Manage FINRA Outside Business Activities with our Compliance Software for Financial Services

Regulators require organizations to track the Outside Business Activities of their employees and determine whether there is a potential conflict of interest that could expose both the firm and its customers to potential risk. Failing to properly disclose and manage the Outside Business Activities of employees can result in regulatory exposure, financial loss and reputational damage.

With the Outside Business Activities module in MyComplianceOffice, firms can automate the capture and management of employee outside business activity, enabling the efficient identification, monitoring and disposition of potential Conflicts of Interest.

Outside Business Activities with MyComplianceOffice delivers a solution that’s easy to implement and use by both employees and administrators and that:

  • Reduces the time and cost of tracking and monitoring OBAs
  • Integrates with FINRA for ease of regulatory reporting
  • Discourages bad actors and rogue activities
  • Aids employee obligation awareness and a culture of compliance
  • Increases regulatory rigor through improved auditing, tracking and reporting

 

Automate the OBA Reporting and Attestation Process from End to End with MyComplianceOffice

  • Identify conflicts between Outside Business Activities, Gifts & Entertainment, Third
    Parties, and the trading activities of the firm
  • Preclear different types of Outside Business Activity (directorships, contracts, voluntary positions, etc.)
  • Create a full set of customer questions for each Outside Business Activity
  • Implement configurable workflows for beach type of Outside Business Activity including multiple levels of approval
  • Escalate requests based on supervisory hierarchy
  • Configure reminders and escalations if requests are not actioned within a specific period
  • Maintain separate listings of pre-clearances and actual Outside Business Activities
  • Embed Outside Business Activity into regular attestation questionnaires to facilitate adherence and completion
  • Run configurable dashboard reporting and user-defined reports

See our Outside Business Activities solution in action

FINRA’s 2021 Priorities Put the Spotlight on Outside Business Activity

The guidance provided in the 2021 Report on FINRA’s Examination and Risk Monitoring Program reinforces the importance of strong processes and controls to identify and manage potential conflicts of interest that could harm both investors and the firm.

The report provides an overview of 2020 examination results and highlights areas of importance for 2021. The management of Outside Business Activities (OBAs) and Private Securities Transactions (PSTs) was identified as a core regulatory obligation and compliance responsibility.

An Outside Business Activity is defined as a registered person conducting business activity outside the scope of relationship with their member firm. FINRA defines that this may include acting as an employee, independent contractor, sole proprietor, officer, director, or partner for any other entities besides the member firm. The activity may also involve compensation or the reasonable expectation of compensation.

FINRA Rule 3270 requires registered representatives to notify their firms in writing of proposed outside business activities so the firm can determine whether to limit or allow those activities. According to the rule “No registered person may be an employee, independent contractor, sole proprietor, officer, director or partner of another person, or be compensated, or have the reasonable expectation of compensation, from any other person as a result of any business activity outside the scope of the relationship with his or her member firm, unless he or she has provided prior written notice to the member, in such form as specified by the member.”

A Private Securities Transaction is any securities transaction outside the regular course or scope of an associated person's employment with a member, including, though not limited to, new offerings of securities.

FINRA Rule 3280 requires that “prior to participating in any private securities transaction, an associated person shall provide written notice to the member with which he is associated describing in detail the proposed transaction and the person's proposed role therein and stating whether he has received or may receive selling compensation in connection with the transaction.”

Effective Practices for Managing FINRA Outside Business Activities

The report also provided guidance effective practices to manage OBAs and PSTs, including:

Questionnaires

“Requiring registered representatives and other associated persons to complete upon hire, and periodically thereafter, detailed, open-ended questionnaires with regular attestations regarding their involvement —or potential involvement—in new or previously disclosed OBAs and PSTs (including asking questions relating to any other businesses where they are owners or employees; whether they are raising money for any outside activity; whether they act as “finders”; and any expected revenues or other payments they receive from any entities other than member firms, including affiliates).”

Thorough Reviews

Conducting reviews at the time of rep’s initial disclosure and on a periodic basis thereafter of social media, networking and other public websites, legal research databases and court records, email and other communications, interviews with reps and supporting documentation.

Monitoring

Looking for red flags related to performance, production levels and lifestyle that may indicate involvement in OBAs and PSTs by conducting regular background checks of correspondence, social media, fund movements, marketing materials, online activities, customer complaints and financial records including bank statements and tax returns.

Affiliate Activities

“Considering whether registered representatives’ and other associated persons’ activities with affiliates, especially self-offerings, may implicate FINRA Rule 3270 and 3280.”

Written Supervisory Procedures

Clearly outlining and identifying types of activities that constitute an OBA or PST and providing information to employees to remind them of scenarios that are applicable to the rules.

Training

Conducting training during the onboarding process and on a regular basis thereafter, including reminders about policies and updating disclosures.

Disciplinary Actions

Imposing significant consequences—including heightened supervision, fines or termination—for registered representatives and associated persons who fail to notify firms in writing and receive approval for their OBAs and PSTs.

Digital Asset Checklists

Creating checklists with lists of considerations to confirm whether digital asset activities would be considered OBAs and PSTs.

"Firms that had an effective programs to manage OBAs typically implemented proactive compliance efforts".
FINRA 2017

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