New FINRA Rule 3270 (the Rule) replaces NASD Rule 3030, effective December 15, 2010. This change will have a significant impact on the compliance efforts related to outside business activities for member firms of the Financial Industry Regulatory Authority (FINRA). The Rule goes beyond current NASD Rule 3030 by prohibiting any 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, from another person as a result of any business activity outside the scope of the relationship with his or her member firm, unless he or she has provided prior written notice to the member firm. Even then, registered persons may not engage in the activity until they receive written permission from the member firm.
Upon receipt of a written notice, firms will have to consider whether the proposed activity will: (1) interfere with or otherwise compromise the registered person’s responsibilities to the firm and/or the firm’s customers, or (2) be viewed by customers or the public as part of the firm’s business. Based on the review, the firm will have to evaluate whether to impose specific conditions or limitations on a registered person’s outside business activity up to and including prohibiting the activity. Additionally, it should be noted that, with respect to registered persons who are actively engaged in an outside business activity prior to the December 15, 2010 effective date of the Rule, firms will have until June 15, 2011 to review such pre-existing activities, utilizing the standards set forth in the Rule, and document their compliance with such standards.
Daniel E. LeGaye & Michael Schaps, Co-Authors
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