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FINRA Floats Rule Changes on Gifts, Noncash Comp

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The Financial Industry Regulatory Authority is seeking comments on its plan to amend its gifts, gratuities and noncash compensation rules.

The proposed new rules, issued in Regulatory Notice 16-29, would raise the gift limit from $100 to $175, mostly to account for inflation, notes Cipperman Compliance Services. The new rules would also impose the noncash compensation restrictions on all securities transactions rather than just mutual funds, variable annuities, direct participation programs (DPPs) and public offerings.

FINRA’s proposal would also replace previous guidance on business entertainment — allowing “ordinary and usual business entertainment” — with a requirement to implement policies and procedures ensuring no quid pro quos, defining permissible business entertainment, training and recordkeeping.

FINRA is also proposing to incorporate into the amended rules a principles-based standard for business entertainment that would require firms to adopt written policies and supervisory procedures for business entertainment.

Comments on the proposal are due by Sept. 23.

Cipperman believes the proposed changes “make sense.” Jon Henschen of BD recruiting firm Henschen & Associates agrees that FINRA’s plan includes “common sense” changes. 

While the $100 gift limit “is way too low and should be raised,” $175 “seems like an arbitrary number,” Cipperman says. 

“Upping the gift allowance to $175 and consolidating the rules is a step in the right direction,” adds Henschen.

The business entertainment rules, the compliance firm adds, “have always been too subjective, whereas firm-tailored policies and procedures can apply some bright line rules. And, there really was no logical reason why the noncash compensation rules only applied to certain transactions.”

The proposal’s plan that noncash compensation (reward trips) be based on “all of an advisors’ products versus select products will [help] to avoid product bias, which isn’t an issue at most broker-dealers but still exists,” Henschen says. “Since 2010, REITs and alts have been heavily represented at broker-dealer conferences simply because they are willing to spend the money while mutual fund and variable annuity firms have pulled back on conference expenditures.”

A 2014 retrospective review performed by FINRA of its rules found that the gratuities and noncash compensation rules needed updating.

Numerous political thinktanks, Henschen notes, have floated the idea of requiring regulations for all industires to be “temporary,” and needing to be reapproved every three to five years or they expire. This idea would “help to drop rules that don’t work as well.”


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