FINRA Outside-Activity Overhaul Spares Private Placement Oversight

The U.S. Securities and Exchange Commission on Sept. 15 approved a Financial Industry Regulatory Authority rule that replaces two of the industry’s longest-standing supervision rules, consolidating them into a single framework aimed at investment-related conduct rather than every outside job a registered representative holds. Private placement sales were left untouched.

The new rule, FINRA Rule 3290, combines Rule 3270, which governed outside business activities, and Rule 3280, which governed private securities transactions. Under the prior regime, reps had to report virtually any outside compensated activity, including bartending, ride-share driving, and sports officiating, according to the SEC’s approval order. Rule 3290 narrows that reporting duty to activity “pertaining to financial assets, including securities, crypto assets, commodities, derivatives” and similar instruments.

For the alternatives industry, the more consequential change is what didn’t move: private placements remain squarely inside the rule’s supervision requirements. Outside securities transactions involving selling compensation, the category that covers a rep placing private securities away from the broker-dealer of record, still require prior firm approval, supervision, and recordkeeping under Rule 3290.

The bigger shift for distribution is how the rule treats work at an unaffiliated registered investment adviser. That activity now falls under “outside activities” rather than “outside securities transactions,” meaning the broker-dealer must receive prior notice and conduct an upfront assessment but is no longer required to supervise the activity or maintain records of transactions conducted through it, according to the order.

Rule 3290 also exempts activity at a firm’s own affiliates, including affiliated investment advisers, insurance companies, and banks, from reporting entirely, and it carves out personal real estate transactions involving a primary residence and up to two secondary homes.

Not every comment on the proposal was favorable. Some commenters told the SEC during the rulemaking process that narrowing reportable conduct to investment-related activity could “obscure misconduct” that a broader standard would have caught, according to the order. The commission found FINRA’s risk-based approach reasonable and approved the rule as amended.

The SEC has not set an effective date, saying it would let FINRA determine timing “balancing sufficient time for implementation with its objective of reducing unnecessary burdens.” Compliance teams at broker-dealers that distribute nontraded real estate investment trusts, Delaware statutory trusts, and private placements should expect a recategorization exercise once an effective date is set, sorting existing outside-activity disclosures into the rule’s three buckets: reportable outside activity, outside securities transaction, or excluded altogether.

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