FINRA Seeks Public Comment on Proposed Changes to Rules Governing Outside Activities of Associated Persons

On March 14, 2025, FINRA announced it is seeking comment on a proposed new rule to simplify existing requirements addressing the outside activities of member firms’ associated persons (the Proposal).¹ The Proposal would create a single rule to replace existing FINRA rules governing outside business activities (OBAs) of registered persons and private securities transactions (PSTs) of associated persons, which include both registered and nonregistered persons.

While proposed FINRA Rule 3290 retains many of the existing requirements related to OBAs and PSTs, it narrows the scope of the current rules and provides additional clarifications and exclusions. For example, the Proposal

• focuses on only outside investment-related activities
• excludes such things as (i) non-broker-dealer activities of registered persons of a dually registered investment adviser (IA)/broker-dealer or of an IA affiliated with the broker-dealer, and (ii) associated persons’ outside securities transactions among immediate family members for which there is no selling compensation received²
• seeks comment on eliminating members’ supervisory and recordkeeping obligations for IA activities performed at an unaffiliated IA

Firms should take advantage of FINRA’s invitation to comment on all aspects of the Proposal and to educate FINRA staff on any potential improvements to the Proposal to promote favorable industry changes. We encourage clients to review the Proposal and look to the Sidley contacts below or their other Sidley contact(s) to discuss further.

The comment deadline is May 13, 2025.

Investment-Related Activities Focus

The Proposal narrows the focus of the current rules to scope in only outside “investment-related activities” to reduce burdens on members and focus on the outside activities that FINRA believes pose greater risks (e.g., selling crypto assets vs. bartending on weekends). The Proposal defines an “investment-related activity” to mean activity “pertaining to financial assets, including securities, crypto assets, commodities, derivatives (such as futures and swaps), currency, banking, real estate, or insurance,” and generally includes personal investment involving a securities transaction with certain exceptions.³

Prior Written Notice Obligations Remain

The Proposal maintains existing provisions requiring prior written notice by a registered person detailing the outside activities or associated person (including a registered person) who intends to participate in an outside securities transaction. The Proposal also retains the requirement that a member make certain assessments of an outside activity or outside securities transaction on receiving the notice. While the factors a member must assess are generally consistent with those under existing FINRA Rule 3270 for an OBA, the Proposal would add a requirement that the member consider whether the activity or transaction involves the member’s customers.

New Exclusions

The Proposal retains certain exclusions consistent with current FINRA Rule 3280 while introducing two new exclusions in proposed FINRA Rule 3290:

1. The Proposal excludes a registered or associated person’s non-broker-dealer activity on behalf of a member or its affiliate (e.g., IA activity at a dually registered firm or insurance or banking activity conducted at an affiliate).
2. The Proposal excludes outside securities transactions among immediate family members for which there is no selling compensation.
3. The Proposal excludes outside securities transactions subject to FINRA Rule 3210 (e.g., securities in an account held at another member) and transactions delineated in Rule 3210.03 (e.g., mutual funds, Section 529 plans, variable annuities).
4. The Proposal excludes personal investments in nonsecurities and the purchase, sale, rental, or lease of a main home or dwelling unit or personal-use rental property.

Clarifications

The Proposal also makes the following clarifications to members’ obligations:

1. Portfolio Managers and Investment Committee Members — An associated person is required to provide prior written notice and receive prior written approval to act as a portfolio manager or investment committee member. However, a member that approves such activities is not required to supervise and maintain records for such person for certain specified entities (e.g., investment companies, business development companies, real estate investment trusts, and tax-exempt entities) unless the associated person is selling such entities’ shares for selling compensation.
2. Associated Persons Registered at Two Broker-Dealers — If an individual is associated with more than one member and is engaged in an outside securities transaction for selling compensation, the members may develop a written allocation agreement regarding regulatory obligations.

Further Feedback on Outside IA Activities

While generally preserving the status quo regarding outside IA activities (other than activities performed at an affiliated IA and thus covered by a proposed exclusion), FINRA noted that it is interested in updating previously received feedback regarding potentially eliminating members’ supervisory and recordkeeping obligations for IA activities performed at an unaffiliated IA. FINRA proposed eliminating such obligations in a prior regulatory notice, but, informed by strong differences in commenters’ views, did not act on that proposal.

¹ FINRA Regulatory Notice 25-05 (Mar. 14, 2025), https://www.finra.org/sites/default/files/2025-03/Regulatory-Notice-25-05_1.pdf.

² For purposes of the Proposal, nonsecurities business activities outside the regular scope of individuals’ employment with a member are referred to as “outside activities,” and securities transactions outside the regular scope of individuals’ employment with a member are referred to as “outside securities transactions.”

³ Proposed FINRA Rule 3290(f)(2).