The Financial Industry Regulatory Authority (FINRA) is considering a significant potential change in how it governs certain areas of conflicts of interest by consolidating its rules on Outside Business Activities (OBA) and Private Securities Transactions (PST). This proposal could bring much-needed clarity and efficiency to compliance processes for member firms.
Current Landscape: OBA and PST Rules
At present, OBAs and PSTs are governed separately under FINRA Rules 3270 and 3280. These rules outline how registered representatives must disclose and seek approval for activities and private securities transactions outside their primary roles with their member firms. While these rules aim to safeguard investors and ensure firms maintain proper oversight, their separate governance has sometimes led to confusion, questions over supervisory responsibilities and administrative inefficiencies.
The Proposal: A Unified “Outside Activities Requirements Rule”
FINRA’s proposal seeks to merge Rules 3270 and 3280 into a single, streamlined “Outside Activities Requirements Rule.” This initiative, which FINRA’s Board of Governors approved for further consideration in late 2024, reflects a broader effort to modernize and simplify the regulatory framework.
The primary goals of this consolidation include:
- Simplified Compliance: By creating a unified rule, FINRA aims to eliminate redundant or overlapping requirements, making compliance more straightforward for firms and registered representatives.
- Enhanced Focus on Risk: The proposed rule is expected to prioritize activities that pose higher risks to investors, aligning regulatory oversight with areas of greatest concern including potential conflicts of interest.
- Increased Clarity: Consolidation will likely provide clearer guidelines for firms and representatives, reducing ambiguity and potential misunderstandings.
Industry Implications
For firms, the consolidation could mean a more manageable compliance process, with reduced administrative burdens and potentially lower costs. Registered representatives may benefit from clearer expectations and streamlined procedures for disclosing outside activities and private securities transactions. However, as with any regulatory change, there will be a transition period. Firms will need to update their policies and procedures to align with the new rule, and training programs may require revisions to ensure compliance. Firms may need to re-evaluate prior approvals of outside activities that involve private securities transactions, particularly firms which have allowed representatives to engage as part of an independent registered investment adviser.
Next Steps: Regulatory Notice and Public Feedback
Before finalizing the proposed rule, FINRA plans to release a Regulatory Notice soliciting feedback from industry stakeholders. This step is crucial for gathering diverse perspectives and ensuring the final rule addresses the needs of firms and investors alike.
Staying Informed
As this proposal develops, it’s essential for firms and registered representatives to stay informed and engaged. Regularly checking FINRA’s official updates, participating in industry discussions, and preparing for potential changes will help ensure a smooth transition if the consolidation moves forward.
Conclusion
The potential consolidation of OBA and PST rules represents a significant step toward modernizing the regulatory framework in the securities industry. By unifying these rules, FINRA aims to enhance clarity, reduce administrative burdens, and focus regulatory efforts on areas of higher risk. Firms and representatives should closely monitor this proposal, participate in the feedback process, and prepare for the changes that may lie ahead. For more details, visit FINRA’s official site and stay tuned for updates as this initiative progresses.
Should these proposed rule changes be approved, RegEd’s Conflict of Interest suite is prepared to support you during the transition. Click here to learn more.
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