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It’s 6 pm. Do you know where your people are?

It’s the start of the summer silly season and a perfect time to take a closer look at your members’ outside business activities (OBAs).

Why is that, you ask?

Because the Financial Industry Regulatory Authority (FINRA) has just launched a “request for comment” call on its rules governing outside business activities and private securities transactions as part of a new retrospective rule review. The intention, according to the regulators, is that these periodic looks back at significant rulemaking help the Authority determine whether a rule or rule set is meeting its intended investor protection objectives by reasonably efficient means.

This summer, it’s OBAs

In May, FINRA selected Rules 3270 (Outside Business Activities of Registered Persons) and 3280 (Private Securities Transactions of an Associated Person) for review. These rules govern your firm employees’ business and securities activities carried out away from your firm—activities that are outside the regular course or scope of their employment with the firm.

While FINRA recognizes that a representative’s extracurricular activities can benefit some investors, the Authority also is cognizant that these same activities, depending on the circumstances, may pose risks to investors and a firm. They want to protect you both — saving the investing public from potentially problematic or risky activities that are unknown to you and your firm that could be perceived by investors as either part of your firm’s business or having the firm’s “blessing.” The rules also seek to protect you and your firm from the concomitant reputational and litigation risks.

The rules are designed to provide firms and their compliance professionals with a regulatory framework that requires responsible parties:

  • be informed of such activities;
  • implement a system to assess these activities;
  • determine whether to limit or place conditions on the employee’s participation in these activities; and, in the case of private securities transactions for compensation
  • record and supervise the transactions.

FINRA wants to know what you think about rules, and…

According to FINRA President and CEO Robert Cook, “Regularly reviewing significant rules to ensure they remain effective at protecting investors in an efficient manner is a key priority… Successful self-regulation requires continuous renewal and improvement. Meaningful dialogue with stakeholders is essential to that process.” (All comments must be received by June 29, 2017.)

In opening the door to comment, FINRA says it seeks answers to the following questions with respect to Rules 3270 and 3280:

  1. Have the rules effectively addressed the problem(s) they were intended to mitigate? If so, to what extent have the original purposes of and need for the rules been affected by subsequent changes to the markets, the delivery of financial services, the applicable regulatory framework, or other considerations? Are there alternative ways to achieve the goals of the rules that should be considered?
  2. What have been experiences with implementation of the rule set, including any ambiguities in the rules or challenges to comply with them?
  3. What have been the economic impacts, including costs and benefits, arising from FINRA’s rules? Have the economic impacts been in line with expectations described in the rulemaking? To what extent would these economic impacts differ by business attributes, such as the size of the firm or the differences in business models?
  4. Can FINRA make the rules, interpretations or attendant administrative processes more efficient and effective?

Of course, FINRA being FINRA, the Authority also requests that you provide any data or evidence in support of your comments or recommendations. You can’t just tell FINRA to dump the rules, you have to make a case for changing regulation.

FINRA wants to know how it’s doing too!

In addition to commenting on the OBA-related rules, FINRA also is asking for comment on its processes to administer the rules to ensure that its rules remain relevant and appropriately designed to achieve their objectives, particularly in light of environmental, industry and market changes.

FINRA’s rule review process consists of an assessment and action phase where FINRA will evaluate the efficacy and efficiency of the rule or rule set as currently implemented and its internal administrative processes. The Authority will seek input from affected parties and experts, including its advisory committees, subject-matter experts inside and outside of the organization, and other stakeholders, including industry members, investors, interested groups, and the public.

Efficiency matters to FINRA and..

… FINRA does want to be more efficient, albeit without opening the door to investor risk. Its staff will assess issues including the existence of duplicative, inconsistent or ineffective regulatory obligations; whether market or other conditions have changed to suggest there are ways to improve the efficiency or effectiveness of a regulatory obligation without loss of investor protections; and potential gaps in the regulatory framework.

Next steps could then include:

  • modifications to the rule or rule set;
  • updated or additional guidance;
  • administrative changes or technology improvements; or
  • additional research or information gathering.

If change is recommended, FINRA will roll out its usual rulemaking process to propose amendments and include input from FINRA’s advisory committees and an opportunity for comment on specific proposed revisions in a rule filing with the SEC, or both.

So…review does NOT mean relax

Regulation is not going away. Really. It is not. No matter how much you wish it would. The wheels of FINRA and the rest of the regulatory alphabet grind slowly. Which means, compliance still matters.

Procrastination is not a compliance strategy

Waiting for the rules to change…waiting for the regulatory shoe to drop — that is not a compliance strategy. Ask yourself: Why risk even the smallest fines when compliance is so much cheaper? Especially when companies like Patrina are offering comprehensive compliance solutions and compliant data capture, file storage, and records archiving specifically designed for the financial services community.

It’s so inexpensive to do the right thing. So why don’t you? Be ready. Be compliant. Let’s talk (212-233-1155). Don’t be pennywise and pound foolish. Be safe, secure, and compliant instead.