FINRA Rule 3290 Explained | Outside Business Activity Rule Change
The SEC approved a new FINRA rule this month that changes how brokerage firms track their representatives’ outside work. Here’s what changed, and what didn’t, for investors who put money into a private placement through a broker.
On September 15, the U.S. Securities and Exchange Commission approved FINRA Rule 3290, which replaces two of the industry’s longest-standing supervision rules. The new rule combines FINRA Rule 3270, which covered outside business activities, and FINRA Rule 3280, which covered private securities transactions, into one framework focused on investment-related conduct. If you believe a broker sold you a private placement or other investment outside the scope of what their firm approved, contact our FINRA arbitration attorneys for a free consultation.
What Rule 3290 Changes
Under the old rules, brokers had to report almost any outside compensated activity, including jobs unrelated to investing, according to the SEC’s approval order. Rule 3290 narrows that reporting duty to activity involving financial assets, such as securities, crypto assets, commodities, and derivatives. Work at an unaffiliated registered investment adviser now falls under a lighter “outside activities” category. The broker-dealer still has to get notice and review it upfront, but it no longer has to supervise the activity or keep records of the transactions.
What Didn’t Change: Private Placement Supervision
Private placements stayed inside the rule’s full supervision requirements. If a broker sells a private securities offering away from their firm of record, in exchange for compensation, the firm still has to approve it in advance, supervise it, and keep records under Rule 3290. That’s the same standard that applied under old FINRA Rule 3280.
Why This Still Matters If You Invested Through a Broker
This distinction is the difference between a broker who sold you a private placement while properly registered with a supervising firm, and a broker who sold it away from the firm without approval, a practice known as selling away. In either case, the firm may bear responsibility if it failed to catch or stop the sale. Rule 3290 does not lower that bar for private placements.
When Does Rule 3290 Take Effect?
The SEC did not set an effective date. It left that decision to FINRA, directing the organization to balance implementation time against the goal of reducing unnecessary reporting burdens. Firms that distribute non-traded REITs, Delaware statutory trusts, and private placements should expect to re-sort their existing outside-activity disclosures once a date is set.
Recovering Losses From a Broker’s Outside Activity
If you invested through a broker’s outside business activity or a private placement sold away from their firm, you may be able to recover your losses. When a firm fails to properly supervise a representative, it can be held liable for the resulting harm. Contact the FINRA arbitration attorneys at The White Law Group to discuss your options.
Contact The White Law Group
The White Law Group is a national securities fraud and investment loss recovery law firm with offices in Chicago and Seattle. If you have concerns about a private placement or other investment sold to you by a broker, call us today at (888) 637-5510 for a free consultation, or contact us online.
Frequently Asked Questions
1. How do I file a claim to recover money I invested through a broker?
Most brokerage account agreements typically include a pre-dispute arbitration clause, so claims are generally filed and resolved through FINRA arbitration rather than in court. Arbitration can still result in a full monetary recovery, and many investors don’t realize this option exists until they speak with an attorney.
2. What is “selling away,” and why does it matter for my investment?
Selling away happens when a broker sells an investment, often a private placement, outside the products approved by their firm and without the firm’s knowledge. This matters because the firm may still be liable for failing to catch it, even though it didn’t approve the specific sale.
3. Can the brokerage firm be held responsible for my losses, even though it didn’t know about or approve the transaction?
Yes, a firm can be held liable if it failed to supervise its representative properly, even when it didn’t know about the specific transaction. Firms have an ongoing duty to monitor their brokers for red flags, and failing to do so can create liability on its own.
