FINRA has submitted proposed amendments to Rule 3220 (Influencing or Rewarding Employees of Others) that could impact your business development and client engagement practices. These changes modernize longstanding limitations on gifts and gratuities, aiming for clarity, increased flexibility, and better alignment with current business realities.
Here’s what financial professionals need to know about the proposed changes:
Increased Gift Limit: $250 per Recipient, per Year
The cornerstone change is an increase in the annual gift limit from $100 to $250 per recipient, per year. This better aligns with inflation and evolving industry standards. This update reflects the Board of Governors’ recommendation and recognizes the realities of today’s business environment.
Key Updates to the Rule
1. Gift Limit: Members and associated persons may not give, or permit to be given, anything of value exceeding $250 per person per year in connection with the business of the recipient’s employer.
2. Compensation Exemptions: Compensation for services (i.e., employment or consulting arrangements) is exempt only if:
- A written agreement is in place before the services are rendered.
- The agreement includes job description, compensation terms, and the employer’s consent. This provision ensures transparency and prevents disguised gratuities.
3. Enhanced Recordkeeping: Firms must maintain comprehensive records of all gifts, whether they exceed the $250 threshold or not. This includes:
- Retain records of all gifts or gratuities—no matter the amount—related to business.
- Keep records of written employment agreements and related compensation.
- Specify whether gift tracking follows a calendar year, fiscal year, or rolling basis.
Exceptions: Notably, de minimis and personal gifts (see below) are exempt from these requirements. With these proposed changes, FINRA outlines several key exceptions and clarifications:
- Business Entertainment: Gifts given during business entertainment are counted unless they fall under specified exemptions.
- Gift Valuation: Gifts are valued at cost, except for event tickets, which must be recorded at a higher cost or face value.
- Aggregation Rules: Firms must aggregate all gifts by the member and each associated person to a single recipient within the year.
Exceptions to the Rule
- Personal Gifts: Wedding, bereavement, or newborn gifts that are personal and infrequent are exempt if they’re not business-related.
- Promotional/De Minimis Items: Commemorative plaques, and items like pens or tote bags that display the member’s logo, which are of nominal value are excluded from the cap and recordkeeping, provided they’re substantially below the $250 limit.
- Disaster Relief: Charitable donations to individuals affected by federally declared major disasters are also exempt, assuming they are personal and not business-related.
- Internal or Retail Gifts: Gifts given to persons associated with the member firm or individual retail customers are not subject to Rule 3220.
Supervision and Compliance Obligations
To comply with the updated rule, firms must implement procedures that ensure:
- Accurate tracking and reporting of gifts
- Ability to demonstrate compliance through proper documentation and review processes
- Maintenance of records to support compliance
Why This Matters for Financial Firms
The proposed updates to FINRA Rule 3220 modernize an outdated gift policy, provide clearer distinctions between permissible and impermissible conduct, and introduce more practical compliance mechanisms. Financial firms should begin reviewing their internal policies to prepare for the expected adoption of these changes.
On June 11th, the SEC published a notice soliciting comments on the proposed FINRA rule change. Stay tuned for the SEC’s formal response and the implementation timeline—but consider this a green light to start evaluating your current gifting, entertainment, and client engagement policies.
How RegEd Can Help
At RegEd, we offer an integrated compliance solution that helps financial firms address the growing complexity of gift and gratuity management. Our Gifts, Gratuities, and Contributions Management (GGC) solution allows firms to track, manage, and report gifts, entertainment, non-cash compensation, and political contributions in real time. Key features include:
- Comprehensive monitoring and workflow-directed task management through customized questionnaires aligned with FINRA rules and your firm’s policies and procedures.
- Real-time alerts for exceptions, enabling quick responses to potential compliance issues.
- Sophisticated hierarchy management, helping firms efficiently manage compliance across all levels.
- Capture expenses or gifts from any expense or internal system to eliminate duplicate entries while ensuring proper reporting.
- Threshold management to set and define threshold policies, limits and aggregations of contacts for different categories of gifts, gratuities and business entertainment disclosures.
- Contact directory allows firms to create, merge, and manage contact lists for gift, gratuity and contribution submissions.
- Comprehensive reporting and audit trails.
Our solution provides centralized tracking, approval workflows, and robust reporting capabilities to ensure full compliance with the new gift-giving regulations. Firms can effectively manage the end-to-end process of tracking gifts and entertainment, maintain audit trails, and satisfy internal and regulatory documentation requirements.
About RegEd
RegEd is the market-leading provider of RegTech enterprise solutions with relationships with more than 200 enterprise clients, including 80% of the top 25 financial services firms.
Established in 2000 by former regulators, the company is recognized for continuous regulatory technology innovation with solutions hallmarked by workflow-directed processes, data integration, regulatory intelligence, automated validations, business process automation and compliance dashboards. The aggregate drives the highest levels of operational efficiency and enables our clients to cost-effectively comply with regulations and continuously mitigate risk.
Trusted by the nation’s top financial services firms, RegEd’s proven, holistic approach to RegTech meets firms where they are on the compliance and risk management continuum, scaling as their needs evolve and amplifying the value proposition delivered to clients. For more information, please visit www.reged.com.
