The compliance challenge posed by monitoring outside business activities (OBAs) was addressed on a number of occasions by FINRA representatives and several panelists at the FINRA annual conference last week in Washington, DD.

Robert Cook, FINRA CEO and president, mentioned how the agency had to issue a statement clarifying that the self-regulatory organization (SRO) was intending to streamline and reduce unnecessary burdens regarding existing requirements on broker-dealers and the OBAs of their associated persons. FINRA was not intending to increase the burden.

FINRA’s worry was that the media distorted its perspective on it. The industry’s perspective is that it is an arduous pursuit to ferret these things out, so it would prefer to give some greater clarity and reasonable accommodations to firms, especially smaller ones.

The comment period for the agency’s proposed new rules on OBAs just passed on May 13, 2025.

Cook sets the record straight

FINRA’s March 2025 proposal to rewrite the rules governing brokers’ outside business activities ended up leading to the agency taking the unusual step of defending that proposal against what it describes as false criticisms in press reports appearing soon after the proposal release.

“There are no new reporting and approval obligations, despite how the proposal was described by some news outlets,” Cook said. “The proposal does just the opposite — it significantly reduces reporting obligations by telling broker-dealers they can now focus on investment-related outside activities that present higher risks to investors and firms,” Cook said.

“If your adviser rep is an Uber driver on weekends or serves on their school parent-teacher association or is a goat herder [apparently that was a side gig for a rep at one point], we don’t need you to report on or supervise that activity,” he said. “We want reporting only around securities-related outside activities and to get rid of the white noise that has built up around this rule.”

And he clarified that any interpretation that registered persons needed to report a wide range of personal financial transactions, like buying cryptocurrencies, taking out insurance, or managing a bank account – all for their own use – was false.

The proposal “explains that these types of personal activities are, in fact, excluded from the rule,” he stated.

The rule and rule proposal

The current OBA rules at FINRA are 3270 and 3280 (for private securities transactions). And Regulatory Notice 25-05 introduces new rule 3290, which would replace the other two.

Current rule 3270 requires registered persons to notify firms of any outside business activity, whereas a condition for notification under the proposed rule is that the outside activity is investment related, going back to Cook’s statement above.

It excludes such things as the non-broker-dealer activities of registered persons of a dually registered investment adviser/broker-dealer or of an investment adviser affiliated with the broker-dealer, and it excludes associated persons’ outside securities transactions among immediate family members for which there is no selling compensation received.

Sounds pretty straightforward, and you need to wonder how the media got it “wrong.”

But did they?

In reading it, the proposed rule has a broad definition of “investment-related activity,” which means “pertaining to financial assets, including securities, crypto assets, commodities, derivatives (such as futures and swaps), currency, banking, real estate or insurance.”

And, when it comes to a firm’s registered persons (such as securities traders, investment banking representatives, general securities principals, general securities representatives, and compliance officers), even if they wish to participate in an outside investment-related activity that does not involve securities transactions, they will need to provide prior written notice to their broker-dealer, with sufficient detail to disclose their proposed role in the activity.

At that point, under proposed rule 3290(c), firms must then assess whether that outside activity is:

• actually an outside activity that involves a securities transaction;
• involves any customers of the firm;
• will interfere with or compromise the registered person’s firm/customer responsibilities;
• will be viewed by customers or the general public as part of the firm’s official business.

If the OBA truly does not involve outside securities transactions after that amount of due diligence described above, firms do not need to acknowledge the notice or give their approval.

But if the activity will result in direct or indirect compensation to an associated person (a broader category – really anyone at the firm not in a clerical or ministerial role), this person must obtain the prior written approval of the broker-dealer.

The notice must include:

• a detailed description of the activity;
• a description of any series of related transactions;
• the associated person’s proposed role in the activity;
• whether the associated person will receive any compensation.

Proposed rule 3290(d) requires firms to assess whether the securities transaction involving the associated person:

• involves direct or indirect compensation to the associated person;
• involves any customers of the firm;
• will interfere with or compromise the associated person’s firm/customer responsibilities;
• will be viewed by customers or the general public as part of the firm’s business.

Where the securities transaction does not involve compensation to the associated person, firms need only acknowledge the notice and establish appropriate conditions on their employee’s participation in the transaction. But if the activity involves compensation to the associated person, the proposed rule requires firms to determine whether to approve the activity or not, set appropriate conditions or limitations, and provide written notice to the associated person of such determination.

All approved outside securities transactions involving compensation must be recorded (using the record-keeping requirements of SEC Rule 17a-4(e)(1)) and supervised “as if executed on behalf of the member.”

Panelists, commenters note impact on their firms

The proposal maintains existing provisions requiring prior written notice by a registered person detailing the outside activities or associated person (including a registered person) who intends to participate in an outside securities transaction. And it retains the requirement that a member make certain assessments of an outside activity or outside securities transaction on receiving the notice.

“This is just too much for smaller firms to handle,” said one panelist on the last day of the conference event. “It’s not going to yield the result FINRA is looking for,” the panelist said, noting it could serve as a distraction from more important risk-monitoring efforts.

The obligation of informing FINRA if anything changes with regard to the activity in particular seems arduous, and even the large firms represented on the panel commented that this area is a true supervision concern and potentially one that is an inefficient use of time and resources. Cook acknowledged that the comments FINRA has received on the proposal have revolved around those concerns.

Panelists also feared the definition of “investment-related activities” could be subject to interpretation.

In looking at a scattered number of comment letters submitted to FINRA about the proposed rule, other concerns (beyond those noted above) were expressed:

• It will be impossible to comply with this and with client privacy mandates.
• Relatedly, forcing an investment adviser to provide nonpublic personal information of an advisory client to an unaffiliated broker-dealer could violate the privacy rights of the advisory client under federal and state law and undermine the confidentiality that advisory clients expect in their advisory relationship. [Meaning, if the adviser works with more than one broker-dealer or dually-registered firm, that business not affiliated with the client and transaction now gets details about the client that could be subject to privacy restrictions.]
• The rule would subject affected advisers to additional oversight that doesn’t exist for investment advisory firms that do not have associated persons with FINRA licensure, and this uneven layer of oversight is unjustified.
• The rule will impact investment advisory firms already subject to strict fiduciary duty requirements.

NASAA’s letter on OBAs

Also last week, the North American Securities Administrators Association (NASAA) submitted a letter to FINRA about OBAs and the agency’s proposed new rule by saying “it is appropriate for FINRA member firms to have strong oversight responsibilities over these activities.” It noted that supervision and recordkeeping help facilitate effective regulatory oversight, examination, and enforcement by ensuring regulators have the information needed to fulfill their regulatory obligations.

And NASAA believes the new rule is better than the old. But the membership group said it needs work.

Among several other things, NASAA believes the proposed rule should also specify that “investment-related activity” includes acting as or being associated not only with investment companies, but also private funds and other structures like investment partnerships or cooperatives, especially as they are increasingly being offered to retail investors.

And NASAA contends the rule text should include “crypto asset developer, promoter, or market intermediary” in the definition.

FINRA disciplinary actions

Looking at some 2025 FINRA disciplinary actions, there are a number alleging OBA violations stemming from a lack of proactive supervisory oversight and attention to following a firm’s own policies on OBAs.

And others were aimed only against the individuals themselves – persons who were fired from their firms for having participated in an OBA without notice to and approval from the firm.

At times the policy itself was wholly deficient, such as when a firm failed to address the evaluation of an OBA to determine whether it constituted an outside securities activity at all, and its supervisory procedures failed to address any evaluation of the OBA, including whether the activity should be prohibited.

Given everything noted above, firms would be well-served in beginning to assess new training for their workforce on what is and what is not investment-related activity to ensure they are properly characterizing their outside activities.

And a review of policies, procedures and supervisory mechanisms – including monitoring all business communication channels, checking in with advisers regularly (in person and in writing), getting up-to-date and written attestations of compliance, and ensuring allegations from clients or colleagues about an employee’s possibly conflicting outside endeavors are investigated promptly – are essential in meeting whatever construction the final OBA rule takes.