The Financial Industry Regulatory Authority (“FINRA”) is conducting a retrospective review of the rules that govern outside business activities and private securities transactions to assess their effectiveness and efficiency. FINRA posted the following release on the subject.
A retrospective review involves FINRA looking back at a significant rule after a period of time to determine whether it effectively serves its intended objective. According to FINRA President and CEO Robert Cook, “Successful self-regulation requires continuous renewal and improvement. Meaningful dialogue with stakeholders is essential to that process.” FINRA invites public comment during the review process. The comment period for this review is scheduled to expire on June 29, 2017.
If the ultimate assessment from the retrospective review is a recommendation to modify the rule, FINRA will use its ordinary rulemaking process to propose amendments to the rule based on the findings.
Currently, FINRA is conducting a retrospective review of Rule 3270, which relates to outside business activities of registered persons, and Rule 3280, which relates to private securities transactions of an associated person. These rules govern firm employees’ business and investment activities that occur outside the scope of their employment with the firm. While the ability of firm employees to engage in activities may help some investors, this ability may also result in risks to both the investors and the firm. The goal of these rules is to ensure that FINRA-member firms have adequate oversight with respect to such outside activities. Only through such oversight can member firms ensure that their associated persons are not engaging in unlawful or improper trading or in risky activities that could be wrongly perceived as firm sponsored.
FINRA is seeking input on the efficacy of the rules in addressing the problems they were intended to mitigate, potential ambiguities in the rules, challenges in compliance with the rules, the economic impact of the rules, and actions that FINRA might take to improve the rules. In addition to comments responsive to their enumerated questions, FINRA also invites comments on any other aspects of the rules that commentators would like to address.