Ethical Standards and Prohibited Practices

As a registered representative, you're held to high ethical standards. FINRA has specific rules governing gifts, outside activities, and conflicts of interest. Violations can result in fines, suspension, or permanent bar from the industry.

Gifts and Gratuities (FINRA Rule 3220)

The $100 Limit

FINRA Rule 3220 prohibits giving anything of value exceeding $100 per person, per year to employees of another firm when the gift relates to their employer's business.

Key Points

• The limit applies per person, per year
• Business entertainment (meals, events attended together) is generally excluded if you're present
• Personal gifts (not related to business) may be excluded
• Firms must maintain records of all gifts given

2025 Proposed Changes

FINRA has proposed increasing the gift limit from $100 to $250-$300 per person per year. The last increase was in 1992 (from $50 to $100). The proposal is under review.

Outside Business Activities (FINRA Rule 3270)

Written Notice Required

Before engaging in any outside business activity, you must provide prior written notice to your firm. This includes:

• Second jobs or self-employment
• Board positions
• Consulting work
• Real estate activities
• Any compensation received outside your firm

Firm Evaluation

Upon receiving notice, your firm must consider whether the activity:

• Interferes with your responsibilities to the firm
• Could be viewed by customers as part of the firm's business
• Creates conflicts of interest

The firm may approve, disapprove, or impose conditions on the activity.

Exam Tip: The key requirement is "prior written notice" — you must tell your firm BEFORE starting the activity.

Private Securities Transactions (FINRA Rule 3280)

What is "Selling Away"?

Private securities transactions (often called "selling away") occur when a registered representative participates in securities transactions outside their firm — without firm knowledge or approval.

Requirements

1. Written notice to your firm describing the proposed transaction
2. If selling compensation is involved:
   • Firm must approve or disapprove in writing
   • If approved, firm must supervise and record the transaction
3. If no compensation is involved:
   • Firm must still acknowledge the notice
   • May impose conditions

Why This Matters

Selling away bypasses the firm's:

• Due diligence process
• Supervisory procedures
• Compliance oversight

This puts customers at greater risk of unsuitable or fraudulent investments.

2025 Proposed Changes

FINRA has proposed combining Rules 3270 (OBAs) and 3280 (PSTs) into a single Rule 3290. The proposal focuses on "investment-related activities" and would reduce reporting requirements for low-risk activities like part-time non-securities jobs.

Borrowing and Lending (FINRA Rule 3240)

Representatives generally cannot borrow money from or lend money to customers. Limited exceptions exist:

Conflicts of Interest

You must disclose and manage conflicts of interest, including:

• Compensation conflicts — Different products may pay different commissions
• Proprietary products — Firm's own products vs. third-party products
• Personal interests — Your own investments in recommended securities

Summary: Key Rules

Consequences of Violations

FINRA enforcement actions can include:

• Fines — Monetary penalties
• Suspension — Temporary bar from industry (avg. ~2 months for OBA violations, ~10 months for PST violations)
• Bar — Permanent prohibition from securities industry
• Restitution — Repayment to harmed customers
• Disclosure — Violation recorded on CRD/BrokerCheck permanently