FINRA Outside Business Activities Rule Now Effective
Written by Michael Wu
On December 15, 2010, FINRA Rule 3270 became effective. FINRA Rule 3270 requires each registered representative of a broker-dealer to provide it with prior written notice of an outside business activity. FINRA Rule 3270, which replaced NASD Rule 3030 and NYSE Rule 346, specifically identifies the types of activities that would be subject to the rule and requires registered representatives to disclose to the broker-dealer whenever he or she intends to serve as an employee, independent contractor, sole proprietor, officer, director or partner of another entity, or will be compensated, or reasonably expects to be compensated, from another entity in connection with any business activity outside the scope of such individual’s relationship with the broker-dealer. Passive investments and activities subject to NASD Rule 3040 (i.e., the private securities transaction rule) are exempt from the requirements under FINRA Rule 3270.
Upon receipt of notice of an outside business activity from a registered representative, a broker-dealer must determine whether the proposed activity would (i) interfere with such registered representative’s responsibilities to the broker-dealer and/or its clients or (ii) be viewed by clients or the public as part of the broker-dealer’s business. Based on such analysis, the broker-dealer may impose specific limits or conditions on such activity or prohibit such activity. The broker-dealer must document the review process of each written notice received and keep appropriate records. If a registered representative was actively engaged in an outside business activity prior to December 15, 2010, the broker-dealer must review such activity in accordance with FINRA Rule 3270 by June 15, 2011.