NASAA urges SEC to step in on FINRA's outside activities proposal

The North American Securities Administrators Association is urging the Securities and Exchange Commission to push for a tougher version of FINRA’s planned overhaul of rules governing brokers’ outside business activities and “buying away” transactions.

In a recent letter to SEC assistant secretary Sherry Haywood, NASAA argued that FINRA’s proposed Rule 3290, which would replace current Rules 3270 and 3280, leaves too much room for risky side businesses to slip past firm oversight.

NASAA president Marni Rock Gibson wrote that “the proposal’s definition of ‘investment-related activity’ is appropriately broad in principle, but remains too narrow in expression.”

FINRA’s filing, submitted to the SEC in January, would consolidate and streamline the existing framework for advisors’ outside roles and private securities transactions. The new rule is designed to focus firm attention on investment-related activities, while carving out lower-risk side gigs such as refereeing, rideshare driving, or bartending.

It would also create explicit exclusions for work done through affiliates, personal investments in non‑securities, and certain real estate holdings, and it would dial back broker‑dealer supervisory obligations for reps’ work at unaffiliated RIAs.

Under the proposal, registered reps would still have to give firms prior written notice before engaging in any investment‑related outside activity, and associated persons would have to notify firms before taking part in outside securities transactions. Firms would be required to assess conflicts, customer confusion and whether an activity should be treated as a private securities transaction, but in many cases would not have to supervise the activity itself.

Echoing comments from last year when FINRA first floated Rule 3290, NASAA’s aired concerns over how far that notice regime actually reaches. The group wants the definition of investment‑related activity broadened to explicitly cover areas such as collectibles, lending, private funds, informal investment clubs and a wider range of crypto‑asset and money‑transmission businesses. Without that, NASAA warned, activities marketed as alternative investments or loans could evade reporting and review if they do not “fit neatly or obviously within the existing categories under the circumstances.”

The association is also pushing to restore language that would require firms to consider risks to all of their customers, not just those directly tied to the individual advisor or employee providing the notice. Gibson wrote that limiting the analysis to the rep’s own book “could increase the risk that firms will fail to adequately consider potential risks to their customers,” particularly for operations staff or others who do not have assigned clients but still interact with firm accounts and systems.

Read more: FINRA and advisors' other work

NASAA’s most pointed criticism targets FINRA’s decision to eliminate member supervision and recordkeeping requirements for outside advisory work at unaffiliated RIAs. Instead of dropping those obligations, the group argues, FINRA should tailor them – for example, by requiring firm approval of outside advisory roles and limiting supervisory duties to clients who are also brokerage customers or whose accounts are held at the firm.

"We believe that requiring FINRA member firms to supervise their associated persons’ outside investment advisory activities is a reasonable allocation of responsibility to address the risk of investor harm," NASAA said in its letter.