The Financial Industry Regulatory Authority's new proposed rule on outside business activities does not impose new reporting and approval obligations — rather, it seeks to do the opposite, FINRA said Monday.
Some observers interpreted the language of the draft rule as requiring brokers and other registered persons to report a wide range of personal financial transactions, like buying cryptocurrencies and investment property, taking out insurance or managing a personal bank account.
The proposal "explains that these types of personal activities are, in fact, excluded from the rule," FINRA stated.
The proposed rule, published March 14 in Regulatory Notice 25-05, eliminates reporting requirements for outside business activities that are not investment related, like bartending or driving for a ride-share service.
The new plan "significantly reduces reporting obligations that have been in existence for decades," FINRA said in its statement. "FINRA is proposing to reduce these obligations to help broker-dealers focus on investment-related outside activities that present higher risks to investors and firms."
Specifically, FINRA states that it's "proposed rule language states in the 'exclusions' section that the rule shall not apply to an associated person’s personal investments in securities transactions subject to or delineated in Rule 3210 (which includes, among others, mutual funds, variable annuities, 529s and securities held at another broker-dealer), personal investments in non-securities (which would include Bitcoin), and the purchase, sale, rental or lease of a main home, dwelling unit or vacation home.
Ric Edelman, who leads the Digital Assets Council of Financial Professionals, told ThinkAdvisor on Tuesday that "FINRA's statement contradicts the common interpretation of its proposed rule. Based on this clarifying language, it appears that the final rule will not impose the objectionable undue burden" he had raised concerns about in an opinion piece published Friday. "This is a welcome development."
FINRA's statement also points out that broker-dealers will not have new obligations regarding outside investment adviser activities. "The proposal does not change the existing obligations regarding unaffiliated investment adviser activity but explicitly asks whether FINRA should reduce or eliminate current obligations for unaffiliated investment adviser activity," the statement said.
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.
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