The Financial Industry Regulatory Authority is floating a new plan to limit outside business activity reporting requirements to investment-related activities that are considered to be higher risk. FINRA's current rule covers all outside business activities, including bartending or driving for a car service.
Activities that are not investment related are common and varied, FINRA's proposal states, and "removing reporting requirements for such activities would relieve both registered persons and members from costs associated with this reporting and its review."
Members "may also benefit from focusing the freed compliance resources on those outside activities that are more likely to raise investor protection concerns," the proposal states. "There is likely little risk that non-investment-related activities could be perceived by the investing public as part of the member's business."
The proposed rule "clarifies which types of activities require prior written notice, narrowing the requirement to those that involve an outside security transaction, involve a firm’s customers, or potentially interferes with the firm’s primary responsibilities," Robert Cruz, vice president of Regulatory & Information Governance at Smarsh, told ThinkAdvisor Wednesday in an email. "This should serve to reduce the up-front administrative burden placed on firms in managing and tracking of OBA."
The proposal's "impact on investors and the firm’s supervisory obligations are less clear," Cruz said. "Exclusions are provided for activities such as personal securities, advisory activities, real estate, etc. that are subject to their own regulatory obligations. If FINRA is not requiring notice for these activities, then one has to wonder about investor impact if the SEC or other bodies will provide oversight in an era of shrinking enforcement budgets and shifting priorities."
But some advisors say the rule is an overreach by FINRA. Comment letters on the new plan are flooding in — with some calling for FINRA to scrap it.
FINRA's plan "would inappropriately extend FINRA’s oversight to RIAs who are already regulated by the SEC and state authorities," Michael Scavullo of
Solebury Asset Management, said in his comment letter.
Plan Details
The plan, according to the proposal, eliminates "the reporting and assessment of low-risk activities that create white noise (e.g., refereeing sports games, driving for a car service, bartending on weekends)."
This focus "will allow members to dedicate resources to activities presenting higher risk, particularly the risk that customers or the public will view the activities as part of the member’s business (e.g., selling crypto assets, fixed annuities, commodities or private placements away from the member)," the proposal explains.
The proposal defines “investment-related activity” as pertaining to financial assets, including securities, crypto assets, commodities, derivatives (such as futures and swaps), currency, banking, real estate or insurance.
The term includes, but is not limited to, acting as or being associated with a broker-dealer, issuer, insurance agent or company, investment company, IA, futures commission merchant, commodity trading advisor, commodity pool operator, municipal advisor, futures sponsor, bank, savings association or credit union.
Confusing Terms
Sean Lehmann of The Sullivan Group told FINRA in his comment letter that he strongly opposed the proposed rule changes that would consolidate FINRA Rules 3270 and 3280 into a single new rule governing OBAs and PSTs.
"While I recognize FINRA’s stated intent to 'streamline and reduce unnecessary burdens,' the Proposal, in its current form, fails to deliver on this promise," Lehmann wrote. "In fact, the rule as proposed introduces new complexities, increases the administrative burden on both firms and associated persons, and may have significant unintended consequences for small firms, independent advisors, and entrepreneurial professionals within our industry."
The proposed rule "uses terms such as 'investment-related,' 'compensation,' and 'materiality' in ways that are insufficiently defined and ripe for inconsistent interpretation across firms," Lehmann said. "This ambiguity increases legal risk and invites uneven enforcement, further deterring firms from approving legitimate outside activity."
Lehmann added: "Rather than reducing regulatory burden, the Proposal amplifies it. It introduces vagueness, increases compliance costs, threatens personal liberty, and undermines professional autonomy — particularly for small firms and independent advisors. FINRA should not move forward with this proposal in its current form."
Challenges of AI
Cruz cautioned that "maintaining visibility into outside activities — both reported and unreported — will continue to grow as a challenge in an era of increased adoption of ephemeral aps, GenAI, and crypto. If advance notice for bartending, Uber driving, or soccer referee activities is no longer required, firms will continue to need to provide oversight of registered persons to ensure that investment advice is not shared over WhatsApp with your Uber passenger, exchanged on Signal with your bar patron, or texted to little Johnny’s coach following the game you just refereed."
The proposed change "has been favorably received by the industry," according to Ben Marzouk, partner at Eversheds Sutherland in Washington.
FINRA’s proposal, which is out for comment until May 13, "would replace the existing separate rules for outside business activities (Rule 3270) and private securities transactions (Rule 3290) with a new consolidated rule (Rule 3290)" that would cover both OBAs and private securities transactions, or PSTs, "and would substantially simplify the requirements related to broker-dealer associated person activities done away from the firm," Marzouk told ThinkAdvisor Wednesday in an email.
FINRA’s earlier attempts in 2018 to simplify the OBA/PST rules "were never finalized, so this is a renewed attempt by FINRA to simplify the reporting requirements and ease the burden on member firms," Marzouk said.
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