SEC Approves FINRA Rule 3290: What the New Outside Activities Rule Means for Broker-Dealers, Investment Advisers, and Funds

Rule 3290 preserves the existing two-track structure: registered persons report outside activities, and all associated persons report outside securities transactions. The prior written notice requirement, approval of transactions for selling compensation, and the existing definition of "selling compensation" remain unchanged. The most significant change is a narrower scope: reporting by registered persons is limited to "investment-related" activities. These include activities pertaining to financial assets such as securities, crypto assets, commodities, derivatives, currency, banking, real estate, or insurance, including acting as or being associated with a broker-dealer, issuer, insurance company, investment company, investment adviser, commodity pool operator, bank, or similar entity, as well as "buying away." As a result, side work such as bartending, refereeing, or driving for a car service will no longer need to be reported.

Outside Activities of Registered Persons

A registered person who intends to participate in an outside activity must give the member prior written notice. The member must then assess whether the activity: (1) is an outside securities transaction; (2) involves a customer of the registered person; (3) will interfere with or otherwise compromise the person's responsibilities to the member or its customers; and (4) will be viewed by customers or the public as part of the member's business. Based on this assessment, the member must evaluate whether to condition, limit, or prohibit the activity.

Outside Securities Transactions of Associated Persons

Any associated person who intends to participate in an outside securities transaction must give prior written notice – generally on a transaction-by-transaction basis, although a single notice may be used in certain circumstances. The member must assess the same four factors above, adapted to ask whether the transaction is for selling compensation. For a transaction not for selling compensation, the member must acknowledge the notice, but approval is not required. For a transaction for selling compensation, the member must make a reasonable determination to approve, approve subject to conditions or limitations, or disapprove it. If approved, the member must record the transaction on its books and records, and supervise the person's participation as if the transaction were executed on behalf of the member.

Supervision of Conditions and Recordkeeping

A member that imposes conditions or limitations on an outside activity or outside securities transaction must reasonably supervise the person's compliance with them. The SEC emphasized that the rule does not alter a member's general supervisory obligations under the federal securities laws and FINRA Rule 3110, including the duty to investigate and act on red flags. Firms also remain free to impose stricter requirements than the rule's minimums.

Exclusions and Carve-Outs

The new rule does not apply to activity on behalf of a member or its affiliate, or to securities transactions among immediate family for which the associated person receives no selling compensation. It also excludes securities transactions subject to or delineated in FINRA Rule 3210 (such as transactions in accounts at other broker-dealers and in mutual funds, Section 529 plans, and variable annuities) and personal investments in non-securities, including non-security crypto assets such as bitcoin. A further exclusion covers the purchase, sale, rental, or lease of a main home and up to two secondary homes owned solely by the associated person or with immediate family, as a sole proprietorship, through an entity solely owned by the person or the person and immediate family, or through a trust whose sole beneficiaries are the person or the person and immediate family. Activity under a contract between the member and another entity, such as a banking or insurance networking arrangement, conducted on behalf of the member, also falls outside the rule. In addition, an associated person's securities activity that qualifies for the Gramm-Leach-Bliley Act or SEC Regulation R exceptions from broker-dealer registration is addressed separately in the rule's supplementary material (Rule 3290.05), which is relevant for personnel who also conduct bank-related securities activity.

Selling Fund Interests

Selling private placements or fund interests away from the member remains a higher-risk activity subject to approval, recording, and supervision where selling compensation is involved. The member must make a reasonable determination to approve, approve with conditions, or disapprove each such transaction and, if approved, supervise it as if executed on behalf of the member. Members should note that "selling compensation" is broadly defined to include, among other things, commissions, finder's fees, securities or rights to acquire securities, rights of participation in profits, and expense reimbursements. As a result, fund economic arrangements beyond traditional commissions can trigger the approval requirement.

Implications for Investment Advisers and Funds

Dual-Hatted Personnel at Unaffiliated Advisers. An associated person's activity at a registered investment adviser will be treated as an outside activity, not an outside securities transaction. This is a significant departure from the current framework, under which compensated advisory activity at an unaffiliated adviser could be treated as private securities transactions that the broker-dealer was required to approve, record, and supervise. The broker-dealer must receive prior written notice and conduct an upfront assessment but will no longer be required to supervise or keep records of the advisory activity.

Affiliated Advisers and Dual Registrants. Advisory, insurance, or banking activity conducted on behalf of the member or an affiliate (any entity that controls, is controlled by, or is under common control with the member) is excluded from the rule. This includes investment advisory activity at a firm registered as both a broker-dealer and an investment adviser, which is not considered activity performed away from the member. The exclusion recognizes members' ability to implement meaningful controls across business lines, and it removed earlier "non-broker-dealer" language so that all affiliate activity is excluded.

Portfolio Managers and Investment Committee Members. Rule 3290 codifies FINRA staff's position on associated persons acting as portfolio managers or investment committee members for registered investment companies, unregistered investment companies, business development companies, real estate investment trusts, or tax-exempt entities. Such activity is treated as an outside activity, and the person must give prior written notice. The member is not required to supervise or keep records of that activity.

Practical Concerns and Open Issues

• Form U4 Misalignment. Form U4 is broader than the rule's notice requirement. FINRA has stated that Form U4 is beyond the scope of the rule change but that it will work with the SEC and the states to harmonize requirements where appropriate. Until then, firms will still need to collect non-investment-related information for Form U4 purposes.
   
• Transition of Existing Approvals. The rule text does not address whether notices and approvals given under Rules 3270 and 3280 will satisfy Rule 3290. Firms should watch for further guidance.
   
• Characterization, Materiality, and Supervision. Members must determine whether an activity has been properly characterized, and the line between an outside activity and an outside securities transaction, or between a non-security and a security (particularly for crypto assets), will drive very different obligations. Persons must update notices for material changes, but the rule does not define "material change," so firms will need to set internal standards.

Frequently Asked Questions

• Are any changes required before the effective date? Until the effective date of October 25, 2027, Rules 3270 and 3280 continue to apply, and firms should not discontinue their existing controls.
   
• Will my broker-dealer still supervise my advisory business at an unaffiliated RIA? No. Activity at an SEC- or state-registered adviser will be an outside activity requiring prior written notice and an upfront assessment, but the broker-dealer will not be required to supervise or record it. The broker-dealer may still condition, limit, or prohibit the activity and must supervise compliance with any conditions it imposes.
   
• Do I need to report advisory work for my firm's affiliated adviser? Not under Rule 3290. Activity on behalf of the member or its affiliate is excluded, although firms may impose their own notice requirements.
   
• Do I need to report non-financial side jobs? Not under Rule 3290, which covers only investment-related activity. However, Form U4 disclosure obligations are unchanged.
   
• What about serving on a fund's investment committee or as its portfolio manager? Prior written notice is required (a single notice may be used), but the member need not supervise or keep records of the activity unless the person sells the fund's shares for selling compensation.
   
• Are personal crypto investments covered? Personal investments in non-security crypto assets, such as bitcoin, are excluded. A personal crypto transaction that involves a security requires prior written notice and acknowledgment, and approval only if selling compensation is involved.

Recommended Next Steps

• Inventory current outside business activities and private securities transactions, and identify which will become excluded, notice-only, or approval-and-supervision items under Rule 3290.
   
• Map dual-hatted personnel, including representatives affiliated with unaffiliated advisers and those serving as fund portfolio managers or investment committee members.
   
• Update written supervisory procedures, notice forms, assessment checklists, and workflows to reflect the four assessment factors.
   
• Train personnel on characterizing activities under the new rule, particularly the line between securities and non-security crypto assets.
   
• Independent advisers should review data-sharing arrangements with broker-dealers and prepare for revised notice and assessment processes.

For any questions regarding FINRA Rule 3290 or its implications, please contact Paul J. Foley, Lori H. Patterson, John M. Faust, Kiki Scarff, or Cole Beaubouef.