RE: Comment on FINRA Regulatory Notice 25-05: Outside Activities Requirements
To Whom It May Concern:
We appreciate the opportunity to comment on FINRA Regulatory Notice 25-05, which proposes a new rule to streamline and reduce unnecessary burdens regarding existing requirements addressing the outside activities of member firms' associated persons. As a FINRA member firm with registered representatives exclusively serving institutional clients, we strongly support FINRA's objective to consolidate Rules 3270 and 3280 into a single framework while maintaining essential investor protections.
Support for Focusing on Investment-Related Activities
We commend FINRA for focusing the proposed rule on investment-related activities, which will eliminate reporting requirements for non-investment-related activities such as coaching sports, driving for a ride-share service, or bartending on weekends. As FINRA correctly notes in the proposal, these activities create "white noise" that detracts from meaningful compliance efforts.¹ This targeted approach will allow member firms to dedicate resources to activities presenting higher risk to investors and market integrity.
The FINRA retrospective review data showing that approximately 40% of registered persons submitted OBA notices² underscores the significant compliance burden under the current rules. Narrowing the scope to investment-related activities represents a meaningful step toward more efficient regulation that maintains investor protection while reducing unnecessary administrative burden.
Refinement of "Investment-Related Activity" Definition
While we support narrowing the scope to investment-related activities, we believe the proposed definition remains overly broad. The current definition encompasses "financial assets, including securities, crypto assets, commodities, derivatives, currency, banking, real estate or insurance"³ and could capture activities with minimal potential for conflicts of interest or customer confusion.
For example, under this broad definition, a registered representative who helps manage a family member's rental property, provides basic tax advice, or serves in a volunteer financial capacity for a non-profit organization would need to provide full disclosure and undergo assessment by the member firm, despite minimal investor protection concerns.
We recommend FINRA consider refining the definition to focus more explicitly on activities with genuine potential to create conflicts of interest or customer confusion. This could include establishing clearer parameters for when real estate or insurance activities warrant regulatory scrutiny versus when they present minimal risk.
Risk-Based Framework for Assessment
The proposal appropriately standardizes the assessment criteria for both outside activities and outside securities transactions, requiring members to consider whether the activity: (1) is properly characterized; (2) involves the member's customer(s); (3) will interfere with the person's responsibilities; and (4) will be viewed by customers or the public as part of the member's business.⁴
While these assessment factors are appropriate, we suggest FINRA consider implementing a more explicit risk-based framework that scales requirements based on the actual risk presented. This could include consideration of:
- The nature and sophistication of any customers involved
- The degree of overlap between the outside activity and securities business
- The potential for customer confusion about which entity is responsible for the activity
- The scale and scope of the outside activity relative to the person's role with the member
A more graduated approach would enable members to focus resources on activities presenting genuine investor protection concerns while streamlining oversight for lower-risk activities.
Outside IA Activities Considerations
Regarding FINRA's request for comment on outside IA activities, we recognize the complexity of this issue. The proposal maintains current supervisory and recordkeeping obligations for outside IA activities performed at unaffiliated firms, while excluding those conducted at affiliates.
As FINRA acknowledges in both the 2018 proposal (Regulatory Notice 18-08) and the current notice, these requirements create practical challenges, including "privacy challenges with a member obtaining account information for customers of an unaffiliated IA through which a member's registered person may be acting in an IA capacity."⁵ The notice also recognizes that "these activities are subject to another regulatory regime."⁶
We believe a more coordinated approach between FINRA and SEC/state securities regulators would better serve investor protection while reducing duplicative oversight. Such coordination could involve clear delineation of supervisory responsibilities and information-sharing protocols that respect client privacy while ensuring appropriate oversight.
At minimum, we encourage FINRA to consider revisiting aspects of the 2018 proposal that would have provided more tailored treatment of outside IA activities, balanced against the legitimate investor protection concerns raised by some commenters to that proposal.
Implementation Considerations
If adopted, we recommend FINRA provide clear implementation guidance and appropriate transition periods for member firms to:
1. Update written supervisory procedures to reflect the new consolidated rule
2. Modify existing reporting systems and documentation
3. Develop assessment protocols that align with the new criteria
4. Train compliance personnel on the new requirements
Additionally, we suggest FINRA develop educational resources to help registered persons understand their obligations under the new rule, particularly regarding which activities require reporting and which are excluded.
Conclusion
We appreciate FINRA's thoughtful approach to streamlining these important requirements. The proposed consolidation of Rules 3270 and 3280 and focus on investment-related activities represent meaningful progress toward more efficient, risk-based regulation.
We believe the refinements suggested above would further enhance the proposal's effectiveness in balancing investor protection with operational efficiency. We welcome the opportunity to discuss these comments further and to participate in any future discussions regarding implementation of the final rule.
¹ FINRA Regulatory Notice 25-05, p. 10, discussing the Proposal's focus on investment-related activities.
² FINRA Regulatory Notice 25-05, p. 19, Economic Baseline: "Approximately 40 percent of the registered persons of those members provided written notices."
³ FINRA Regulatory Notice 25-05, p. 10, defining "investment-related activity."
⁴ FINRA Regulatory Notice 25-05, pp. 11-12, detailing members' responsibilities upon receiving notice.
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John Comment On Regulatory Notice 25-05
RE: Comment on FINRA Regulatory Notice 25-05: Outside Activities Requirements
To Whom It May Concern:
We appreciate the opportunity to comment on FINRA Regulatory Notice 25-05, which proposes a new rule to streamline and reduce unnecessary burdens regarding existing requirements addressing the outside activities of member firms' associated persons. As a FINRA member firm with registered representatives exclusively serving institutional clients, we strongly support FINRA's objective to consolidate Rules 3270 and 3280 into a single framework while maintaining essential investor protections.
Support for Focusing on Investment-Related Activities
We commend FINRA for focusing the proposed rule on investment-related activities, which will eliminate reporting requirements for non-investment-related activities such as coaching sports, driving for a ride-share service, or bartending on weekends. As FINRA correctly notes in the proposal, these activities create "white noise" that detracts from meaningful compliance efforts.¹ This targeted approach will allow member firms to dedicate resources to activities presenting higher risk to investors and market integrity.
The FINRA retrospective review data showing that approximately 40% of registered persons submitted OBA notices² underscores the significant compliance burden under the current rules. Narrowing the scope to investment-related activities represents a meaningful step toward more efficient regulation that maintains investor protection while reducing unnecessary administrative burden.
Refinement of "Investment-Related Activity" Definition
While we support narrowing the scope to investment-related activities, we believe the proposed definition remains overly broad. The current definition encompasses "financial assets, including securities, crypto assets, commodities, derivatives, currency, banking, real estate or insurance"³ and could capture activities with minimal potential for conflicts of interest or customer confusion.
For example, under this broad definition, a registered representative who helps manage a family member's rental property, provides basic tax advice, or serves in a volunteer financial capacity for a non-profit organization would need to provide full disclosure and undergo assessment by the member firm, despite minimal investor protection concerns.
We recommend FINRA consider refining the definition to focus more explicitly on activities with genuine potential to create conflicts of interest or customer confusion. This could include establishing clearer parameters for when real estate or insurance activities warrant regulatory scrutiny versus when they present minimal risk.
Risk-Based Framework for Assessment
The proposal appropriately standardizes the assessment criteria for both outside activities and outside securities transactions, requiring members to consider whether the activity: (1) is properly characterized; (2) involves the member's customer(s); (3) will interfere with the person's responsibilities; and (4) will be viewed by customers or the public as part of the member's business.⁴
While these assessment factors are appropriate, we suggest FINRA consider implementing a more explicit risk-based framework that scales requirements based on the actual risk presented. This could include consideration of:
- The nature and sophistication of any customers involved
- The degree of overlap between the outside activity and securities business
- The potential for customer confusion about which entity is responsible for the activity
- The scale and scope of the outside activity relative to the person's role with the member
A more graduated approach would enable members to focus resources on activities presenting genuine investor protection concerns while streamlining oversight for lower-risk activities.
Outside IA Activities Considerations
Regarding FINRA's request for comment on outside IA activities, we recognize the complexity of this issue. The proposal maintains current supervisory and recordkeeping obligations for outside IA activities performed at unaffiliated firms, while excluding those conducted at affiliates.
As FINRA acknowledges in both the 2018 proposal (Regulatory Notice 18-08) and the current notice, these requirements create practical challenges, including "privacy challenges with a member obtaining account information for customers of an unaffiliated IA through which a member's registered person may be acting in an IA capacity."⁵ The notice also recognizes that "these activities are subject to another regulatory regime."⁶
We believe a more coordinated approach between FINRA and SEC/state securities regulators would better serve investor protection while reducing duplicative oversight. Such coordination could involve clear delineation of supervisory responsibilities and information-sharing protocols that respect client privacy while ensuring appropriate oversight.
At minimum, we encourage FINRA to consider revisiting aspects of the 2018 proposal that would have provided more tailored treatment of outside IA activities, balanced against the legitimate investor protection concerns raised by some commenters to that proposal.
Implementation Considerations
If adopted, we recommend FINRA provide clear implementation guidance and appropriate transition periods for member firms to:
1. Update written supervisory procedures to reflect the new consolidated rule
2. Modify existing reporting systems and documentation
3. Develop assessment protocols that align with the new criteria
4. Train compliance personnel on the new requirements
Additionally, we suggest FINRA develop educational resources to help registered persons understand their obligations under the new rule, particularly regarding which activities require reporting and which are excluded.
Conclusion
We appreciate FINRA's thoughtful approach to streamlining these important requirements. The proposed consolidation of Rules 3270 and 3280 and focus on investment-related activities represent meaningful progress toward more efficient, risk-based regulation.
We believe the refinements suggested above would further enhance the proposal's effectiveness in balancing investor protection with operational efficiency. We welcome the opportunity to discuss these comments further and to participate in any future discussions regarding implementation of the final rule.
¹ FINRA Regulatory Notice 25-05, p. 10, discussing the Proposal's focus on investment-related activities.
² FINRA Regulatory Notice 25-05, p. 19, Economic Baseline: "Approximately 40 percent of the registered persons of those members provided written notices."
³ FINRA Regulatory Notice 25-05, p. 10, defining "investment-related activity."
⁴ FINRA Regulatory Notice 25-05, pp. 11-12, detailing members' responsibilities upon receiving notice.
⁵ FINRA Regulatory Notice 25-05, p. 22, quoting Regulatory Notice 18-08 (February 2018).
⁶ FINRA Regulatory Notice 25-05, p. 22, referencing Regulatory Notice 18-08 (February 2018).