The Economic Impact of FINRA’s “Gift Rule” Change
Earlier this month, FINRA issued Regulatory Notice 16-29, which solicits feedback regarding proposed changes to FINRA’s gifts, gratuities and non-cash compensation rules. The comment period on these amendments expires September 23, 2016.
To better align investor protection with the economic impact of these rules, FINRA is considering the following five changes:
- Consolidating the rules under a single series in the FINRA rulebook
- Increasing gift limits from $100 to $175 per person per year
- Including a de minimis threshold below which member firms would not be required to keep records of gifts received or given
- Amending the non-cash compensation rules to broadly cover all securities products; and
- Incorporating existing guidance and interpretive letters into the rules
Among these revisions, FINRA is proposing a revised approach to internal sales contests that offer non-cash compensation and required written policies and supervisory procedures for business entertainment.
$100 Gift Rule
FINRA Rule 3220 prohibits any member firm or associated person 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. The increase from $100 to $175 (per person, per year) is intended to reflect the rate of inflation since adoption of the $100 gift limit and address the increase in not only the prices of goods, but also the shipping costs, taxes and other expenses.
Over the years, FINRA has issued various interpretive letters regarding the application of the “Gifts Rule” to bereavement gifts. As such, FINRA proposes to incorporate this guidance, without material change, into FINRA Rule 3220. As part of this adjustment, FINRA is proposing a $50 de minimis threshold below which firms would not have to keep records of gifts given or received, and the exception regarding gifts related to specified life events— such as bereavement and wedding gifts, or gifts for the birth of a child—should reduce the costs associated with tracking and supervising such instances.
FINRA additionally proposes to eliminate the existing non-cash compensation rules and replace them with proposed FINRA Rule 3221, which would apply to the payment or receipt of non-cash compensation in connection with the sale of any security. 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.
Proposed FINRA Rule 3222 would also require each member to adopt written policies and procedures relating to business entertainment tailored to its business needs under a principles-based approach.
To read the complete FINRA regulatory notice, click here.