The Importance of Compliance with FINRA Rule 3270
Outside Business Activity (OBA) & Private Securities Transactions (PST) remain a FINRA exam priority. To comply with FINRA Rule 3270, most broker-dealers have a software platform or an OBA/PST disclosure form that is completed by registered representatives (reps), and then signed by a firm principal to evidence both the disclosure and the firm’s acknowledgment of the activity.
FINRA is looking for more.
Increased Scrutiny During FINRA Examinations
In some recent FINRA cycle examinations, the regulator has focused on OBAs and PSTs. During these exams FINRA required the firms to re-assess and re-analyze all of their registered representatives’ disclosed OBAs and PSTs to more fully address the supplemental material in FINRA Rule 3270. Then firms had to provide that assessment to FINRA during the exam process.
Key Considerations for Outside Business Activities and Private Securities Transactions
The supplemental material specifically asks member firms to:
- consider whether the proposed business activity will interfere with or otherwise compromise the registered person’s responsibilities to the member and/or the member’s customers;
- consider whether the activity will be viewed by customers or the public as part of the member’s business based upon, among other factors, the nature of the proposed activity and the manner in which it will be offered;
- evaluate the advisability of imposing specific conditions or limitations on a registered person’s outside business activity, including where circumstances warrant, prohibiting the activity; and
- evaluate the proposed activity to determine whether the activity properly is characterized as an outside business activity or whether it should be treated as an outside securities activity subject to the requirements of Rule 3280.
Revising Disclosure Forms for Better Compliance
To address the supplemental material in FINRA Rule 3270 and the concerns raised by FINRA, some firms revised their OBA/PST disclosure forms. These revisions were designed to allow freeform writing sections for supervisory principals to draft narrative that states:
- approval of the activity
- they don’t believe the activity will compromise the registered rep’s ability serve their customers
- they don’t believe the proposed activity will be viewed by customers as activity of the broker dealer
- considerations of limitations or prohibitions on the activity proposed
- in the affirmative that the activity is not a private securities transaction.
Recordkeeping and Form Updates
Firms must also maintain records of its compliance with respect to each written notice received and must preserve this record for the period of time and accessibility specified in SEA Rule 17a-4(e)(1). Once the OBAs and PSTs are approved, member firms must update Forms U-4 with any relevant OBA/PST information for registered representatives.
Training Tip
OBA and PST definitions and requirements are great topics to cover in person during scheduled training and when you conduct your internal branch inspections.
Additional Resources
Registered Reps: Navigating Compliance with Integrity
Registered Representative Compliance – Must Know Essentials
The Role of Governance, Risk, and Compliance Software
Get the Compliance Support You Need
Let the experienced team at Oyster Consulting review your OBA and PST program before FINRA does. Oyster Consulting’s broker-dealer compliance consultants understand the complexity of achieving compliance with FINRA Rule 3270. We are former regulators and industry leaders who know the issues you face, and provide reasonable, practical compliance solutions.
Our team will evaluate your firm’s existing supervisory systems and recommend improvements to ensure they meet regulatory standards. This includes implementing robust oversight mechanisms and establishing processes for monitoring and addressing compliance issues.
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Today’s industry demands an efficient and effective compliance program. Oyster Solutions’ powerful integration and automation provide the accurate supervision and the reporting structure that regulators demand, all while giving your employees a streamlined, easy to follow experience. With Oyster Solutions, you get an enhanced calendar that schedules compliance workflows, notifies users of tasks and guides employees step-by-step through the process – including attestations, OBAs, PSTs and gift logs. Stay on track by setting reminders if tasks are overdue.
