With November right around the corner, it’s important that compliance staff start dusting off their gift and entertainment policies (FINRA Rule 3220) to ensure firm members are up-to-snuff on what they can, and more importantly, cannot do, this holiday season.
As a compliance vendor, we would like to remind firms that regular training on gifts and entertainment policies and procedures serves as evidence to regulators that the rules and the intentions behind them are important to your compliance operations. If you are a current client and would like to assign a course on this topic (i.e. Gifts and Gratuities: Guidance on FINRA Rule 3220), please reach out to your dedicated account executive and we’ll get this set-up in your account.
Regardless of whether you plan to assign a training course to staff, reshare your firm’s policies, or simply send a strongly worded email to their inbox, here are a few important reminders to keep in mind:
- The value of a gift is based on its cost or its market value, exclusive of tax or delivery charges. In general, gifts should be valued at whichever is higher – the cost or market value.
- The gift limitation is calculated using the aggregate of all gifts given to any one individual per year. For example, a gift of a $50 bottle of wine in November and a $75 cookie basket in December of the same year, to the same person, would exceed the $100 annual limitation.
- FINRA’s rule does not apply to gifts of de minimis value or to promotional items of nominal value that display the member firm’s logo.
- FINRA’s rule generally does not apply to personal gifts (e.g. wedding gifts), as long as the gifts are not “in relation to the business of the employer of the recipient.”
- In addition to FINRA’s Non-Cash Compensation Rules, Reg BI ensures that broker-dealers cannot participate in any sales contests, sales quotas, bonuses and non-cash compensation that are based on the sales of specific securities or specific types of securities within a limited period of time.
As a firm, it is equally important to have the appropriate systems and procedures in place to ensure that the business gifts that are given are reported to the firm, aggregated by recipient, reviewed for compliance and maintained in the firm’s records. If you are interested in learning more about Quest CE’s gift and entertainment tracking solution, click here.
In addition to maintaining an active audit log, it is equally important for firms to outline in their compliance procedures whether their firm is aggregating all gifts given by the firm and its associated persons on a calendar year, fiscal year, or ongoing basis that is dependent on when the first gift to any particular recipient is received.
FINRA also recently clarified in an FAQ that if a member firm’s associated persons were to personally host an interactive virtual business entertainment event or meeting, FINRA would view the associated persons’ provision of reasonable amounts of food and beverage designed to be consumed by the recipient employees and their guests during that virtual event as not being subject to the $100 gift limit, provided certain conditions are met. To read the complete FAQ, click here.