The Financial Industry Regulatory Authority, Inc. (“FINRA”) has proposed a new rule (the “Proposal”) that would consolidate and modernize its rules governing outside business activities and private securities transactions by broker-dealer personnel.1 Proposed FINRA Rule 3290 (Outside Activities Requirements) would replace current Rule 3270 (Outside Business Activities) and Rule 3280 (Private Securities Transactions). The Proposal would be narrower in scope than the existing rules, and FINRA intends that the Proposal’s focus on higher-risk investment‑related activities would reduce compliance burdens for FINRA member broker-dealers (“firms”) and their personnel.
Background
Current Rule 3270, regarding outside business activities (“OBAs”), requires a registered person of a firm to submit written notice to their firm prior to acting as an employee, independent contractor, sole proprietor, officer, director or partner of another person, or being compensated, or having the reasonable expectation of compensation, by another person for any business activity outside the scope of their relationship with their firm. Upon receiving a Rule 3270 notice, a firm must consider whether the proposed OBA will (i) interfere with or otherwise compromise the registered person’s responsibilities to the firm or the firm’s customers or (ii) be viewed by customers or the public as part of the firm’s business based upon, among other factors, the nature of the proposed activity and the manner in which it will be offered. In this context, the firm must evaluate the advisability of imposing specific conditions or limitations on a registered person’s OBA, including where circumstances warrant, prohibiting the activity. A broad variety of non-investment-related activities that a registered person might undertake are within the scope of Rule 3270, such as service on nonprofit boards and personal, non-securities-related business ventures.
Current Rule 3280 requires associated persons of a firm, including both registered and non-registered personnel, to provide written notice to the firm prior to engaging in any personal securities transaction (“PST”), defined as a securities transaction outside the regular course or scope of the associated person’s employment with the firm, with limited exceptions. If the associated person will receive selling compensation in connection with the transaction, the firm must specifically approve the associated person’s participation and must record the transaction on the firm’s books and records as if the transaction were effected on behalf of the firm.
Rules 3270 and 3280 have been primed for update since FINRA undertook a retrospective review of both rules in 2017. The Proposal follows a regulatory notice FINRA issued in March 20252 through which FINRA sought comments on an initial version of proposed Rule 3290.
The Proposal
The Proposal would consolidate the OBA and PST frameworks of Rules 3270 and 3280 into a single rule, new Rule 3290, reoriented around “investment‑related” outside activity. The Proposal is intended to eliminate “white noise” reporting for common non‑investment-related outside activities (e.g., driving for a car service) that are unlikely to be viewed as part of a firm’s business but are technically required to be reported under current Rule 3270, allowing firms to redeploy compliance resources to activities more likely to create risk to investors or the firm.
To that end, “investment‑related activity” would be broadly defined to cover activities pertaining to financial assets, including securities, crypto assets, commodities, derivatives (such as futures and swaps), currency, banking, real estate, or insurance. The Proposal would include several explicit clarifications regarding activities that have received inconsistent treatment under the current rules:
- “Investment-related activity” would expressly include an associated person’s participation in a personal investment involving a securities transaction (sometimes referred to as “buying away”).
- Rule 3290 would not apply to:
- activity on behalf of a firm or its affiliate, including investment advisory activity conducted for an investment adviser affiliate of the firm or a dually registered broker-dealer/investment adviser;
- personal investments in non-securities, e.g., personal transactions in non-security crypto assets, such as bitcoin (though business ventures related to crypto assets, such as promoting or selling crypto assets away from the firm, would be “outside activities” subject to Rule 3290); and
- the purchase, sale, rental or lease of a main home and up to two secondary homes that are owned by the associated person or the associated person and their immediate family members under specified ownership structures.
Activities covered by Rule 3290 would be described as “outside activities” and “outside securities transactions,” replacing the current terminology of “outside business activities” and “private securities transactions” in Rules 3270 and 3280, respectively. The Proposal would preserve the prior written notice requirements of Rules 3270 and 3280, and like the current rules, would regulate outside activities only of registered persons but would cover outside securities transactions for all associated persons. Under the Proposal, registered persons would be required to submit prior written notice for “outside activity,” defined as investment-related activity outside the scope of such person’s relationship with the firm that is not in connection with a securities transaction. Separately, associated persons would be required to submit prior written notice before engaging in an “outside securities transaction,” defined as investment-related activity outside the scope of such person’s relationship with the firm that is in connection with a securities transaction.
The Proposal would harmonize the factors a firm must consider when assessing outside activities and outside securities transactions. Under the Proposal, for both outside activities and outside securities transactions, the firm would consider whether the outside activity/securities transaction (i) involves a customer of the registered/associated person; (ii) would interfere with or otherwise compromise the registered/associated person’s responsibilities to the firm or the firm’s customers; and (iii) would be viewed by the firm’s customers or the public as part of the firm’s business based upon, among other factors, the nature of the proposed activity and the manner in which it will be offered. At the firm’s discretion, the firm could impose specific conditions or limitations on the activity, including where circumstances warrant, prohibiting the activity. For outside securities transactions involving selling compensation, as is currently required under Rule 3280, the firm would be required to specifically approve or disapprove the transaction, and if approved, record the transaction on the books and records of the firm and supervise the associated person’s participation in the transaction as if it were effected on behalf of the firm.
The Proposal would also codify certain FINRA staff positions regarding the treatment of portfolio managers or investment committee members for specified entities (separate from the exclusion for investment advisory activities conducted on behalf of an affiliate); work conducted for a third party under a contractual relationship with the firm; certain outside securities activities at banks and other financial institutions; and formal allocation agreements between firms when a dual‑associated person engages in approved outside securities transactions for selling compensation.
Observations
The Proposal could provide welcome relief from the reporting, supervision and recordkeeping burdens associated with non-investment-related activities currently subject to Rule 3270 inasmuch as it would permit firms to appropriately focus their supervisory efforts on investment-related outside activities and securities transactions that are more likely to pose a risk to investors or the firm. If approved as proposed, firms should expect to recalibrate their OBA/PST programs to triage investment-related activity and formalize standardized assessments for all covered notices. This includes implementing consistent procedures to determine whether an outside activity is actually an outside securities transaction, whether it involves the associated person’s customers, and whether it risks confusion about the firm’s business.
Notably, however, the “investment-related” threshold for reporting outside activity under the Proposal would not modify registered persons’ separate obligation to report any “other business,” including non-investment-related business, on Form U4, which is broader than the reporting obligation under proposed Rule 3290 (whereas the Form U4 obligation could be read to be narrower than the reporting obligation under current Rule 3270). FINRA acknowledges the discrepancy and indicates that it “would endeavor to work with the SEC and states to harmonize the requirements where appropriate.” As it stands, if Rule 3290 is approved as proposed, firms would need to consider how to integrate both reporting regimes—Rule 3290 and Form U4—into their onboarding and supervision workflows, which may dampen the impact of FINRA’s intended reduction in the compliance burden for firms and their personnel.
Once published by the Securities and Exchange Commission (the “SEC”) in the Federal Register, the Proposal will go through the statutory notice and public comment period and may be amended before the SEC renders a final decision. Under the statutory timeframe, a decision could be expected by the end of the third quarter of 2026. If ultimately approved, FINRA would announce the intended effective date for the new rule in a Regulatory Notice.
