Client Alert: FINRA Rules 3270 & 3280 Under Review

  • Client Alert: FINRA Requested Comments regarding the Effectiveness and Efficiency of its Rules on Outside Business Activities and Private Securities Transactions (17-20)

    FINRA Rules 3270 (Outside Business Activities of Registered Persons) and Rule 3280 (Private Securities Transactions of an Associated Person) are being reviewed through FINRA’s public comment process.

    Both current Rules provide regulatory guidelines for firms to

    (1) receive information about employee’s business and securities activities conducted away from the firm and

    (2) implement a system to assess disclosures, determine whether to limit or place conditions on the employee’s participation in them, and record and supervise the transaction.

    These Rules are supposed to protect the investing public from potentially problematic and risky investment activities that are unknown to the firm but could be identified as stemming from the firm. An additional aim of the Rules is to protect the firm from reputational and litigation risks.

    In conducting their retrospective review, FINRA asked commenters to address specific questions relating to the effectiveness of current Rules. Additionally, FINRA sought comments on other aspects of the rules relating to data or evidence in support of comments, as well as specific suggestions as to how the rules should be improved.

    We recommend that Broker-Dealers review the comment letters, examine the firm’s policies/ procedures on OBA’s and disclosures, from a risk-assessment perspective.

    We have found that enhancements to existing books and records requirements covering proposed and approved OBA’s generally pay handsome risk-avoidance dividends. This will provide your Firm with a running start when FINRA proposed amendments to Rules 3270 and 3280 become effective. 

    If you have any questions about this Client Alert or any of the Regulatory Notice discussed, please contact Paul A. Lieberman, PLieberman@evw.com, 212 561-3628.

    Paul Lieberman has more than three decades of experience preparing and revising policies and procedures, developing effective supervision structures, leading and coordinating internal investigations and defending regulatory enforcement proceedings before the SEC, FINRA and state securities departments/commissions.

    Laura K. Kues assisted in the preparation of these Alerts. Laura graduated from Johannes Gutenberg University in Mainz (Germany) in June 2015 (First State Exam) with the priority area in Competition Law Intern at Eaton & Van Winkle, LLP (USA) during the 2017 German legal clerkship at the district court of Mainz (Germany).

    © Eaton & Van Winkle, LLP, 2017. All rights reserved. This memorandum was prepared as a service to clients and friends of the firm to report on recent developments that may be of interest to them. The information in it is therefore general, and should not be considered or relied on as legal advice.