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Difficulty: MediumGifts, Gratuities, Political Contributions, and Outside Business Activities

A registered representative associated with a FINRA member firm intends to start two outside activities: serving as an uncompensated board member for a local charitable foundation and working on weekends as a compensated independent financial consultant for a private technology startup. Under FINRA rules governing outside business activities, which of the following actions is required of the representative prior to engaging in these activities?

  1. Providing prior written notice to the employing member firm for the compensated consulting position, whereas uncompensated charitable service typically does not require written notice unless mandated by internal firm policy.Answer
  2. B
    Filing a registration application directly with the Securities and Exchange Commission (SEC) to obtain federal regulatory approval for both outside roles.
  3. C
    Submitting a formal pay-to-play exemption request to the Municipal Securities Rulemaking Board (MSRB) to prevent a two-year underwriting ban.
  4. D
    Obtaining prior written consent from FINRA along with payment of an outside activity oversight fee equal to ten percent of anticipated consulting income.

Answer

The registered representative must provide prior written notice to their member firm for the compensated consulting position before beginning the activity, while uncompensated charitable work generally does not require notice under FINRA rules.
Under FINRA Rule 3270, no registered person may be employed by, or accept compensation from, any other person as a result of any business activity outside the scope of the relationship with their member firm unless they have provided prior written notice to the firm. Passive investment activities and uncompensated civic/charitable work are generally excluded from mandatory FINRA notification, making prior written notice to the member firm for the paid consulting work the exact correct requirement.

Step-by-Step Solution

1
Identify the relevant rule governing outside employment and business activities for registered representatives.
FINRA Rule 3270 governs Outside Business Activities (OBAs).
Registered representatives must comply with FINRA standards regarding external business commitments.
2
Evaluate the compensation status of each proposed outside activity.
The consulting role is compensated; the charitable board position is uncompensated.
Rule 3270 specifically triggers mandatory notification requirements when an individual receives, or expects to receive, compensation for business activities outside the employing firm.
3
Determine the required procedure for compliance.
Prior written notice must be submitted to the employing broker-dealer before starting the compensated activity.
The firm must have the opportunity to review the outside activity for potential conflicts of interest or supervisory concerns.

Key Concept

FINRA Rule 3270 Outside Business Activities (OBA) Prior Written Notice Requirement
Estimated Time:1m 15s
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Topics

Gifts, Gratuities, Political Contributions, and Outside Business Activities