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. FINRA proposes that the term refer to a non-cash compensation arrangement in which an offeror or broker-dealer communicates in advance (i.e., implicitly or explicitly) that an associated person will receive non-cash compensation only following the achievement of a (1) dollar-denominated goal for selling securities or (2) finishing within a defined number of top sellers of securities. Reg. Non-Cash Compensation have been retained in full in Proposed Rule 5110. Finra amended the proposal on Tuesday to make clear that sales contests involving mutual funds and variable annuities are okay as long as non-cash compensation — such as a trip to Hawaii — is based on total sales and equal weighting of sales among products. ! Non-cash compensation is a payment that's not money. See recordkeeping requirements for non-cash compensation accepted or paid in connection with the distribution or sale of direct participation programs in FINRA Rule 2310(c)(2), variable insurance contracts in FINRA Rule 2320(g)(3), and public offerings of securities in FINRA Rule 5110(h)(2). 5 FINRA has also recently adopted and set an implementation date for other substantive changes to FINRA Rule 5110. By Fred Schneyer. Sales contests: FINRA noted that some firms already had prohibited sales contests, sales quotas, bonuses and non-cash compensation practices based on the sales of specific securities or types of securities. Firms already were developing forms and delivery timelines, including: Track exchange of gifts, entertainment and non-cash compensation by person and category. FINRA notes in RN 20-10, however, that “the restrictions on receipt of non-cash compensation set forth in Rule 5110 are not intended to limit … The structure of the Non-Cash Compensation Rule provisions will remain largely the same within Rule 3221 and will address (1) gifts, (2) training or education, and (3) sales contests. Proposed Rule 3222 would separately cover business entertainment. FINRA proposes to increase the gift limit in Rule 3220 from $100 to $175 per person per year and include a de minimis $50 threshold below which firms need not keep records of gifts given or received. FINRA ASSESSMENTS Gifts, comms rules get mixed reviews The Financial Industry Regulatory Authority has issued two reports giving a broadly clean bill of health to its rules governing communications with the public and, separately, gifts, gratuities and non-cash compensation – while also reveal-ing areas of industry concern. The releases by both the SEC and FINRA apply to broker and dealer conduct after June 30, 2020. Under FINRA rules, non cash compensation connected with the sale of variable contracts includes all of the following items except: A. FINRA Rule 2341. Rule 3220 – Gifts and gratuities ; Rule 3221 – Non-Cash Compensation; Rule 3222 – Business Entertainment ; FINRA Rule 3270. Involved in the regulator’s latest action were Scudder Distributors, Inc. of Chicago, Putnam Retail Management Limited Partnership of Boston, … The goal of Regulation BI is to improve investor protection by: (1) enhancing the obligations that apply when a broker-dealer makes a recommendation to a retail customer; and (2) reducing the potential harm to retail customers from conflicts of interest that may affect such recommendations. FINRA states that the suggested change would not alter the current requirements for disclosing non-cash compensation because non-cash compensation in connection with a public offering has long been considered underwriting compensation under Rule 5110 and is disclosed to FINRA via a question in FINRA's electronic filing system for public offerings. Track exchange of gifts, entertainment and non-cash compensation by person and category. Specifically, proposed FINRA Rule 3221 (b) would provide that “No member or person associated with a member shall directly or indirectly accept or make payments or offers of payments of any non-cash compensation in connection with the sale of securities.” This prohibition would be subject to certain exceptions, which are detailed here. According to FINRA, the proposed rule changes would: (i) amend the FINRA and Capital Acquisition Broker ("CAB") suitability rules "to state that the rules do not apply to recommendations subject to" Reg BI, and "to … 16,974 (Mar. Specifically, proposed FINRA Rule 3221(b) would provide that “No member or person associated with a member shall directly or indirectly accept or make payments or offers of payments of any non-cash compensation in ! proposes to impose the general prohibitions on the paymentor receipt of non-cash compensation to all securities products(from a more limited applicability to investment companysecurities, variably insurance contracts, direct participationprograms, and public offerings of debt and equity securities).The !!!!!2! The course, “Treatment of Non-Cash Compensation,” provides an overview of non-cash compensation and the various rules that are associated with these types of offerings. Created with Sketch. Each of these forms of non-cash FINRA has a difficult job making sure that everything is legal and investors are treated fairly. underwriting compensation, but makes explicit the existing practice of disclosing specified material terms and arrangements related to underwriting compensation, such as exercise terms, in the prospectus. The Financial Industry Regulatory is proposing amendments to the gifts, gratuities and non-cash compensation rules to consolidate the rules under a single rule series in the FINRA rulebook. Finra is also proposing to conform its rules governing non-cash compensation to Reg BI’s limitations on sales contests, sales quotas, bonuses and non-cash compensation. FINRA believes that the general prohibitions regarding the payment or receipt of non-cash compensation should be extended beyond investment company securities, variable insurance contracts, DPPs and public offerings of securities as the conflicts underlying these prohibitions exist with respect to all securities. What Are the Traditional Guidelines on Non-cash Compensation? FINRA Proposes Revisions to Gifts, Gratuities and Non-Cash Compensation Rules On August 5, 2016, FINRA in Regulatory-Notice 16–291 proposed revisions to its regulation of broker-dealer gifts, entertainment and non-cash compensation (the “proposal”) and requested comments to the same. The changes to the above rules regarding non-cash compensation are consistent with the goals of Reg BI to eliminate conflicts between broker-dealers and their retail customers and to promote full disclosure if they cannot be eliminated. Furthermore, like the Rule Change relating to the Corporate Financing Rule, the Rule Change to the Direct Participation Program Rule expressly permits: (1) gifts of up to $100 per by Howard Haykin . prohibit members and their associated persons from, directly or indirectly, accepting or making payments or offers of non-cash compensation in connection with the sale of variable insurance contracts, investment company securities, direct participation programs and the public offerings of debt and equity securities, subject to specified exceptions. underwriting compensation, but makes explicit the existing practice of disclosing specified material terms and arrangements related to underwriting compensation, such as exercise terms, in the prospectus. Gifts B. Non-Cash Compensation The approved final changes adjust FINRA rules to apply Reg BI’s conflict of interest limitations on sales contests, sales quotas, bonuses, and non-cash compensation. Automate notifications to supervisors, compliance and other stakeholders when gifts, gratuities or other contributions are given or received. 29. The course, “Treatment of Non-Cash Compensation,” provides an overview of non-cash compensation and the various rules that are associated with these types of offerings. Outside Business Activities of Registered Persons. FINRA is conducting retrospective reviews of its communications and gifts, gratuities and non-cash compensation rules. The self-regulatory organization said the changes are intended to address possible inconsistencies between its rules and the new SEC requirements, and to provide the industry with clarity on conduct standards. Search Icon. Brokerage and investment advisory services and fees differ, and it is important for you to understand the ... non-cash compensation, such as marketing & educational support, gifts, and business entertainment. Venture Capital Transactions and Significantly Delayed Offerings. FINRA proposes to modify its rules governing non-cash compensation arrangements to FINRA Rules 2310 (Direct Participation Programs), 2320 (Variable Contracts of an Insurance Company), 2341 (Investment Company Securities), and 5110 (Corporate Financing Rule – Underwriting Terms and Arrangements) each includes provisions restricting the payment and receipt of non-cash compensation in connection with the sale and distribution of securities governed by those … NASD has fined three investment distributors a total of $700,000 for violations of NASD's non-cash compensation rules, including improperly providing entertainment and paying for guest expenses at training and education meetings. C: an expense-paid trip to an educational conference (FINRA prohibits registered representatives from accepting a gift in the amount of more than $100, and also prohibits representatives from accepting "non-cash compensation" from someone other than their employer that exceeds this $100 limit. [7] An upcoming K&L Gates Alert will describe the … 25, 2020). The comment period expires on September 23, 2016. Close. Form CRS. The comment period expires August 3, 2009. Compensation varies by product and creates an incentive to recommend products that have higher fees, recommend more transactions to earn more compensation or recommend products for which representatives receive non-cash compensation. However, the impact During the assessment phase, which is the focus of this report, the staff analyzed the effectiveness and efficiency of the gifts and non-cash compensation rules as currently implemented. Proposed Rule 3221 would consolidate current non-cash compensation … Specifically, proposed FINRA Rule 3221 (b) would provide that "No member or person associated with a member shall directly or indirectly accept or make payments or offers of payments of any non-cash compensation in connection with the sale of securities." This prohibition would be subject to the exceptions discussed below. b. In addition, the proposed rule change does not include any changes to current Rule 5110(h) (Non-Cash Compensation). FINRA Rule 3221 (Restrictions on Non-Cash Compensation (PROPOSED) | Topic Page on Sales Contests and Non-Cash Compensation; FINRA Rule 3222 (Business Entertainment (PROPOSED) | Topic Page; FINRA Rule 3223 (Exemptions (PROPOSED) | Topic Page; FINRA Rule 3230 (FKA NASD 2212) (Telemarketing) | Topic Page ! Automate notifications to supervisors, compliance and other stakeholders when gifts, gratuities or other contributions are given or received. In anticipation of those requirements, FINRA has revised its suitability rule and its rules governing non-cash compensation. FINRA Regulatory Notice 16-29, Gifts, Gratuities and Non-Cash Compensation Rules (Aug. 2016). “compensation,” “non-cash compensation,” and “offeror” have been added to the Direct Participation Program Rule. Finra proposed increasing to $175 from $100 the amount that a … This can come in many forms: tickets to an event, gift cards, a new tablet, or a vacation, among others. Non-Cash Compensation. In addition, the proposed rule change does not include any changes to current Rule 5110(h) (Non-Cash Compensation). 3) FINRA… On March 12, 2020, Financial Industry Regulatory Authority, Inc. (“FINRA”) filed with the Securities and Exchange Commission (“Commission” or “SEC”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Exchange Act”) [1] and Rule 19b-4 thereunder,[2] a proposed rule change to amend FINRA Rules 2111 (Suitability), 2310 (Direct Participation Programs), 2320 (Variable Contracts of an Insurance Company), 2341 (Investment Company Securities), and 5110 (Corporate Financing Rule—Underwriting T… Submit Comments on SR-FINRA-2020-007. Submit Comments on SR-FINRA-2020-007. ! Solutions & Products Insights About Us Client Support talk to us. For more information see finra.org and brokercheck.finra.org. FINRA notes that these provisions have not been modified here since they are the subject of a separate review proposing a consolidated approach to FINRA’s Non-Cash Compensation rules more generally. Meals C. Lodging D. Commissions. Generally, these rules permit: Gifts of $100 or less in value that are not preconditioned on the achievement of a sales target; Guidance on gifts, gratuities and business entertainment compensation related to the sale of securities. nature of, and “if known,” the value of any non-cash compensation received. Regulator seeking common-sense changes to gift and non-cash comp rules for members. The effective date would be the compliance date of Reg BI, June 30, assuming the SEC approves the proposed rule changes. The proposed revisions to the Non-Cash Compensation Rule provisions are significant, especially The non-cash compensation rules permit business entertainment provided by “offerors” (general