Pay-to-Play Compliance

FINRA Rule 3220: The Gifts Rule

FINRA Rule 3220, also known as the Gifts Rule, covers the Influencing or Rewarding of Employees of Others. FINRA Rule 3220 “prohibits any member or person associated with a member, directly or indirectly, from giving anything of value in excess of $100 per year to any person where such payment is in relation to the business of the recipient’s employer.” Persons making gifts and giving gratuities are subject to the $100 per year per person limit for those items given in relation to business of the recipient's employer.

The giving and receiving of gifts and entertainment has the possibility to be perceived as a conflict of interest. It’s critical that firms have processes in place to effectively monitor and audit gifts and entertainment transactions to reduce compliance risk—and that employees are aware of the rules and regulations they are beholden to.

How is a Business Related Gift Defined?

Whether or not a gift made is business related depends on several factors. That includes whether or not a pre-existing relationship existed between the associated person and the recipient and whether the associated person paid for the gift out of their own personal bank account without reimbursement from the firm. Additionally this limitation does not, without reimbursement from the firm, apply to life cycle events or to nominal or promotional items, provided that the nominal or promotional value still falls within the $100 limitation.

Gifts and Entertainment in the Age of Remote Work

Remote work is here to stay, and a dispersed workforce has implications for the management of gifts and entertainment under FINRA gift rules. In the whitepaper What is Conduct Risk and How Can Technology Mitigate It?, Brian Fahey, CEO of MCO, writes “In the absence of integrated technology solutions, there often are blind spots across physically dispersed teams or insular teams that operate separately from others in the organization. Indeed, especially in mid-tier and large companies, the left hand often does not know what the right hand is doing. For instance, an employee might be planning to give a gift to an executive at a company that, unbeknownst to the employee, is an acquisition target. A gift that would otherwise be an acceptable form of business courtesy could thus be considered a form of bribery post-merger.”

FINRA Rule 3220 does not specifically address gifts given and entertainment provided in a remote work and meeting environment, but FINRA provided guidance to address questions around whether meals provided for virtual meetings are subject to the $100 limit. The FAQ states “where a member firm’s associated persons personally host an interactive virtual business entertainment event or meeting, FINRA would view the associated persons’ provision of reasonable amounts of food and beverage designed to be consumed by the recipient employees and their guests during that virtual business entertainment or meeting as not being subject to the $100 gift limit, provided that the cost of the food and beverage as well as the frequency with which it is provided do not raise questions of propriety.” In addition, the provision of food and beverage should not be preconditioned on achieving sales targets, and the cost and frequency with which it is provided should not raise questions of propriety.