Employee Conduct and Reportable Events
FINRA rules establish standards of conduct for registered representatives and require disclosure of certain activities and events. Understanding these requirements is essential for compliance.
Outside Business Activities (OBAs)
FINRA Rule 3270 governs outside business activities of registered persons.
What is an OBA?
An outside business activity is any business activity outside the scope of employment with the member firm.
Examples of OBAs
| Activity Type | Examples |
|---|---|
| Employment | Part-time job, consulting work |
| Business Ownership | Rental properties, small business |
| Board Service | Serving on corporate boards |
| Professional Services | Tax preparation, legal services |
| Other Compensation | Speaking fees, teaching |
OBA Requirements
| Requirement | Detail |
|---|---|
| Prior Written Notice | Must notify firm before engaging |
| Firm Approval | Firm may approve, deny, or restrict |
| Form U4 Disclosure | May need to be disclosed |
| Ongoing Reporting | Update firm if activity changes |
Why Firms Care About OBAs
Firms review OBAs to assess:
- Potential conflicts of interest
- Reputational risk
- Time commitment concerns
- Regulatory compliance issues
Firm Response Options
| Response | Meaning |
|---|---|
| Approve | Activity is permitted |
| Approve with Conditions | Permitted with restrictions |
| Deny | Activity is prohibited |
Important: Engaging in an OBA without proper notice and approval is a FINRA violation.
Private Securities Transactions (PSTs)
FINRA Rule 3280 governs private securities transactions, also known as "selling away."
What is a PST?
A private securities transaction is any securities transaction outside the regular course of business of the member firm.
PST vs. OBA
| OBA | PST | |
|---|---|---|
| Involves | Any business activity | Securities transactions |
| Rule | 3270 | 3280 |
| Firm Role | Notification | Approval + supervision |
PST Requirements
| Situation | Requirement |
|---|---|
| All PSTs | Prior written notice to firm |
| Compensation Received | Firm must approve and supervise |
| No Compensation | Firm may impose conditions |
Selling Away
Selling away occurs when a registered representative:
- Sells securities not offered by their firm
- Does so without firm knowledge/approval
- May receive compensation outside the firm
Warning: Selling away is a serious violation that can result in suspension, fines, or industry bar.
PST with Compensation
If the representative receives or may receive compensation:
| Firm Obligation | Description |
|---|---|
| Approval | Must approve the transaction |
| Supervision | Must supervise as if firm business |
| Recordkeeping | Must record on firm books |
Gifts and Gratuities
FINRA Rule 3220 limits gifts to customers and others.
Gift Limit
| Limit | Amount |
|---|---|
| Annual Maximum | $100 per person |
| Per Person | Not per firm or transaction |
| Aggregate | Total value from all sources |
What Counts as a Gift?
| Included | Excluded |
|---|---|
| Physical gifts | Promotional items of nominal value |
| Gift cards | Business entertainment (with provider present) |
| Tickets to events (if not attending) | Personal gifts unrelated to business |
| Cash or cash equivalents | Bereavement gifts (reasonable) |
Business Entertainment
Entertainment where the representative is present is not subject to the $100 limit but must be:
- Reasonable in nature
- Not so frequent as to raise questions
- Not conditioned on achieving business goals
Borrowing and Lending
FINRA Rule 3240 restricts borrowing and lending between registered representatives and customers.
General Rule
Borrowing money from or lending money to customers is prohibited unless specific conditions are met.
Permitted Arrangements
| Relationship | Permitted? |
|---|---|
| Immediate Family | Yes, with firm approval |
| Personal Relationship | May be permitted with controls |
| Financial Institution | Yes, if customer is in lending business |
| Both Registered | May be permitted with controls |
Requirements for Permitted Arrangements
- Firm has written policies
- Prior approval from firm
- Documentation maintained
- No exploitation of customer
Reportable Events
Registered representatives must report certain events that require Form U4 updates.
Events Requiring Disclosure
| Category | Examples |
|---|---|
| Criminal | Felony charges/convictions, financial misdemeanors |
| Regulatory | SEC/FINRA actions, other regulator actions |
| Civil Judicial | Investment-related lawsuits, injunctions |
| Customer Complaints | Written complaints, arbitrations |
| Financial | Bankruptcies, judgments, liens |
| Terminations | Certain types of job terminations |
Reporting Timeline
| Event | Timing |
|---|---|
| Most disclosable events | Within 30 days |
| Certain customer complaints | Within 30 days |
| Changes to existing disclosures | Promptly |
Consequences of Non-Disclosure
| Violation | Potential Consequence |
|---|---|
| Late filing | Fine, censure |
| False information | Suspension or bar |
| Willful omission | Criminal charges possible |
Political Contributions
FINRA Rule 2030 restricts political contributions (based on SEC Rule 206(4)-5).
Pay-to-Play Rules
Representatives cannot contribute to elected officials who:
- Can influence the award of municipal securities business
- May direct investment advisory contracts
Contribution Limits
| Limit | Amount |
|---|---|
| De minimis | $350 per election (if can vote) |
| Non-voter | $150 per election |
Consequences
Excessive contributions can result in:
- Firm losing ability to do business with government entity
- Two-year "time out" period
- Regulatory sanctions
Key Takeaways
- OBAs require prior written notice to firm (Rule 3270)
- PSTs require notice and, if compensated, firm supervision (Rule 3280)
- Selling away is a serious violation
- Gift limit: $100 per person per year
- Borrowing/lending with customers is restricted
- Reportable events must be disclosed within 30 days
- Political contributions can trigger pay-to-play restrictions
Under FINRA Rule 3270, before engaging in an outside business activity, a registered representative must:
A registered representative sells a security to a customer that is not offered by their employing firm, without the firms knowledge. This is known as:
What is the maximum annual value of gifts a registered representative can give to a customer?
4.4 Correspondence
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