRA rules.\145\ In addition, FINRA stated
that the proposed definition expressly encompasses ``all activities
pertaining to financial assets'' even if not individually listed, and
clarified that the listed examples in the proposed definition are not
exclusive.\146\ Further, FINRA stated that members would retain
discretion to prohibit or condition activity based on risk.\147\ For
these reasons, FINRA stated that the scope of the proposed definition
strikes the right balance regarding disclosure of activities that may
pose a greater risk to the investing public and members.\148\ As such,
FINRA declined to amend the proposed rule change. However, FINRA also
stated if the Commission approves the proposed rule change, it will
consider providing additional guidance regarding the scope of
investment-related activity as appropriate.\149\
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\143\ See FINRA I at 3.
\144\ Id.
\145\ Id. at 12-13, n.36.
\146\ Id. at 4.
\147\ Id. at 12.
\148\ Id. at 5.
\149\ Id. at 17; FINRA II at 4.
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FINRA also responded to comments about the coverage of specific
activities. In response to comments regarding broadening the scope of
the definition to include specific activities, such as money
transmission and financial planning, FINRA stated that the list of
activities in the proposed definition of investment-related activities
was not meant to be exhaustive and therefore activities pertaining to
financial assets and other related roles or associations would be
covered even if not expressly listed among the examples in the proposed
definition. As such, FINRA stated the proposed definition already
captures money transmission, lending, collectible activity, and
financial planning to the extent they pertain to financial assets.\150\
Nevertheless, FINRA amended the proposed rule change to add both the
broader phrase ``money services business'' to provide regulatory
clarity and the phrase ``but not limited to'' before the list of
examples in proposed Rule 3290(f)(3) to confirm that the listed
examples are illustrative rather than exhaustive.\151\ FINRA also
stated that the proposed definition already captures tax advice and
other similar types of services to the extent that are performed
concomitant to investment-related activity.\152\
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\150\ See FINRA I at 4-5.
\151\ Id. at 2, 4-5; see also Amendment No. 1.
\152\ Id. at 5.
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In response to comments requesting the exclusion of specific
activities from the scope of the proposed definition, FINRA stated that
narrowing the definition to only securities transactions would
inappropriately exclude activities that present risks to investors and
members, particularly the risk that investors or the public would view
the activities as part of the member's business.\153\ With regard to
excluding fundraising activities for non-profit organizations, FINRA
stated that depending on the specific facts and circumstances,
fundraising activity could be investment-related; as such, excluding
all fundraising for non-profit organizations from the proposed
definition could exclude activities that present risks to investors and
members.\154\ With respect to comments seeking to exclude residual
insurance commissions, FINRA stated that FINRA Rules 2320 and 2341
already address the receipt of residual insurance commissions, because
those rules prohibit associated persons of a member from accepting any
compensation in connection with the outside sale and distribution of
variable contracts or investment company securities.\155\ With respect
to comments seeking clarity regarding real estate and particularly
rental properties, FINRA stated that real estate is expressly included
in the definition of investment-related activity and would be subject
to the proposed rule change unless such activity met the exclusion in
proposed Rule 3290(g)(3)(C) for a main home and up to two secondary
homes.\156\
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\153\ Id. at 6 (citing the example of a registered
representative selling fixed annuities, crypto assets or commodities
away from the member as particular risks).
\154\ Id.
\155\ Id.
\156\ See FINRA I at 6; FINRA II at 3.
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In response to comments that the proposed definition lacks clarity
and would cause registered persons to make subjective determinations,
FINRA explained that the proposed definition expressly covers ``all
activities pertaining to financial assets,'' including those that are
not securities-related, and that the examples cited are not exclusive.
Also in response to comments, FINRA proposed a clarifying amendment
to make explicit the breadth of the definition with respect to money
services business and to confirm that the listed examples are
illustrative rather than exhaustive. In addition, FINRA further stated
that the definition captures activities related to capital raising,
lending, financial planning, selling private funds, investment
partnerships, and crypto-asset development, promotion or market
intermediation, and that consulting, marketing, accounting, legal and
tax advice services concomitant to investment-related activity would
also be covered.\157\ With the proposed amendment and statements, FINRA
[[Page 59271]]
clarified that the proposed definition should be interpreted broadly.
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\157\ See FINRA I at 4.
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The proposed rule change reasonably focuses members' oversight of
outside activities on those that present the greatest potential harm to
members or investors. The proposed definition of investment-related
activity is designed to scope into the operative provisions of proposed
FINRA Rule 3290 associated persons' activities where the risk
associated with the activity, such as the potential for customer
confusion about the registered person and their broker-dealer's
involvement in the activity, is most acute. Although excluding any
category of activity from the scope of the proposed rule may result in
a member having less visibility into those activities, members have
limited compliance resources, and it is thus reasonable for FINRA to
adopt a risk-based approach by narrowing the scope of reportable
activities to those with greater potential for harm to investors and to
the member. Moreover, members would still be required to maintain a
system to supervise activities that is reasonably designed to achieve
compliance with applicable securities laws and regulations and FINRA
rules. In that regard, members could impose reporting requirements on
activities that do not fall within the definition of investment-related
activity, or prohibit or condition activities, as appropriate.
Additionally, nothing in the proposed rule change would alter the well-
settled principle that members must investigate ``red flags''
indicating problematic activities.
The proposed definition would broadly cover activities pertaining
to financial assets, subject to certain targeted exclusions, which are
more likely to involve potential customer confusion or harm: activities
that are either directly securities-related or otherwise associated
with common financial services, such as insurance, banking and crypto
assets.
The proposed definition of ``investment-related activity'' as
amended is reasonably expansive to capture and focus on activity that
has greater potential to cause customer confusion or harm to investors
and to members--activities that pertain to financial assets. The
proposed definition, coupled with the clarifications and explanations
offered, should provide a reasonable compliance roadmap for both
members and their associated persons, and help ensure that the proposed
rule change will result in members being notified of activities that
are more likely to expose members and investors to risk. By enabling
members to redirect supervisory and compliance resources toward higher-
risk investment-related activities, including investment-related
activities that are not securities-related, the proposed rule change
should promote more effective risk-based oversight. FINRA also
indicated it would consider providing additional guidance on the scope
of investment-related activity if the proposed rule changed is
approved, where appropriate.
For these reasons, the proposed rule change is reasonably 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.
C. Activities Treated as Outside Activities for Purposes of Proposed
FINRA Rule 3290
1. Associated Persons Acting as Portfolio Managers and Investment
Committee Members
As stated above, proposed FINRA Rule 3290.02 states that an
associated person would not be considered to be participating in an
outside securities transaction to the extent that the associated
person's activities are limited to acting as portfolio manager or
investment committee member 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. Such activity would be
considered an outside activity of a registered person. However, the
proposed exception would not include an associated person's activities
related to purchasing or selling such entities' shares, which would be
considered outside securities transactions unless otherwise excluded
under proposed FINRA Rule 3290(g). FINRA Rule 3290.02 would codify
FINRA's staff positions on member requirements applicable to these
activities.\158\
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\158\ See Notice at 5006.
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One commenter opposed the proposed rule change as too broad,
stating that associated persons engaged in the activities described
above are subject to a range of conflicts, including compensation-
related conflicts, as well as other risks and thus there should not be
a per se exclusion of these activities from treatment as outside
securities transactions and the associated requirements to supervise
and maintain records of that activity.\159\ In the context of a tax-
exempt organization, this commenter stated that there may be risks and
conflicts that could harm the organization, particularly since these
roles may also pay substantial compensation.\160\
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\159\ See Massachusetts at 4.
\160\ Id.
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In response, FINRA stated that the activities deemed to be outside
activities under proposed Rule 3290.02 typically involve management of
third-party capital with associated fiduciary duties and regulatory
oversight, and thus do not present the same level of risk as direct
participation in securities transactions.\161\ As such, requiring the
associated person to notify its members of the activity and the member
to assess the proposed activity is sufficient to enable members to
evaluate any associated risks.\162\ Further, FINRA stated that members
retain discretion to impose conditions or limitations on the activity
based on the member's evaluation of the particular risk, and to the
extent a member does impose conditions or limitations on the activity,
the member would be required to supervise compliance with the
conditions or limitations under proposed FINRA Rule 3290.06.\163\
Additionally, if the associated person begins selling fund shares for
compensation, shifting from a governance or management role to a sales
capacity, then the proposed rule change's approval, member supervision
and recordkeeping requirements would apply.\164\ FINRA also stated that
the proposed rule change is consistent with how FINRA staff has
interpreted FINRA Rules 3270 and 3280.\165\
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\161\ See FINRA I at 10.
\162\ Id.
\163\ See proposed FINRA Rule 3290.06; FINRA I at 10.
\164\ See FINRA I at 10.
\165\ Id.
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The proposed rule change, which codifies FINRA's current treatment
of these activities under existing FINRA Rules 3270 and 3280,
reasonably treats certain limited activities of an associated person
who acts as a portfolio manager or investment committee member for
specified entities as outside activities of a registered person,
subject to the notice and member assessment in proposed FINRA Rule
3290(a) and (c), rather than as outside securities transactions,
subject to the notice, assessment, and applicable approval requirements
in proposed FINRA Rule 3290(b) and (d). The proposed rule change
reasonably tailors the obligations of members and associated persons in
light of the risk presented by the activity. For example,
[[Page 59272]]
portfolio managers and investment committee members of registered
investment companies are subject to regulatory oversight under the
Advisers Act and the Investment Company Act of 1940 (``Investment
Company Act'') or oversight by state regulators, as applicable.
Treating this activity as an outside activity is designed to help
ensure that the member is aware of the proposed activity, assesses the
associated risks, and imposes conditions and limitations (including
prohibiting the activity) based on its assessment. Further, proposed
FINRA Rule 3290.06 would explicitly impose a new requirement for the
member to supervise compliance with any conditions or limitations.
Finally, if the activity involves selling shares for compensation, the
additional notice, assessment, and approval obligations applicable to
outside securities transactions would apply to address the additional
risks presented by that activity. For these reasons, the proposed rule
change is reasonably 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.
2. Associated Person Activity at an Unaffiliated RIA
As stated above, proposed FINRA Rule 3290.03 states that an
associated person's activity at an unaffiliated RIA registered either
with the Commission under Advisers Act Section 203 or with a state
securities commission (or any agency or office performing like
functions) would be considered an outside activity of a registered
person and not an outside securities transaction for purposes of
proposed FINRA Rule 3290. As a result, the associated person would be
required to provide prior written notice of such activity under
proposed FINRA Rule 3290(a), and the member would be required to
conduct an assessment pursuant to the criteria set forth in proposed
FINRA Rule 3290(c), but the member would not be required to supervise
or keep records of that activity.\166\ FINRA stated that as a result,
the proposed rule change would ``revise[ ] the member obligations
imposed via a series of Notices to Members issued in the 1990s.'' \167\
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\166\ See Notice at 5006.
\167\ See supra note 56; Notice at 5006.
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The majority of commenters supported the proposed rule change,\168\
generally stating that activities at unaffiliated RIAs are already
effectively regulated by the Commission and state regulators, making
the existing requirements duplicative.\169\ As such, commenters stated
that the existing framework creates a situation in which compliance
resources are spent on redundant review rather than investor
protection.\170\ Commenters also stated that the existing requirements
create an uneven regulatory landscape between broker-dealers and
investment advisers because registered investment adviser firms without
FINRA-registered personnel are not subject to the additional layer of
FINRA regulation.\171\ Other commenters stated that the existing
obligation to supervise unaffiliated RIA activity of their associated
persons exposes members to an unreasonable liability risk in the event
of investor losses stemming from advice provided by the unaffiliated
RIA firm.\172\ Finally, several supportive commenters stated that the
proposed rule change would help eliminate privacy concerns \173\ and
other barriers to regulatory compliance caused by the current
rules.\174\
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\168\ See Form Letters A, B, C and D; Cetera I at 1-2; letters
from Mark Quinn, Director of Regulatory Affairs, Cetera Financial
Group, at 1-2 (dated May 26, 2026), <a href="https://www.sec.gov/comments/SR-FINRA-2026-001/srfinra2026001-789421-2394167.pdf">https://www.sec.gov/comments/SR-FINRA-2026-001/srfinra2026001-789421-2394167.pdf</a> (``Cetera II'');
Mark Quinn, Director of Regulatory Affairs, Cetera Financial Group,
at 1-2 (dated June 10, 2026), <a href="https://www.sec.gov/comments/SR-FINRA-2026-001/srfinra2026001-815939-2484510.pdf">https://www.sec.gov/comments/SR-FINRA-2026-001/srfinra2026001-815939-2484510.pdf</a> (``Cetera III''); Gail
Bernstein and Monique Botkin, General Counsel and Head of Public
Policy and Associate General Counsel, Investment Adviser
Association, at 1 (dated Feb. 24. 2026), <a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-715090-2238074.pdf">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-715090-2238074.pdf</a>
(``IAA''); CAI at 2; LPL I at 2; SIFMA I at 1-2; letters from Doug
Baxley, Chief Compliance Officer, Merit Financial Advisors, at 1
(Dated Feb. 22, 2026), <a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-708947-2231755.pdf">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-708947-2231755.pdf</a> (``Baxley''); John Ramirez,
Financial Advisor, Woodlands Portfolio Management, at 1 (dated Feb.
22, 2026), <a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-708307-2229695.pdf">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-708307-2229695.pdf</a> (``Ramirez''); Cline E. Reasor,
Managing Partner, Gratus Wealth Advisors, LLC, at 2 (dated Feb. 24,
2026), <a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-713067-2236294.pdf">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-713067-2236294.pdf</a> (``Reasor''); David Gutierrez,
Gutierrez Wealth Advisory, at 1 (dated Feb. 24, 2026) <a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-714427-2237214.pdf">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-714427-2237214.pdf</a> (``Gutierrez''); Scott R. Solod, Chief Compliance
Officer, Hammond Iles Wealth Advisors, at 1 (dated Feb. 24, 2026)
<a href="https://www.sec.gov/comments/SR-FINRA-2026-001/srfinra2026001-712567-2235796_0.pdf">https://www.sec.gov/comments/SR-FINRA-2026-001/srfinra2026001-712567-2235796_0.pdf</a> (``Solod''); Timothy E. Flatley, President &
CEO, Sterling Investment Advisors, Ltd., at 1 (dated Feb. 23, 2026)
<a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-712951-2236161.pdf">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-712951-2236161.pdf</a> (``Flatley''); Brian Nguyen, Twin Peaks Wealth
Advisors, at 1 (dated Feb. 22, 2026), <a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-711028-2233350.pdf">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-711028-2233350.pdf</a> (``Nguyen'');
Michael McLane, Owner, Redwood Financial Planning at 2 (dated Feb.
22, 2026), <a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-708427-2229934.pdf">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-708427-2229934.pdf</a> (``Redwood''); Shamberger at 1;
A&P Services at 1; Benedetti at 1; Lawrance at 1.
\169\ See Form Letter A; SIFMA II at 2-3; Gutierrez at 1;
Lawrance at 1; Solod at 1; Flatley at 1; Baxley at 1; Ramirez at 1.
\170\ See Form Letter B. See also Shamberger at 1; Naugle at 1;
Benedetti at 1; Cetera III at 3-4 (stating recently adopted
requirements, under Regulation Best Interest and Form CRS, require
disclosure to investors of information that should eliminate any
potential customer confusion regarding the role and capacity of a
representative, which FINRA Rule 3280 was adopted to prevent);
letter from Jamal Mahmood, Certified Financial Planner, Main Street
Financial Solutions (dated Feb. 24, 2026), <a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-2238614.htm">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-2238614.htm</a> (``J. Mahmood
'').
\171\ See Form Letters C and D; Reasor at 2; Nguyen at 1;
Redwood at 2; IAA at 1-3; Baxley at 1; Ramirez at 1.
\172\ See Form Letter A, see also IAA at 3 (stating that
members' inability to obtain such information subjects them to
potential regulatory responsibility and liability without providing
adequate means to protect themselves); CAI at 2.
\173\ See Reasor at 1 (stating that the current rules require
associated persons registered with broker-dealers and with
investment advisers to share their advisory clients' non-public
personal information with unaffiliated broker-dealers that have no
advisory relationship with those clients). See also Form Letter D;
letter from Scott Wallschlaeger, MPPL Financial, at 1-2 (dated Feb.
22, 2026), <a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-710028-2232575.pdf">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-710028-2232575.pdf</a> (``MPPL Financial'') (stating that
trust is fundamental to the fiduciary relationship between an
advisor and client and that the confidentiality of the advisor-
client relationship is protected under federal law, including
Regulation S-P); CAI at 2; PKS at 1; Gutierrez at 1; Redwood at 1.
\174\ See ACA at 2 (stating that the proposed rule change would
eliminate the difficulty of registering prospective registered
representatives who work for unaffiliated investment advisers that
are unwilling to provide a broker-dealer with the information
necessary for the member to supervise such activity as required
under FINRA Rule 3280); IAA at 3 (acknowledging that members may
have challenges fulfilling their regulatory obligations under the
current rules because they lack access to information necessary to
meaningfully supervise outside unaffiliated investment adviser
activities); see also Gutierrez at 1-2; J. Mahmood.
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Commenters opposed to the proposed rule change stated that
investment adviser oversight by the Commission or state regulators is
an inadequate substitute for broker-dealer supervision,\175\ with some
noting in particular the length of time that may pass between
Commission or state
[[Page 59273]]
examinations of advisers.\176\ One commenter also expressed concern
about possible rule changes by the Commission that could lead to
further reduced frequency of examinations and other regulatory
obligations of some investment advisers, which the commenter believes
would result in differing regulatory regimes based on adviser
size.\177\
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\175\ See letter from Scott Eichhorn and Melanie Cherdack,
Director and Associate Director, University of Miami Investor Rights
Clinic, at 2-3 (dated Feb. 24, 2026), <a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-714428-2237215.pdf">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-714428-2237215.pdf</a> (``Miami
Clinic''); Cambridge I at 3; letter from Jeffrey R. Sonn, Esq., Sonn
Law Group P.A., at 2-3 (dated Feb. 20, 2026), <a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-706987-2225454.pdf">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-706987-2225454.pdf</a> (``Sonn
I''). See also letter from Seth A. Miller, General Counsel,
President, Advocacy & Administration, Cambridge Investment Research,
Inc., at 3 (dated May 27, 2026), <a href="https://www.sec.gov/comments/SR-FINRA-2026-001/srfinra2026001-792039-2397586.pdf">https://www.sec.gov/comments/SR-FINRA-2026-001/srfinra2026001-792039-2397586.pdf</a> (''Cambridge II'')
(stating that if the existence of regulatory oversight by the SEC or
states and RIAs being subject to fiduciary duty was sufficient to
ensure effective supervision of this activity then there would not
be enforcement actions showing that misconduct ``persists for years
before detection'').
\176\ See Cambridge I at 3; see also letter from John S. Burke,
Esq., JSB Law, at 2-3 (dated Feb. 20, 2026), <a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-707867-2226717.pdf">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-707867-2226717.pdf</a>
(``Burke''); Miami Clinic at 2-3; Cambridge II at 3.
\177\ See Cambridge I at 4; Cambridge II at 6-7 (raising
concerns that approval of the proposed FINRA rule change, combined
with the potential adoption of Commission rules that would increase
the thresholds for RIAs being classified as a ``small entity'' under
Commission rules and/or increase the asset threshold for investment
advisers being required to register with the Commission, would
further fragment oversight of RIAs and weaken consistency in
investor protection).
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Commenters also stated that broker-dealers have unique insights
into the day-to-day activities of their associated persons and thus
eliminating the member supervision and recordkeeping requirements
associated with unaffiliated investment adviser activities would
fundamentally weaken investor protections.\178\ More specifically,
commenters stated that the proposed rule change would remove one of the
most effective mechanisms for detecting fraud, conflicts of interest,
and undisclosed securities activity by associated persons,\179\ and
that reducing the reporting requirements would make it more likely that
illicit conduct would go unreported and unsupervised.\180\ One
commenter stated that the proposed rule change is inconsistent with the
Commission's authority under Exchange Act Section 15(b)(4)(E) to impose
sanctions on a firm for failing to reasonably supervise a person
subject to the firm's supervision who commits a violation of the
federal securities laws, including the Advisers Act.\181\ This
commenter stated that there is no authority in the Exchange Act that
permits a broker-dealer to delegate this supervisory responsibility to
another body or that allows FINRA to exempt members from these
requirements because another securities statute or regulatory body
covers the same activity.\182\
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\178\ See NASAA at 6; see also PIABA I at 4-5, 8; PIABA II at 2;
Cambridge I at 6; Sonn I at 2-3; Massachusetts at 2; letters from
David Meyer, Founder and Managing Principal, Meyer Wilson Werning,
at 2 (dated Feb. 22, 2026), <a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-708147-2229414.pdf">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-708147-2229414.pdf</a> (``Meyer''); Alex Rogers,
Attorney at Law, (dated Feb. 24, 2026), <a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-714647-2237394.html">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-714647-2237394.html</a>
(``Rogers''). See also Cambridge I at 5; Cambridge II at 4-5
(stating that removing supervisory obligations over unaffiliated RIA
activity fails to reduce a member's litigation or arbitration risk
and creates incentives for associated persons to affiliate with the
member who imposes only the minimum requirements of the proposed
rule change).
\179\ See Sonn I at 2; see also letter from Glenn Mazer, Mazer
Law Firm PC (dated Feb. 20, 2026), <a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-707567-2226334.html">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-707567-2226334.html</a> (``Mazer''); Burke
at 3; letter from Nico Banks, co-chair of the PIABA Arbitration
Committee, Banks Law Office (dated Feb. 19, 2026), <a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-706447-2224014.pdf">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-706447-2224014.pdf</a> (``Banks'').
\180\ See Mougey at 1; Cornish at 1; Bingham at 1; Pearce at 1-
2; Vannoy at 1; Schwartz at 2; Wojciechowski at 1; Muzaurieta at 1;
Ciaccio at 1; Rosenfield at 1; Iorio at 1; Spray at 1; Brewer at 1;
Saxon at 1; Evans at 1; Peiffer at 1; Simms at 1; Varnavides at 1-2;
Rapaport at 1; letter from Thomas D. Mauriello, Esq., Mauriello Law
Firm, at 1 (dated Feb. 24, 2026), <a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-714467-2237275.pdf">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-714467-2237275.pdf</a> (``Mauriello'');
Kane at 1; Cosgrove Letter at 1; and letter from Adolfo Anzola,
Esq., Sonn Law Group P.A., at 1 (dated Feb. 24, 2026), <a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-714047-2236935.pdf">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-714047-2236935.pdf</a> (``Sonn II''). See also letters from Mark Pugsley, The
Anti-Fraud Coalition (dated Feb. 20, 2026), <a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-707627-2226454.html">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-707627-2226454.html</a>
(``Pugsley''); Reema Mahmood, Individual (dated Jun. 12, 2026),
<a href="https://www.sec.gov/comments/SR-FINRA-2026-001/srfinra2026001-2488330.htm">https://www.sec.gov/comments/SR-FINRA-2026-001/srfinra2026001-2488330.htm</a> (``R. Mahmood''). A commenter also stated that FINRA did
not adequately quantify in its economic analysis the costs of
unsupervised outside activity on investors, both in terms of
existing gaps in supervision and the additional gaps the proposed
rule would create. See Burke at 5. In response, FINRA stated that
unaffiliated RIA activity is subject to supervision by the
unaffiliated RIA and overseen by other regulators, and that any
additional investor protections arising from member supervision of
these activities may be limited because of the difficulty the member
may have in obtaining complete information from the unaffiliated
RIA. See FINRA I at 14. Additionally, FINRA believes that the
assessment it conducted was appropriate to capture the economic
impact associated with the proposed rule change and in order to
directly address any potential loss in investor protections would
require more granular data to quantify the effectiveness of other
regulatory regimes and then the marginal impact of additional
supervision by broker-dealer firms. See FINRA I at 14. FINRA's
assessment appropriately captures the economic impacts associated
with the proposed rule change.
\181\ See PIABA I at 1-3, 10. See also Robert Scott Dreher,
Dreher Law Firm, at 2 (dated Feb. 20, 2026), <a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-707727-2226594.pdf">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-707727-2226594.pdf</a>
(``Dreher''); Adam J. Gana, Esq. and Adam J. Weinstein, Gana
Weinstein LLP, at 2 (dated Feb. 20, 2026), <a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-706927-2225375.pdf">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-706927-2225375.pdf</a> (``Gana
Weinstein''); William Paul Nolan, Esq., The Nolan Law Firm, at 2
(dated Feb. 21, 2026), <a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-719187-2251614.pdf">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-719187-2251614.pdf</a> (``Nolan''); Sonn II.
\182\ See PIABA I at 2-3.
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Other commenters opposing the proposed rule change stated that
members do not lack sufficient information to meaningfully supervise
unaffiliated RIA activities, contending that the securities regulatory
framework has never required members to have complete visibility or
direct control to meet their supervisory obligations; rather, it
requires broker-dealers to maintain reasonably designed risk-based
supervisory systems.\183\ Similarly, commenters stated that the privacy
rationale underlying the proposed rule change are unjustified.\184\
Specifically, one commenter stated that broker-dealers already handle
extensive non-public personal information and are subject to robust
safeguarding requirements.\185\
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\183\ See Cambridge I at 6; see also PIABA I at 8-9.
\184\ See, e.g., PIABA I at 8-9; Cambridge I at 7; Cambridge II
at 5-6; Form Letter D.
\185\ See Cambridge I at 7 (stating that Federal privacy regimes
applicable to RIAs (including Regulation S-P) are expressly designed
to permit information sharing with service providers and affiliated
parties where there is a legitimate business purpose, subject to
notice, consent, and safeguards); Cambridge II at 5-6.
---------------------------------------------------------------------------
Some commenters (including those who supported and those who
opposed the proposed rule change) recommended modifications to the
proposed rule change.\186\ Similarly, one commenter recommended that,
if the proposed rule change is approved by the Commission, FINRA
provide guidance or supplementary material stating that a member may
not ignore or discount evidence of suspicious activities or red flags
arising from activities that they do not supervise and emphasizing that
members must consider any red flags related to their associated
persons' unaffiliated investment advisory activities as part of their
core supervisory obligations.\187\ Another commenter stated that
practical and privacy challenges to having members supervise the
unaffiliated RIA activity of their associated persons can be addressed
through targeted safeguards, such as requiring written agreements
providing the member access to necessary records, coupled with
obtaining applicable client consents.\188\
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\186\ See FSI I at 3-4; ASA II at 6; NASAA at 7; St. John's Law
at 2; Miami Clinic at 3; letter from Jason Albin, Chapman Albin, at
2 (dated Feb. 20, 2026), <a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-707507-2226238.pdf">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-707507-2226238.pdf</a> (``Albin'').
\187\ See NASAA at 7 n.24.
\188\ See Albin at 2.
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Additionally, a commenter stated that FINRA should tailor rather
than eliminate broker-dealer responsibilities for these activities,
stating that a reasonable alternative would be requiring notice and
member approval of outside advisory activities, while limiting
supervisory obligations under proposed FINRA Rule 3290 to activity
involving the adviser's clients who are also customers of the member as
well as advisory accounts for which the
[[Page 59274]]
member is the custodian.\189\ The commenter stated that such an
approach would align supervision with the interests of the member and
responsibilities to investors, while helping to mitigate concerns about
access to information, privacy, jurisdiction, and overall compliance
burden.\190\ In the alternative, the commenter suggested the proposed
rule change should be revised to ``more directly encourage [members] to
impose conditions or limitations on outside investment advisory
activities when the [member] makes certain findings in the required
assessment.'' \191\
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\189\ See NASAA at 7. See also St. John's Law at 2 (stating that
because unaffiliated RIA activity frequently involves an outside
securities transaction and may involve the customer of the
registered person, that such activity should either be treated as a
subcategory of outside securities transactions or as a separate
third category with additional obligations closer to those proposed
for outside securities transactions to ensure adequate supervision
and investor protection); Miami Clinic at 3 (recommending that FINRA
consider retaining risk-based obligations (e.g., reasonable
supervision) where associated persons provide any type of investment
advice, including through a registered investment adviser).
\190\ See NASAA at 7.
\191\ Id.
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In contrast, a supportive commenter recommended that FINRA clarify
that a member approving an associated person's activities at an
unaffiliated investment adviser is not required to oversee compliance
with any conditions or limitations imposed on those activities, unlike
as required by proposed FINRA Rule 3290.06 for conditions and
limitations imposed pursuant to proposed Rule FINRA 3290.\192\ Lastly,
one commenter, expressing concern that the proposed rule change would
disadvantage members that exercise prudent supervision and incentivize
members to ``offload supervisory risk,'' suggested that if the
Commission approved proposed FINRA Rule 3290.03, the Commission should
provide a safe harbor to members from regulatory enforcement and civil
liability if an unaffiliated investment adviser violates regulatory or
legal standards or harms clients.\193\
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\192\ See ASA II at 6.
\193\ See Cambridge II at 4-5.
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In response, FINRA stated that activities at unaffiliated RIAs are
fundamentally different from other situations involving private
securities transactions because activities at registered investment
advisers are already subject to established regulatory structures, and
the proposed rule change respects this allocation of regulatory
responsibility.\194\ The proposed rule change would thus eliminate
duplicative obligations (e.g., broker-dealer supervision) without
diminishing the comprehensive oversight framework already in
place.\195\ FINRA further stated that the effectiveness of investment
adviser regulation cannot be judged solely by examination frequency but
rather by ``the full spectrum of regulatory requirements, ongoing
oversight mechanisms, internal compliance obligations, and the
fiduciary duty framework applicable to [investment advisers],'' and
that the Commission and state regulators are in the best position to
determine proper supervision of investment advisers based on market
conditions, risk assessments, and available resources.\196\
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\194\ See FINRA I at 14 (noting that unaffiliated RIAs are
subject to a fiduciary duty as well as oversight from the Commission
or state regulators, as applicable).
\195\ Id.
\196\ Id.
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In addition, FINRA stated that members would continue to receive
notice of any outside activities at unaffiliated RIAs and retain
discretion to prohibit or condition or limit such activities based on
the member's evaluation of the associated risk.\197\ FINRA further
stated that pursuant to FINRA Rule 3110, members are required to
investigate any red flags that suggest that misconduct may be occurring
and to act upon the results of such investigation; this would include
``red flags suggesting that an associated person is involved in an
undisclosed outside activity or that a disclosed outside activity
involves undisclosed securities transactions, compensation not
previously disclosed, or other misconduct.'' \198\ Finally, FINRA also
stated that although it is not aware of any interpretation of Section
15(b)(4)(E) of the Exchange Act that imposes a general obligation on
broker-dealers to supervise investment advisory activity, members are
free to impose supervisory obligations on their associated persons as a
condition to participating in unaffiliated investment advisory
activity.\199\
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\197\ Id. at 12; FINRA II at 6.
\198\ FINRA I at 13; see also In re Ronald Pellegrino, Exchange
Act Release No. 59125, 2008 SEC LEXIS 2843 (Dec. 19, 2008); FINRA II
at 6.
\199\ See FINRA I at 14.
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FINRA also declined to modify the proposed rule change to create a
tailored approach for unaffiliated RIA activities, such as creating a
subcategory of outside securities transaction for unaffiliated RIA
activity, or limiting supervision to only the approved activity
involving advisory clients who are also customers of the member and to
advisory accounts custodied by the member.\200\ FINRA stated that the
suggested approaches disregard the comprehensive regulatory regime for
RIAs.\201\ Further, FINRA stated that creating a tailored regime for
customers who have an advisory account custodied by the member, as
suggested by commenters, would be inconsistent with FINRA's
longstanding policy of creating rules that are business-model neutral
where possible, and could create unintended consequences depending on
whether or not a particular member requires its associated persons to
execute and custody their outside securities transactions at the
member.\202\
---------------------------------------------------------------------------
\200\ See supra discussions and note 189.
\201\ See FINRA I at 16.
\202\ Id. at 16; FINRA II at 5-6.
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With respect to the comments regarding privacy concerns and
suggestions for targeted safeguards, such as requiring written
agreements between members and associated persons engaging in
unaffiliated RIA activity, FINRA stated that based on its examination
experience it has found that privacy protection is a legitimate concern
that raises practical hurdles for members to obtain information
regarding unaffiliated RIA activities that cannot be dismissed as a
mere ``operational inconvenience'' and thus managed through disclosure,
information-sharing and/or consent agreements.\203\ Additionally, FINRA
stated that it has observed in examinations that members have faced
practical hurdles to obtaining information regarding unaffiliated RIA
activity.\204\ For these reasons, FINRA declined to modify the proposed
rule change.
---------------------------------------------------------------------------
\203\ See FINRA I at 15; FINRA II at 7.
\204\ Id.
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The proposed rule change reasonably treats activity performed by
associated persons at an unaffiliated RIA as an outside activity
subject to the notice and member assessment requirements in proposed
FINRA Rule 3290(a) and (c), rather than an outside securities
transaction subject to the notice, assessment, and applicable approval,
supervision, and recordkeeping requirements in proposed FINRA Rule
3290(b) and (d). The proposed rule change reasonably tailors the
applicable framework to address the level of risk presented by the
activity, by recognizing existing oversight of the activity by the
Commission or state regulators, and in so doing, addresses privacy and
practical challenges noted by commenters and observed by FINRA
[[Page 59275]]
regarding members' ability to obtain data necessary to discharge their
obligations under existing Rules 3270 and 3280, while also providing
important investor protections.
With respect to the commenter's concern that proposed or potential
future rule changes by the Commission could further reduce the
frequency of investment adviser examinations or reduce investment
advisers' regulatory obligations, FINRA's proposed rule change must be
assessed on whether it meets the standards set forth in the Exchange
Act, including whether it is designed to protect investors and the
public interest; \205\ any concerns about the impacts of a Commission
rulemaking on investor protection would be appropriately addressed in
the context of any proposed Commission rulemaking.\206\
---------------------------------------------------------------------------
\205\ See Exchange Act Section 15A(b)(6).
\206\ Further, the commenter appears to misunderstand the
proposal identified, which, if adopted, would not alter the direct
obligations of investment advisers registered with the Commission or
create any regulatory gap that would weaken investor protection. See
``Small Business'' and ``Small Organization'' Definitions for
Investment Companies and Investment Advisers for Purposes of the
Regulatory Flexibility Act, Release Nos. IA-6935 and IC-35864, 91 FR
1107 (Jan. 12, 2026).
---------------------------------------------------------------------------
Requiring members to supervise and maintain records of unaffiliated
investment adviser activities impose additional compliance costs and
liability and causes significant operational and practical challenges
for members, which are more appropriately borne by the entity with
responsibility for the activity. The proposed rule change eliminates
these costs and challenges while preserving reasonable investor
protection measures through the obligations imposed by treating these
activities as an outside activity.\207\ Specifically, the proposed rule
change would still require an associated person to provide prior
written notice to his or her member detailing the activity so that a
member can make an informed decision about whether to limit, condition,
or prohibit the activity. For example, members could impose
restrictions on their associated persons as a condition to
participation in the unaffiliated RIA activity, and proposed FINRA Rule
3290.06 would require the member to supervise compliance with such
conditions or limitations.
---------------------------------------------------------------------------
\207\ This approach is consistent with the way outside
securities transactions that qualify under the GLBA or Regulation R
exceptions to broker or dealer registration are treated as an
outside activity of a registered person. See infra Section III.C.3
(Associated Person Outside Securities Activity Subject to GLBA or
Exchange Act Regulation R).
---------------------------------------------------------------------------
Similarly, while the proposed rule change forgoes imposing the per
se supervisory obligations attendant with treating unaffiliated RIA
activity as an outside securities transaction, in favor of a risk-based
approach, the proposed rule change does not allow members to turn a
blind eye to the risk presented by permitting such activity. Members
cannot ignore evidence of suspicious activities, as the proposed rule
does not alter members' overarching supervisory responsibilities under
applicable federal laws and FINRA rules to investigate and act upon red
flags indicating potential misconduct. Furthermore, the proposed rule
change establishes a minimum standard under FINRA rules for reasonable
supervision of associated persons, including registered persons, for
compliance with relevant obligations; the proposed rule change does not
alter or supersede a member's obligation to comply with other
applicable statutory or regulatory requirements.\208\ In recognition of
the regulatory framework that governs activity at registered investment
advisers, the proposed rule change imposes targeted, risk-based
regulatory safeguards reasonably designed to protect investors and the
public interest. In doing so, the proposed rule change should reduce
compliance burdens while facilitating investor protection. For these
reasons, the proposed rule change is reasonably 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.
---------------------------------------------------------------------------
\208\ See, e.g., Exchange Act Sections 15(b)(4)(E) and
15(b)(6)(A).
---------------------------------------------------------------------------
3. Associated Person Outside Securities Activity Subject to GLBA or
Exchange Act Regulation R
As stated above, proposed FINRA Rule 3290.05 states that an
associated person's securities activity that is not subject to a
contractual arrangement under proposed FINRA Rule 3290.04 but that
qualifies under the GLBA or Regulation R exceptions to broker or dealer
\209\ registration requirements would be considered an outside activity
of a registered person and not an outside securities transaction for
purposes of the proposed rule. This activity would be subject to the
notice and assessment requirements in proposed FINRA Rule 3290(a) and
(c), but the member would not be required to supervise or keep records
on this activity. The Commission received no comment on this aspect of
the proposed rule change.
---------------------------------------------------------------------------
\209\ See supra note 60.
---------------------------------------------------------------------------
The proposed rule change is reasonably designed to treat an
associated person's outside securities transactions that qualify under
the GLBA or Regulation R exceptions to broker or dealer registration as
an outside activity. The proposed rule change tailors the outside
activity framework to address the level of risk presented by the
activity by recognizing existing oversight of the activity by the
banking regulators.\210\
---------------------------------------------------------------------------
\210\ FINRA also stated that the proposed rule change codifies
FINRA staff's existing position with respect to this activity. See
Notice at 5006.
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Under the proposed rule change, the member would continue to
receive prior written notice of the associated person's activity, be
required to conduct an upfront assessment, and retain discretion to
condition or limit proposed activity (or prohibit the activity) based
on its assessment. Moreover, proposed FINRA Rule 3290.06 would require
the member to supervise compliance with any conditions or limitations a
member elects to impose. In this way, the proposed rule change
reasonably imposes targeted, risk-based regulatory safeguards designed
to protect investors and the public interest. For these reasons, the
proposed rule change is reasonably 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.
D. Exclusions From Proposed FINRA Rule 3290
1. Associated Person Activity on Behalf of a Member or an Affiliate
As stated above, proposed FINRA Rule 3290(g)(1) would exclude from
proposed FINRA Rule 3290 an associated person's activity on behalf of a
member or its affiliate.\211\ Proposed FINRA Rule 3290(f)(1) would
define ``affiliate'' as any entity that controls, is controlled by, or
is under common control with a member. FINRA stated that the exclusion
for activity conducted on behalf of an affiliate recognizes members'
and their control persons' ability to implement meaningful controls
across business lines.\212\ According to FINRA, activity conducted on
behalf of an affiliate occurs within the scope of the person's
relationship with the broader corporate organization and therefore does
not pose the same risks as other outside activities targeted
[[Page 59276]]
by the proposed rule change.\213\ Specifically, FINRA stated that the
rule's notice process is designed to bring external activities to the
member's attention so that risks that may not otherwise be apparent can
be evaluated by the member.\214\ FINRA stated that this process is
unnecessary where the activity is conducted within the corporate
family, where the member can access information about such activities
through corporate governance structures, shared compliance systems, or
other internal coordination mechanisms.\215\
---------------------------------------------------------------------------
\211\ Proposed FINRA Rule 3290(g)(1). FINRA stated that the
exclusion would include activity such as investment advisory
activity at a member that is registered as both a broker-dealer and
an investment adviser, as well as investment advisory, insurance, or
banking activity conducted at an affiliate. See Notice at 5005.
\212\ See Notice at 5006.
\213\ See FINRA I at 9.
\214\ Id.
\215\ Id.
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Many commenters supported the proposed rule change, generally
stating that the affiliate exclusion would create a ``more targeted
framework'' that helps members focus their compliance resources on
outside activities that are ``more likely to intersect with their
supervisory responsibilities and customer facing business.'' \216\ More
specifically, one of these commenters stated that excluding activities
at affiliated entities, where shared compliance systems already provide
oversight, would eliminate a layer of regulatory duplication that adds
cost without adding protection.\217\ Other commenters stated that the
Advisers Act already requires investment advisers to establish a
``robust'' compliance program; thus, by excluding an associated
person's advisory activity on behalf of a member or its affiliate from
proposed FINRA Rule 3290, the proposed rule change would relieve dual
registrants from ``regulatory overlap'' that added complexity without
improving investor protection.\218\
---------------------------------------------------------------------------
\216\ ASA I at 2; CAI at 2; Benedetti; Shamberger at 2; A&P
Services at 2; Form Letter B.
\217\ See Benedetti.
\218\ See, e.g., Form Letter B; A&P Services at 2.
---------------------------------------------------------------------------
Other commenters opposed the proposed rule change.\219\ For
example, one commenter stated that reducing a member's regulatory
oversight of the activity of their registered and associated persons at
affiliated advisers would be a ``dramatic step backward'' and may
eliminate recourse for investors seeking redress for harm caused by an
affiliated adviser.\220\ Another commenter stated that the Exchange Act
requires members to supervise all investment-related activities of
their registered representatives regardless of where those activities
occur, and does not exempt members based on their affiliates' ability
to effectively control activities across business lines.\221\
---------------------------------------------------------------------------
\219\ See, e.g., Banks at 1; letter from John E. Sutherland,
Brickley/Sears, P.A. at 1-2, (Feb. 25, 2026) <a href="https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-715687-2239515.pdf">https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-715687-2239515.pdf</a>
(``Brickley/Sears''); Massachusetts at 2; PIABA I at 10.
\220\ Brickley/Sears at 1-2 (stating that the way to prevent
this is to have the members responsible for supervision over the
activity). See also Massachusetts at 2 (stating that eliminating the
supervisory requirements over both unaffiliated and affiliated
investment advisers is contrary to investor protection).
\221\ See PIABA I at 10; see also Banks at 1.
---------------------------------------------------------------------------
One commenter who supported the proposed rule change recommended
that FINRA provide guidance on when the affiliate exclusion would apply
in specific scenarios involving an associated person's work on behalf
of a bank, credit union, or insurance company that controls, is
controlled by, or is under common control with the member.\222\ The
commenter also requested that FINRA provide concrete examples of how
the exclusion applies in common fact patterns, including when a
registered person's day-to-day activity at an affiliate is covered by
the exclusion and how the exclusion applies when the affiliate is the
primary employer and association with the member is ``part time or
limited in scope.'' \223\
---------------------------------------------------------------------------
\222\ See ASA I at 5; ASA II at 5-6. Another commenter
recommended that the proposed definition include contractual
networking relationships between independent broker-dealers and
third-party institutions, including banks, credit unions and
insurance companies. See LPL I at 3. FINRA responded that proposed
Supplementary Material .04 already excludes 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 as it
is within the scope of the associated person's relationship with the
member. See FINRA I at 9-10.
\223\ ASA I at 5; ASA II at 5-6.
---------------------------------------------------------------------------
In response, FINRA stated that the exclusion is appropriate because
activity conducted on behalf of an affiliate occurs within the scope of
the person's relationship with the broader corporate organization and
does not present the same risks that the rule is designed to
address.\224\ Specifically, FINRA stated that the notice and assessment
process, which is designed to bring external activities to the member's
attention so that risks that may not otherwise be apparent can be
evaluated, is not necessary for activity conducted within a corporate
family, where the member can access information about such activities
through corporate governance structures, shared compliance systems, or
other internal coordination mechanisms.\225\ In addition, FINRA stated
that rather than imposing a one-size-fits-all notice and assessment
process, the exclusion would provide a member with flexibility to
determine how to manage affiliate activities and whether any controls
are appropriate, based on its business model, organizational structure,
and the specific activities involved.\226\ FINRA also stated that,
while this exclusion is consistent with regulatory efficiency
principles, it in no way lessens a member's general supervisory
obligations under federal law or FINRA Rule 3110 nor does it limit a
member's ability to implement additional safeguards it determines are
appropriate.\227\
---------------------------------------------------------------------------
\224\ See FINRA I at 9.
\225\ Id.
\226\ Id.
\227\ Id. at 9-10.
---------------------------------------------------------------------------
With respect to the commenter's request for additional guidance on
the scope and application of the affiliate exclusion in particular
factual scenarios, FINRA confirmed that the affiliate exclusion does
not turn on whether the member or an affiliate is a registered person's
primary employer.\228\ The proposed rule change would exclude from
proposed FINRA Rule 3290 an associated person's activities either on
behalf of a member (e.g., investment adviser activity conducted for a
dually-registered broker-dealer/investment adviser) or its affiliate
(investment adviser, insurance or banking activity conducted at an
affiliate of the member).\229\ Finally, FINRA stated that if the
Commission approves the proposed rule change, it will consider
providing additional guidance on this and other topics as
appropriate.\230\
---------------------------------------------------------------------------
\228\ See FINRA II at 4.
\229\ Id.
\230\ Id.
---------------------------------------------------------------------------
The proposed rule change excluding from proposed FINRA Rule 3290 an
associated person's activities on behalf of a member or its affiliates
is reasonable given the purpose of the rule: bringing to a member's
attention external activities of which the member may not otherwise be
aware. With respect to the associated person's activity on behalf of
the member, the proposed rule change is reasonably designed to enhance
regulatory efficiency by excluding from duplicative obligations
activity that already falls within the member's supervisory and
compliance responsibilities under other FINRA rules (e.g., FINRA Rule
3110). With respect to activity performed on behalf of an affiliate, it
is appropriate to exclude the activity from the proposed rule's
mandatory notice and assessment process, as it is conducted within a
corporate family, where the member should have visibility into the
associated person's conduct through the
[[Page 59277]]
corporate governance structure, shared compliance systems, or other
internal coordination.
As such, the proposed rule change reasonably focuses a member's
compliance function on activities where member oversight provides the
greatest investor protection benefit. In addition, members retain the
ability to impose additional measures on any such activity, including
notice requirements and placing conditions or limitations on the
activity, while also retaining their overarching supervisory
obligations. Further, as noted above, the proposed rule change does not
alter or supersede a member's obligation to comply with other
applicable statutory or regulatory requirements, nor does it address an
investor's ability to seek redress for harm.\231\ As such, the
exclusion reflects a reasonable approach that is designed to channel
oversight resources toward activities where the member is less likely
to have visibility or information, by permitting members to leverage
internal structures to avoid unnecessarily duplicative requirements,
and providing flexibility to determine how to manage affiliate
activities in the context of those structures. For these reasons, the
proposed rule change is reasonably 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.
---------------------------------------------------------------------------
\231\ See supra note 208.
---------------------------------------------------------------------------
2. Securities Transactions Among Immediate Family Members of an
Associated Person
As stated above, proposed FINRA Rule 3290(g)(2) would exclude from
proposed FINRA Rule 3290 an associated person's securities transactions
among immediate family for which the associated person receives no
selling compensation.\232\ These transactions are also excluded from
the current definition of PST, and therefore not subject to the notice
and assessment requirements in existing FINRA Rule 3280.\233\ The
Commission received no comment on this aspect of the proposed rule
change.
---------------------------------------------------------------------------
\232\ Proposed FINRA Rule 3290(g)(2). Proposed FINRA Rule
3290(f)(2) would define ``immediate family'' to have the same
meaning as in FINRA Rule 3240(c).
\233\ See FINRA Rule 3280(e)(1) (excluding from the definition
of ``private securities transaction'' transactions among immediate
family members as defined in FINRA Rule 5130).
---------------------------------------------------------------------------
The proposed rule change excluding uncompensated securities
transactions among immediate family members from the obligations of
proposed FINRA Rule 3290 is reasonably designed to focus members'
supervisory and compliance resources on activities that are more likely
to raise investor protection concerns. Additionally, the exclusion from
proposed FINRA Rule 3290 does not lessen a member's general supervisory
obligations under federal law or FINRA Rule 3110 nor limit a member's
ability to implement additional safeguards it determines are
appropriate. For these reasons, the proposed rule change is reasonably
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.
3. Certain Personal Investments of an Associated Person
As stated above, proposed FINRA Rule 3290(g)(3) would exclude from
proposed FINRA Rule 3290 the following personal investments of an
associated person: (1) securities transactions subject to or delineated
in FINRA Rule 3210 (Accounts at Other Broker-Dealers and Financial
Institutions); (2) personal investments in non-securities; and (3) the
purchase, sale, rental or lease of a main home and up to two secondary
homes that are: (a) solely owned by the associated person or the
associated person and immediate family; (b) owned by the associated
person as a sole proprietorship; (c) 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 (d) owned by a trust with the associated person or the associated
person and immediate family as the sole beneficiaries.\234\
---------------------------------------------------------------------------
\234\ Proposed FINRA Rule 3290(g)(3)(A)-(C).
---------------------------------------------------------------------------
Commenters supported the proposed rule change,\235\ stating that
the treatment of these categories of personal investments is
appropriately tailored, reflects a calibrated risk-based approach,\236\
and will help members concentrate on outside activities that are more
likely to intersect with their supervisory responsibilities and
customer-facing business.\237\ In particular, commenters supported the
real estate exclusion, stating that such activities do not raise
investor protection concerns and therefore should not be subject to
reporting.\238\ No commenters objected to this proposed exclusion.
---------------------------------------------------------------------------
\235\ See ASA I at 2; Robinhood at 2.
\236\ See Robinhood at 2.
\237\ See ASA I at 2.
\238\ See Cambridge I at 2; see also CAI at 2; ASA I at 2;
Robinhood at 2; FSI I at 1.
---------------------------------------------------------------------------
The proposed rule change to exclude certain personal investments
from the obligations of proposed FINRA Rule 3290 is reasonably designed
to help focus members' compliance oversight on activities that are more
likely to raise investor protection concerns. Specifically, some of
these transactions are covered by FINRA Rule 3210, which already
requires a member to consent to an associated person's opening an
account with another member or financial institution in which
securities transactions can be effected and in which the associated
person has a beneficial interest; in addition, the associated person's
member can request data for any transaction in an account subject to
the rule. Therefore, these transactions are already subject to existing
controls under FINRA Rule 3210.\239\ In addition, an associated
person's personal investments in non-securities, or, subject to
specified conditions, the purchase, sale, rental or lease of a main
home and up to two secondary homes is a targeted exclusion for real
estate activities and non-securities that are otherwise included in the
definition of investment-related activity in proposed Rule 3290(f).
This limited exclusion reasonably recognizes the lower risks to
investors and members presented by these activities by reducing the
regulatory burdens associated with such activities. Moreover, the
exclusion from proposed FINRA Rule 3290 does not lessen a member's
general supervisory obligations under federal law or FINRA Rule 3110,
nor limit a member's ability to implement additional safeguards it
determines are appropriate. For these reasons, the proposed rule change
is reasonably 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.
---------------------------------------------------------------------------
\239\ See supra note 51.
---------------------------------------------------------------------------
4. Treatment of Activity Subject to a Contractual Arrangement
As stated above, proposed FINRA Rule 3290.04 would exclude from
proposed FINRA Rule 3290 an associated person's activity conducted on
behalf of the member pursuant to a contract between the member and
another entity (e.g., a banking or insurance networking arrangement)
because the activity would be considered within the scope of the
associated person's relationship with the member and therefore subject
to the member's supervisory obligations under FINRA Rule 3110. The
Commission
[[Page 59278]]
received no comment on this aspect of the proposed rule change.
The proposed rule change to exclude an associated person's activity
conducted on behalf of a member pursuant to a contractual arrangement
between the member and another entity is reasonably designed to enhance
regulatory efficiency by excluding from duplicative obligations
activity that already falls within the member's supervisory and
compliance responsibilities under other FINRA rules (e.g., FINRA Rule
3110). For these reasons, the proposed rule change is reasonably
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.
E. Recordkeeping
As stated above, proposed FINRA Rule 3290(e) would require a member
to keep a record of its compliance with the obligations under proposed
FINRA Rule 3290 and preserve this record in accordance with the time
and accessibility requirements of Exchange Act Rule 17a-4(e)(1). The
Commission received no comments on this aspect of the proposed rule
change.
The proposed rule change requiring members to keep and preserve a
record of its compliance with the obligations under proposed FINRA Rule
3290 is reasonably designed to facilitate oversight of a member's
compliance with the proposed rule change. A key component of regulatory
oversight is a member's retention of its business records. By expressly
requiring compliance with applicable Commission recordkeeping rules,
the proposed rule change makes clear members' obligation to maintain
and make available records related to proposed FINRA Rule 3290. As
such, the proposed rule change will help ensure that regulators can
properly oversee members' compliance with proposed FINRA Rule 3290. For
these reasons, the proposed rule change is reasonably 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.
F. General Exemptive Authority
As stated above, proposed FINRA Rule 3290(h) would authorize FINRA
staff, for good cause shown after taking into consideration all
relevant factors, to conditionally or unconditionally grant an
exemption pursuant to the FINRA Rule 9600 Series from any provision of
proposed FINRA Rule 3290 to the extent that such exemption is
consistent with the purpose of the rule, the protection of investors,
and the public interest. The proposal would also amend FINRA Rule 9610
to add Rule 3290 to the list of rules for which a member may seek
exemptive relief. The Commission received no comment on this aspect of
the proposed rule change.
The proposed rule change authorizing FINRA to grant exemptive
relief from any provision of proposed FINRA Rule 3290 is reasonably
designed to allow FINRA members to avail themselves of an existing
procedural vehicle--FINRA's Rule 9600 Series--to apply for exemptive
relief from any provision of the rule, on a case-by-case basis, to
address unanticipated factual circumstances that may arise under the
rule. Prior to granting an exemption, FINRA staff would be required to
consider all relevant factors to determine if good cause is shown for
the exemption, and that the exemption is consistent with the protection
of investors and the public interest. For these reasons, the proposed
rule change is reasonably 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.\240\
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\240\ A commenter recommended that FINRA establish an effective
date for the proposed rule change that is at least 12 months after
Commission approval, in order to provide members sufficient time to
update their compliance systems that are currently designed for
FINRA Rules 3270 and 3280. See ASA I at 6; ASA II at 6-7. In
response, FINRA stated that if the proposed rule change is approved
it would determine an effective date balancing sufficient time for
implementation with its objective of reducing unnecessary burdens in
a timely manner. See FINRA I at 17; FINRA II at 9. FINRA reasonably
declined to establish an effective date for the proposed rule change
at this time.
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IV. Conclusion
For the reasons set forth above, the Commission finds that the
proposed rule change is consistent with Section 15A(b)(6) of the
Exchange Act, which requires, among other things, that FINRA rules be
designed to prevent fraudulent and manipulative acts and practices,
promote just and equitable principles of trade, and, in general,
protect investors and the public interest.\241\
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\241\ 15 U.S.C. 78o-3(b)(6).
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It is therefore ordered pursuant to Section 19(b)(2) of the
Exchange Act \242\ that the proposed rule change (SR-FINRA-2026-001)
be, and hereby is, approved.
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\242\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\243\
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\243\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2026-19126 Filed 9-17-26; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on September 18, 2026.
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