Once A Private Securities Transaction, Now An Outside Business Activity?

Highlights

• The Financial Industry Regulatory Authority (FINRA) has filed a proposed rule change with the U.S. Securities and Exchange Commission (SEC) to adopt FINRA Rule 3290 (Outside Activities Requirements).
• Rule 3290 would consolidate and replace existing Rules 3270 and 3280 into a single rule governing "Outside Activities Requirements."
• The proposed rule change will be published in the Federal Register and be subject to a comment period.

The Financial Industry Regulatory Authority (FINRA) on January 14, 2026, filed a proposed rule change with the U.S. Securities and Exchange Commission (SEC) to adopt FINRA Rule 3290 (Outside Activities Requirements). The proposed rule, previously announced in Regulatory Notice 25-05, drew more than 200 comments reflecting divergent views from both FINRA-member broker-dealers and SEC-registered investment advisers across the financial services industry. The comments focused on compliance practices under current applicable FINRA rules related to outside business activities and private securities transactions.

Rule 3290 would consolidate and replace existing Rules 3270 (Outside Business Activities) and 3280 (Private Securities Transactions) into a single rule governing "Outside Activities Requirements." The proposal will be published in the Federal Register and be subject to a comment period.

The stated purpose of the amendment is to modernize the rules by focusing broker-dealers' compliance efforts on "investment-related" activities that pose heightened risks to investors while reducing the burden of reviewing lower-risk activities. Due to the prevalence of wealth management business models encompassing both broker-dealer and investment advisory activity, this new proposal is likely to influence compliance practices for a large segment of the industry.

Below is a summary of the material changes in Rule 3290 that differ from the current regulatory framework.

Narrowed Scope: "Investment-Related" Activities Only

Under current Rule 3270, registered persons (e.g., persons holding securities licensing qualifications such as Series 7 and others) must disclose all outside business activities, regardless of the nature of such activities. Proposed Rule 3290 narrows this reporting requirement specifically to "investment-related" activities.

• Elimination of Non-Investment Reporting: Members will no longer be required to review or receive notice for lower-risk activities (e.g., driving for a car service, refereeing sports or other non-financial employment).
• Definition: "Investment-related activity" is defined to include activities pertaining to financial assets, securities, crypto assets, commodities, derivatives, banking, real estate or insurance, as well as a registered person's personal securities transactions conducted away from the employing member firm (sometimes referred to as "buying away"), and excludes transactions in accounts that are known to the member or otherwise delineated in Rule 3210 (e.g., securities held at other members, as well as transactions in certain securities, such as mutual funds, Section 529 plans and variable annuities).

Revised Treatment of Unaffiliated Investment Adviser Activity

The proposal significantly shifts the compliance obligations regarding outside adviser activities.

• Current State: Under current Rule 3280 and prior guidance (Notice to Members 94-44 and 96-33), the participation by a registered person in outside adviser activities often constitutes participation in a private securities transaction (PST), requiring the member firm to supervise such activity and record the securities transactions on the broker-dealer's books and records.
• Proposed Rule 3290: Activities at an unaffiliated adviser (registered with the SEC or a state securities commission "or any agency or office performing like functions")¹ will be treated as an "outside activity" rather than an "outside securities transaction."
• Impact: Though the associated person² must still provide prior written notice and the member must conduct an upfront assessment, the member is not required to supervise the activity or maintain records of the transactions conducted away from the broker-dealer.

New Exclusions from Coverage

Rule 3290 introduces new exclusions from the requirements that do not exist in current Rules 3270 or 3280. The following activities are excluded from the proposed rule's coverage entirely and, consequently, from notice and recordkeeping requirements applicable to outside activities and PSTs:

• Affiliate Activity. Activities conducted on behalf of a member's affiliate (including adviser, insurance or banking affiliates) by personnel associated with the FINRA member firm are excluded, recognizing that members can implement controls across business lines.
• Personal Real Estate. The purchase, sale, rental or lease of a main home and up to two secondary homes is excluded, provided they are owned by the associated person or their immediate family (or entities solely owned by them).
• Non-Securities Investments. Personal investments in non-securities assets are explicitly excluded.

Enhanced Assessment Factors

When a member receives notice of an outside activity or securities transaction, the required assessment remains largely consistent with Rule 3270 (i.e., evaluating interference with broker-dealer duties and public perception). However, Rule 3290 adds a specific requirement to assess whether the activity involves the customer of the associated or registered person.

Codification of Interpretive Positions

The proposed rule codifies several positions previously held by FINRA staff or found in guidance:

• Bank/Insurance Networking. Securities activity conducted under the Gramm-Leach-Bliley Act (GLBA) or Regulation R (Reg R) (for non-affiliates) will be treated as an "outside activity" (requiring notice and assessment) rather than a PST requiring supervision.
• • Consistent with current requirements, an associated person's activity that is pursuant to a contract between a member and another entity (e.g., banking or insurance networking arrangement) would not be subject to proposed Rule 3290 if such activity is conducted on behalf of the member and it is within the scope of the associated person's relationship with the member.
  • Similarly, under the proposal, an associated person's activity on behalf of a non-affiliate entity that is not covered by a contract between the member and such entity but qualifies under GLBA or Reg R's exception to broker or dealer registration requirements would be considered an outside activity and not an outside securities transactions. Thus, this activity would have a prior written notice and upfront assessment requirements but would not be subject to supervision and recordkeeping.
• Allocation Agreements. The rule explicitly permits members to enter into written allocation agreements regarding regulatory obligations when an individual is associated with more than one member.
• Portfolio Managers. Acting as a portfolio manager or an investment committee member for investment companies or funds requires notice, but supervision is not required unless the person receives selling compensation.

Although the proposed consolidated Rule may offer welcome relief to broker-dealers with respect to their supervisory responsibilities for activities of their registered persons associated with advisers, questions remain regarding specific fact patterns, including dual employment or associated persons performing activities at foreign affiliates of member firms that are not regulated in the U.S.

FINRA is also proposing to amend Rule 9610 to add proposed Rule 3290 to the list of rules under which a member may seek exemptive relief. FINRA Rule 9600 Series provides the procedures for members that seek exemptive relief as permitted under specific rules (See Rules 9610 through 9630).

For more information or questions, please contact the authors.

Footnotes

1 Refers to any other government body that regulates advisers or broker-dealers in that state.

2 Associated Person as defined under Article 1, Paragraph (rr) of the FINRA By-Laws and consistent with Section 3(a)(18) of the Securities and Exchange Act of 1934.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.