FINRA's proposal to revise its outside business activity rule is in its final stages now awaiting approval from the Securities and Exchange Commission. If the new rule passes as lawyers expect, this will provide welcome relief for brokers who have found themselves caught up in FINRA's enforcement process over seemingly innocuous outside work.

Brokers have been fired and then faced industry discipline for myriad activities, including rental homes and even - as one FINRA executive noted - a goat herding business. Firms have been plagued by questions about whether or how they should be supervising these businesses and in particular what their responsibility is for overseeing an outside RIA.

Proposed Rule 3290

The new outside business and private securities transaction rule would replace Rules 3270 and 3820, keeping the core disclosure and review structure intact while narrowing the scope to activities that pose clearer investor risk.

Advisors would still be required to provide prior written notice of investment-related outside activities and certain securities transactions. Firms would still assess whether those activities involve clients, interfere with job responsibilities, or could reasonably be viewed as part of the firm's business. The key shift is that fewer activities would fall into that review process in the first place.

The proposal carves out a range of lower-risk conduct that has historically triggered compliance scrutiny. Personal investments, certain real estate transactions and some crypto activity would no longer be treated as outside business activities in many cases.

As industry lawyer Rogge Dunn wrote in a recent memo, the rule is designed to "focus regulatory attention where the investor protection risk is most acute," rather than capturing routine personal financial activity.

RIA Supervision

It also draws a clearer line around unaffiliated advisory work. Activity conducted through an outside, unaffiliated investment advisor would still be classified as an outside activity, but firms would not be expected to supervise it or maintain its books and records.

Dunn notes this "eliminates the expectation that firms oversee and record unaffiliated advisory business," easing a longstanding operational burden.

For outside securities transactions, the proposal hinges on compensation. Transactions without selling compensation would require notice and acknowledgment, but not approval or supervision. Once compensation is involved, firms must approve or reject the activity and supervise it as if it were executed on their platform.

Risk Reassessment

The rule also refines how firms assess risk, emphasizing whether clients are involved and whether the activity would be perceived as part of the firm's business. That shift gives firms more discretion, but also raises the stakes around consistent internal standards.

Certain exclusions are explicit. Personal investments in non-security crypto assets would fall outside the rule, and transactions involving a primary residence and up to two secondary homes would be excluded, reflecting FINRA's view that these carry limited risk of client confusion.

The result is a more targeted regime. Firms would spend less time reviewing low-value disclosures, while retaining oversight of activities that more closely resemble their core business. Advisors, in turn, would gain flexibility around personal financial activity without triggering the same level of compliance review.