Proposed Regulation Would Narrow Scope of FINRA’s “Outside Business Activity” Rule

FINRA and the SEC have proposed replacing FINRA Rules 3270[1] and 3280[2] with a single new Rule 3290[3] designed to narrow reporting to investment-related activities and preserve stricter controls for outside securities transactions, especially when selling compensation is involved. This proposed regulation is currently before the SEC and may be adopted this spring.[4]

1. The Proposal Would Narrow The Existing, Broad, “Outside Business Activity” Rule to Require Reporting Only of “Investment-Related” Outside Activity

Currently, Rule 3270 broadly prohibits a registered person from engaging in virtually any outside business activity without notice to their FINRA member firm. Once the member receives the notice, it must evaluate whether to place conditions on the activity and determine if the activity falls under Rule 3280. If it does, Rule 3280 then prohibits certain outside securities transactions by an associated person (whether registered or not) without the member’s approval and supervision.

This reporting, approval and supervision process can be extensive and covers a very wide variety of activities that are not plausibly related to the securities business. The proposed Rule 3290 would consolidate these two existing rules into one, while maintaining the basic substantive framework regulating Outside Activities for registered persons and Outside Securities Transactions for associated persons.

The major change proposed is to narrow the scope of outside business activity reporting. The term “Outside Business Activity” is gone from the proposed rule. It is replaced with the phrase “outside activity” which is given the more specific and narrow definition of “investment-related activity outside the scope of such person’s relationship with the member that is not in connection with a securities transaction.” [5] This focus on investment-related outside activity would mean that member firms will no longer have to process large volumes of low-risk, non-investment side work, such as bartending or driving for a car service.

While the class of outside activities covered is narrowed by the proposed rule, the obligations of the registered persons and firms in reporting the activities still covered would remain very similar to the old regime. A registered person would still have to provide prior written notice to the member. The member firm would still assess whether the activity is properly characterized, whether it involves customers, whether it could interfere with the person’s responsibilities, and whether customers or the public might view the activity as part of the firm’s business. The proposal also adds a small provision requiring the member to consider whether the outside activity involves customers, but that seems more a clarification of the intent of the prior regime than a substantive addition.

For outside securities transactions, the proposed requirements remain largely the same. Even the few changes clarify requirements and restate prior guidance rather than make any major substantive adjustments. An associated person still has to provide prior written notice to the member, and the member still has to evaluate the transaction, decide whether to prohibit or approve the rule, or approve with conditions, and then to supervise and record the transaction as though executed on the firm’s behalf.

2. Member Firms and Advisers Supported the Proposal, While Some Investor Advocates Prefer a More Limited Reform

Public comments at the SEC closed on February 24, 2026, and they reflected the same support and opposition that were seen in the public comments to FINRA a year earlier. They reflect a clear divide by commenter type, with members and advisers supporting the change, and some investor advocates recommending broader coverage than that in the proposed rule.

Comments from broker-dealers and investment advisers generally support the proposal on the basis that the existing rule requires firms to review large amounts of irrelevant or low-risk information. They argue that by limiting the reporting obligation to investment-related activity, the rule would free compliance resources for conduct that is more likely to harm investors or blur the line between the representative’s personal venture and the member’s business.

Securities Industry and Financial Markets Association (SIFMA) supported proposed Rule 3290 as a modernization measure that improves efficiency without sacrificing investor protection.[6] LPL Financial took the same basic position. It argued that the current framework creates unnecessary burdens and that the proposal better aligns regulation with actual risk.[7]

The Investment Adviser Association also endorsed the rule and specifically supported excluding unaffiliated advisory activity from broker-dealer supervision and recordkeeping. It argued that advisory activity already falls under the Advisers Act or state regulation and that broker-dealer oversight in that setting is duplicative and impractical.[8]

Comments from individual advisers agreed. Cline Reasor of Gratus Wealth Advisors argued that the current rule forces dual registrants to share nonpublic advisory-client information with an unaffiliated broker-dealer and adds complexity without corresponding benefit.[9] Frank Lawrance of Seacrest Wealth Management likewise supported the proposal because it would reduce approval and reporting obligations for advisory activity that is already regulated elsewhere while retaining safeguards against selling away.[10]

Consumer organizations and some members of the plaintiff’s bar opposed the proposal or urged tighter supervision, arguing that the proposal gives too much weight to whether an activity is “investment-related” when misconduct often develops through mixed business lines and informal referrals. They suggested that an activity that looks non-securities-related at the outset can become a source of customer confusion, affinity solicitation, or undisclosed compensation. These commenters suggested that a narrower rule may leave firms with less visibility into emerging conflicts.

For example, Joseph Peiffer, a past president of the Public Investor Arbitration Bar Association, argued that the rule would weaken oversight of the very outside activities that often precede fraud, selling away, and customer confusion.[11] Peiffer also noted that excluding certain affiliate activity would rely too heavily on assumptions about effective cross-business controls.

The North American Securities Administrators Association, an investor protection organization, urged stronger emphasis on supervisory red flags and a framework that better reflects the risks that arise when customers encounter combined brokerage and advisory relationships. The NASAA proposed additional language that would still narrow the existing reporting requirements, but add additional categories of activities such as lending, or brokering collectibles that it felt would more effectively implement the purpose of the streamlined rule without creating unintended loopholes.[12]

3. The SEC Is Expected to Act Soon

After publication and comment at FINRA in 2025, FINRA finalized its recommendation by filing the proposal with the SEC on January 22, 2026, as SR-FINRA-2026-001. The SEC issued a notice of proposed rule change, and the proposal was published in the Federal Register on February 3, 2026.[13] The SEC set February 24, 2026 as the public-comment deadline. A final decision by the SEC to approve or disapprove the rule change is expected very soon.

Whether this or a similar rule is eventually adopted, it appears that a consensus has emerged to narrow the rule somewhat. Whether the SEC acts this spring or next year, it seems likely that some new rule will eventually be adopted limiting the OBA reporting rule to business activities that are more directly related to the financial industry.

Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes.
We represent many investment advisors, financial professionals, broker-dealers, registered representatives, investors and businesses.
Attorney William M. Moore can be reached in the firm’s San Diego office at (619) 696-9500.

[1] FINRA Rule 3270. Outside Business Activities of Registered Persons, 3270. Outside Business Activities of Registered Persons | FINRA.org

[2] FINRA Rule 3280. Private Securities Transactions of an Associated Person, 3280. Private Securities Transactions of an Associated Person | FINRA.org

[3] Text of Proposed FINRA Rule 3290 Outside Activities Requirements https://www.finra.org/sites/default/files/2025-03/OAR_Regulatory_Notice_Attachment_A.pdf

[4] Federal Register, “Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change to Adopt FINRA Rule 3290 (Outside Activities Requirements),” (February 3, 2026) https://www.federalregister.gov/documents/2026/02/03/2026-02122/self-regulatory-organizations-financial-industry-regulatory-authority-inc-notice-of-filing-of-a

[6] SIFMA Comment Letter to SEC in Support of FINRA Rule 3290, (February 24, 2026), https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-715007-2237915.pdf

[7] LPL Financial Comment Letter to SEC in Support of FINRA Rule 3290, (February 24, 2026), https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-712287-2235534.pdf.

[8] Investment Advisor’s Association Comment Letter to SEC in Support of FINRA Rule 3290, (February 24, 2026), https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-715090-2238074.pdf.

[9] Gratus Wealth Advisors Comment Letter to SEC in Support of FINRA Rule 3290, (February 24, 2026), https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-713067-2236294.pdf.

[10] Seacrest Wealth Management Comment Letter to SEC in Support of FINRA Rule 3290, (February 21, 2026), https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-712989-2236235.pdf.

[11] Joseph Peiffer, Comment Letter to SEC in Opposition to FINRA Rule 3290, (February 24, 2026), https://www.sec.gov/comments/sr-finra-2026-001/srfinra2026001-714607-2237374.pdf.

[12] NSAAA Comment Letter to SEC in regarding FINRA Rule 3290, (February 24, 2026), https://www.nasaa.org/wp-content/uploads/2026/02/NASAA-Comment-Letter-re-SEC-File-No-SR-FINRA-2026-001-02-24-2026.pdf.

[13] Federal Register, “Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change to Adopt FINRA Rule 3290 (Outside Activities Requirements),” (February 3, 2026) https://www.federalregister.gov/documents/2026/02/03/2026-02122/self-regulatory-organizations-financial-industry-regulatory-authority-inc-notice-of-filing-of-a