Marking the first change in over 30 years, the SEC has approved FINRA’s proposal to raise the dollar value of gift limits from $100 to $300 for member firms that are registered advisers.
The approval was filed on Wednesday in the Federal Register and the rule change was first floated in May, which involved several amendments to FINRA Rule 3220.
According to FINRA, the rule change would (among other things): “increase the gift limit from $100 to $300 per person per year, provide FINRA exemptive authority regarding the Gifts Rule, codify certain existing FINRA guidance pertaining to the Gifts Rule, and make conforming changes to the gift limits in FINRA’s non-cash compensation rule.”
Exemptive relief
The proposed changes to Rule 3220 specifically include the directive that “FINRA staff has authority to grant exemptions, pursuant to FINRA Rule 9600 Series (Procedures for Exemption), from FINRA rule 3220 ‘for good cause shown, after taking into account all relevant factors and provided that such exemption is consistent with the purposes of the Rule, the protection of investors, and the public interest.’”
FINRA observed that “because its members differ in size, structure, business, and distribution models, it would be appropriate to have the ability to provide relief from the Gifts Rule under specific factual circumstances.”
Gifts incidental to business entertainment
Interestingly, there previously was no restriction for gifts given during the course of a business entertainment event; they were not expressly included in Rule 3220, although a guidance document did note that they could fall within “the exclusion for promotional items.”
Under the new rule, a gift given during the course of a business entertainment event is subject to the $300 limit, “unless it is a personal gift under proposed Rule 3220.04 or of de minimis value or a promotional or commemorative item under proposed Rule 3220.06.36.” FINRA said “the cost of the business entertainment event itself would not be included in the value of the gift.”
Aggregating gifts
The new rule requires a member to aggregate all gifts given by the member and each associated person of the member to a particular recipient over the course of the year for purposes of ensuring compliance with the $300 gift limit.
“The proposed aggregation requirement is reasonably designed to help avoid circumvention of the $300 annual gifts limit by giving multiple gifts below the threshold in a year to the same recipient,” FINRA said in its proposed rulemaking.
Exception for personal gifts
The rule change would exclude gifts “that are given for infrequent life events (for example, a wedding gift or a congratulatory gift for the birth of a child) from the gift limit restrictions in FINRA Rule 3220(a) and recordkeeping requirements in FINRA Rule 3220(c), provided such gifts are customary and reasonable, personal in nature, and not in relation to the business of the employer of the recipient.”
FINRA clarifies that this rule operates under the presumption that “the associated person paid for the gift,” as “FINRA would presume that any gift for which a member [firm] bears the cost, either directly or by reimbursing the associated person, to be not personal in nature and instead in relation to the business of the employer of the recipient.”
Background
The gift limit of $100 had been in place since 1992, and the proposed rule change originally was slated to increase the limit to $250. FINRA then went back to that amount and decided to propose $300 as the limit “to account for expected future inflation for approximately ten years.”
FINRA said the proposed rule change “’would continue to permit the exchange of business courtesies while helping to guard against excessiveness’” and that if the rule change was approved, “FINRA would review the gift limit periodically to determine if additional modifications are needed to reflect changing economic conditions.”
The SEC’s order approving the rule change notes that the Gifts Rule applies to, among other things: tickets to sporting or other events; certain gifts given during business entertainment events; personal gifts (such as a wedding gift or a congratulatory gift for the birth of a child); bereavement gifts; gifts of de minimis value (such as pens, notepads, or modest desk ornaments); and promotional items of nominal value that display the firm’s logo (such as umbrellas, tote bags, or shirts).
The new rule adds some tweaks to those applications and even new ones altogether, but those are some of the main categories.
Gift-giving gaffes
Last November, FINRA fined First Trust Portfolios LP $10m for providing excessive non-cash compensation – specifically, gifts, meals, and entertainment (GME) – in connection with the distribution of First Trust investment company securities and related misconduct.
FINRA said the GME was extended to representatives of retail broker-dealers (so, the reps of client firms) who had sold First Trust investment company securities and that the GME significantly exceeded FINRA limits for non-cash compensation, the agency noted.
The excessive GME that FINRA cited the firm for included tickets to more than 20 concerts and sporting events, with a total value exceeding $31,000 over an 18-month period, all on behalf of one client firm representative.
Last year, global natural resource company Glencore published its 2024 Ethics and Compliance Report detailing the progress it had made since its ethics and compliance program was overhauled following a $1 billion+ FCPA enforcement action it settled with US authorities in 2022.
Specific changes included its Travel, Gifts and Entertainment Standard, with the company launching a new Travel, Gifts and Entertainment app that gives employees quick access to information regarding country-specific restrictions and local limits on travel, gifts, and entertainment, plus links to other internal resources.
“The app makes it easier for our employees who are travelling for business across the globe to access this critical information and mitigate bribery and corruption risk,” Glencore’s report notes.