[Federal Register Volume 90, Number 115 (Tuesday, June 17, 2025)]
[Notices]
[Pages 25674-25684]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-10978]
[[Page 25674]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103226; File No. SR-FINRA-2025-003]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend
FINRA Rule 3220 (Influencing or Rewarding Employees of Others)
June 11, 2025.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on May 29, 2025, the Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by FINRA. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to amend FINRA Rule 3220 (Influencing or
Rewarding Employees of Others) to increase the gift limit from $100 to
$250 per person per year, provide for exemptive relief, and incorporate
existing guidance and interpretive letters. The proposed rule change
also would make a conforming change to the gift limit in Rule 2310
(Direct Participation Programs), Rule 2320 (Variable Contracts of an
Insurance Company), Rule 2341 (Investment Company Securities), and Rule
5110 (Corporate Financing Rule--Underwriting Terms and Arrangements).
The text of the proposed rule change is available on FINRA's
website at http://www.finra.org, at the principal office of FINRA and
at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, FINRA included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. FINRA has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
(1) Background
(A) Current FINRA Rules and Guidance on Gifts
FINRA Rule 3220 (Influencing or Rewarding Employees of Others) (the
``Gifts Rule'') 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.\3\ The rule also requires members
to keep separate records of all payments or gratuities in any amount
known to the member. The rule seeks to avoid improprieties, such as
conflicts of interest, that may arise when a member or an associated
person gives items of value to an employee of another person, such as
an institutional customer, vendor or counterparty (``Institutional
Customer'') with the hope of strengthening the business relationship
with the Institutional Customer.\4\
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\3\ FINRA notes that the term ``anything of value'' is broad and
includes both cash and non-cash compensation. It would not, however,
include intangible items such as an associated person's time.
\4\ See Regulatory Notice 16-29 (August 2016) (the ``Notice'').
FINRA issued the Notice to request comment on proposed changes to
the Gifts Rule, as well as on proposed new rules regarding non-cash
compensation and business entertainment. In this filing, FINRA
proposes changes to the Gifts Rule, as well as conforming amendments
to the gift limit in Rules 2310, 2320, 2341, and 5110 (together, the
``Non-Cash Compensation Rules''). FINRA is not at this time
proposing additional changes to the Non-Cash Compensation Rules or
proposing a new rule related to business entertainment.
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Over the years, FINRA staff has issued guidance on interpretive
issues related to gifts. For example, in 2006, FINRA issued Notice to
Members (``NTM'') 06-69, which included guidance regarding the
application of the Gifts Rule to personal gifts, de minimis and
promotional items, aggregation of gifts, valuation of gifts, gifts
incidental to business entertainment, and supervision and
recordkeeping.\5\ FINRA has also issued an interpretive letter
regarding the application of the Gifts Rule to bereavement gifts,\6\
and published guidance regarding donations due to federally declared
major disasters (``Disaster-Related Donations FAQ'').\7\
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\5\ See NTM 06-69 (December 2006). In addition, FINRA has
conducted an assessment of the effectiveness and efficiency of the
Gifts Rule and Non-Cash Compensation Rules through a retrospective
rule review and requested comment on proposed rule amendments and
guidance. See Retrospective Rule Review Report: Gifts, Gratuities
and Non-Cash Compensation (December 2014) (``Retrospective Review
Report''), https://www.finra.org/sites/default/files/p602010.pdf;
Notice, supra note 4. FINRA received 17 comment letters in response
to the Notice. See infra Item II.C.
\6\ See Letter from Gary L. Goldsholle, Vice President &
Associate General Counsel, FINRA, to Amal Aly, Managing Director &
Associate General Counsel, SIFMA, dated December 17, 2007 (``Aly
Letter''), available at https://www.finra.org/rules-guidance/guidance/interpretive-letters/amal-aly-sifma-reasonable-and-customary-bereavement-gifts.
\7\ See Gifts/Business Entertainment/Non-Cash Compensation FAQs,
available at https://www.finra.org/rules-guidance/key-topics/gifts-gratuities-and-non-cash-compensation/faqs.
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(B) Overview of Proposed Rule Change
The proposed rule change is summarized here and set forth in detail
below. The proposed rule change would increase the gift limit from $100
to $250 per person per year under the Gifts Rule as well as the Non-
Cash Compensation Rules, which include an exception for gifts subject
to the same dollar limit. The proposed rule change would also provide
for exemptive relief from the Gifts Rule.
In addition, the proposed rule change would incorporate and
substantially codify existing guidance by adding supplementary material
to address gifts incidental to business entertainment, valuation of
gifts, aggregation of gifts, personal gifts, de minimis gifts and
promotional or commemorative items, donations due to federally declared
major disasters, and supervision and recordkeeping.\8\ The proposed
supplementary material also would make clear that the proposed rule
change, like the current Gifts Rule, does not apply to gifts from a
member to its own associated persons or to gifts from a member or an
associated person of a member to individual retail customers.
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\8\ By incorporating and substantially codifying existing
guidance and interpretations, the proposed rule change, if approved
by the Commission, would supersede such guidance and
interpretations.
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FINRA believes the proposed rule change would promote efficiency
without reducing protection for investors and the public interest.
Updating the gift limit as well as incorporating and substantially
codifying existing guidance and interpretations would improve
transparency, awareness, and understanding of the Gifts Rule's
requirements. FINRA believes these proposed changes would also help
facilitate compliance with the Gifts Rule.
[[Page 25675]]
(2) Proposed Changes to the Gifts Rule
The Gifts Rule prohibits any member or person associated with a
member, directly or indirectly, from giving or permitting to be given
anything of value in excess of $100 per year to any person where such
payment or gratuity is in relation to the business of the recipient's
employer. A gift of any kind is considered a gratuity. The rule also
requires members to keep separate records regarding all payments or
gratuities.\9\ As stated above, the rule seeks to avoid improprieties,
such as conflicts of interest, that may arise when a member or an
associated person gives items of value to an employee of an
Institutional Customer with the hope of strengthening the business
relationship with the Institutional Customer.\10\
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\9\ See Rule 3220(c).
\10\ See Notice, supra note 4. Whereas the Gifts Rule primarily
addresses gifts given to employees of Institutional Customers, the
Non-Cash Compensation Rules address, among other things, gifts from
a broker-dealer to persons associated with a third-party broker-
dealer (e.g., from a wholesaler to associated persons of a retail
broker-dealer) in connection with the sale and distribution of a
security covered by one of the Non-Cash Compensation Rules. Under
the Non-Cash Compensation Rules, such gifts are subject to the same
gift limit as the Gifts Rule and may not be preconditioned on
achievement of a sales target.
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The discussion below of the proposed changes to the Gifts Rule is
divided into three main topics: (A) increasing the gift limit from $100
to $250, (B) providing FINRA authority to grant exemptive relief from
the Gifts Rule for good cause shown, and (C) adding to the Gifts Rule
proposed supplementary material to incorporate existing guidance and
interpretive positions regarding (i) gifts incidental to business
entertainment, (ii) valuation of gifts, (iii) aggregation of gifts,
(iv) personal gifts, (v) de minimis gifts and promotional or
commemorative items, (vi) donations due to federally declared major
disasters, (vii) supervision and recordkeeping, and (viii) gifts to a
member's associated persons or individual retail customers.
(A) Increase Gift Limit From $100 to $250
The current gift limit of $100 has been in place since 1992.\11\ In
determining whether and how much to propose increasing the gift limit,
FINRA has considered the rate of inflation since 1992.\12\ The average
annual rate of inflation over the 32 years from 1992 until 2024 was
2.55 percent and the compound increase in consumer prices over the
period was 123.56 percent. Applying this increase to the $100 gift
limit results in a dollar value of $223.56. To account for past and
some expected future inflation, FINRA proposes to raise the gift limit
to $250. FINRA believes that the proposed $250 gift limit would
continue to permit the exchange of business courtesies while helping to
guard against excessiveness. In addition, a dollar limit, as opposed
to, for example, a principles-based approach, would provide certainty
regarding the limit for gifts and help facilitate member compliance
with the Gifts Rule.\13\ FINRA recognizes that a gift limit of $250 may
need to be further adjusted at a later date to keep pace with
inflation, among other factors. Thus, if the SEC approves the proposed
rule change, FINRA intends to review periodically the gift limit to
determine if further increases are warranted.
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\11\ In 1992, FINRA increased the gift limit from $50 to $100.
See Securities Exchange Act Release No. 31662 (December 28, 1992),
58 FR 370 (January 5, 1993) (Order Approving File No. SR-NASD-92-
40). See also Securities Exchange Act Release No. 21074 (June 20,
1984), 49 FR 26330 (June 27, 1984) (Order Approving File No. SR-
NASD-84-8) (increasing gift limit from $25 to $50).
\12\ FINRA used the annual rate of inflation data for the United
States from the Federal Reserve Bank of St. Louis website to
estimate the change in consumer prices since 1992, when the SEC
approved the increase in the limit from $50 to $100.
\13\ FINRA also proposes to make a technical change to Rule
3220(b) by removing the word ``to'' before ``compensation'' in the
first sentence of Rule 3220(b). Thus, under the proposed rule
change, Rule 3220(b) would provide ``This rule shall not apply to
contracts of employment with or compensation for services rendered
by. . .''. FINRA believes the proposed change would improve the
readability and understanding of Rule 3220(b).
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(B) Exemptive Relief
Proposed new paragraph (d) of the Gifts Rule would authorize FINRA
staff, pursuant to the FINRA Rule 9600 Series,\14\ to conditionally or
unconditionally grant an exemption from any provision of proposed Rule
3220 for good cause shown, after taking into account all relevant
factors and provided that such exemption is consistent with the
purposes of the Rule, the protection of investors, and the public
interest. Given the scope of the Gifts Rule, which applies to gifts
given to a wide range of recipients where the payment is in relation to
the business of the employer of the recipient, and given the diversity
of member sizes, structures, business, and distribution models, FINRA
believes it would be useful and appropriate to have the ability to
provide relief from a particular provision of the Gifts Rule under
specific factual circumstances.\15\
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\14\ The Rule 9600 Series provides the procedures for members
that seek exemptive relief as permitted under specified rules. See
Rules 9610 through 9630.
\15\ FINRA is also proposing to amend Rule 9610 to add the Gifts
Rule to the list of rules under which a member may seek exemptive
relief.
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(C) Supplementary Material Incorporating and Substantially Codifying
Existing Guidance and Interpretative Positions
As previously noted, FINRA staff has issued guidance on various
interpretive issues over the years related to the Gifts Rule. In 2006,
FINRA issued NTM 06-69 to clarify, among other things, the gifts that
are subject to the Gifts Rule; that members must aggregate all gifts
given by the member and its associated persons to a particular
recipient over the course of a year; the manner by which to value
gifts; and the supervision and recordkeeping requirements for
gifts.\16\ In addition, in response to inquiries regarding the Gifts
Rule, FINRA staff has published frequently asked questions \17\ and
issued interpretive letters, including a letter regarding the
application of the Gifts Rule to bereavement gifts.\18\
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\16\ See NTM 06-69, supra note 5.
\17\ Gifts/Business Entertainment/Non-Cash Compensation FAQs,
supra note 7.
\18\ See Aly Letter, supra note 6.
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The proposed rule change would incorporate and substantially codify
the existing guidance and interpretations into the Gifts Rule, which
would improve transparency, awareness, and understanding of the rule's
requirements. In addition, it would help facilitate compliance with the
proposed rule change.
(i) Proposed FINRA Rule 3220.01 (Gifts Incidental to Business
Entertainment)
Under the current guidance, there is no express exclusion from the
Gifts Rule for gifts given during the course of a business
entertainment event.\19\ FINRA proposes to continue to apply the Gifts
Rule, as proposed to be amended, to business entertainment events and
to exclude personal gifts, de minimis gifts, or promotional or
commemorative items. Therefore, FINRA proposes to add Rule 3220.01 to
provide that a gift given during the course of a business entertainment
event would be subject to the $250 limit on gifts in paragraph (a) of
the Gifts Rule unless it is a personal gift under proposed Rule 3220.04
or of de minimis value or a promotional or commemorative item under
proposed Rule 3220.05.\20\ Thus, for example,
[[Page 25676]]
giving away clothing or electronics at a business entertainment event
would be subject to the gift limit. However, pens or notepads of de
minimis value given during a business entertainment event would not be
subject to the gift limit provided the item meets the requirements of
proposed Rule 3220.05. Similarly, a decorative plaque to commemorate a
business transaction given during a business entertainment event would
not be subject to the gift limit provided the gift meets the
requirements of proposed Rule 3220.05.\21\
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\19\ See NTM 06-69, supra note 5.
\20\ As discussed below, de minimis gifts and promotional items
must have a value substantially below the $250 limit. See proposed
Rule 3220.05(a); see also infra Item II.C.(D)(v).
\21\ As discussed below, items commemorating a business
transaction must be customary and reasonable solely decorative
items. See proposed Rule 3220.05(b); see also infra Item
II.C.(D)(v). FINRA has published guidance regarding business
entertainment events held virtually rather than in-person. See
Gifts/Business Entertainment/Non-Cash Compensation FAQs, supra note
7. Proposed Rule 3220.01 would apply to gifts incidental to a
virtual business entertainment event.
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FINRA believes that gifts given incidental to a business
entertainment event, such as gift baskets or other items--including
gifts of food or beverages in quantities beyond what could reasonably
be consumed during the event--would be subject to the gift limit. For
the purpose of this limit, the cost of the business entertainment event
itself would not be included in the value of the gift.
(ii) Proposed FINRA Rule 3220.02 (Valuation of Gifts)
The current guidance states that a member should value gifts at the
higher of cost or market value, exclusive of tax and delivery
charges.\22\ Likewise, under the current guidance, when valuing tickets
to sporting or other events, a member must use the higher of cost or
face value.\23\
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\22\ See NTM 06-69, supra note 5.
\23\ See NTM 06-69, supra note 5.
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FINRA proposes to add Rule 3220.02, which would require that gifts
(other than tickets to sporting or other events) be valued at cost,
exclusive of tax and delivery charges. This would be a change from the
current guidance in NTM 06-69 which requires the valuation of gifts at
the higher of cost or market value. FINRA believes that codifying the
requirement that a member value gifts at the higher of cost or market
value would add complexity and subjectivity into the rule without
adding a significant benefit as it may be difficult or burdensome for
members and associated persons to determine the market value of such
gifts.\24\
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\24\ See infra note 82 and accompanying text (discussing
comments received in response to the Notice).
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With respect to giving tickets to sporting or other events,
consistent with the current guidance in NTM 06-69, proposed Rule
3220.02 would require that the member must use the higher of cost or
face value. For example, if a member makes a gift of a ticket to a
sporting event that it procured in the secondary market at a cost that
exceeds the ticket's face value, the value of such ticket for purposes
of the Gifts Rule would be the actual cost to the member, not the face
value of the ticket. FINRA believes it is appropriate to distinguish
tickets to sporting or other events from other gifts because such
tickets are commonly purchased on secondary markets at a cost that is
different from the face value of the ticket. In addition, the face
value of tickets to sporting or other events is typically readily
determinable and, therefore, does not raise the same concerns about the
burden and complexity of determining the higher of cost or value of the
gift.
In addition, the current guidance states that if gifts are given to
multiple recipients, members should record the names of each recipient
and calculate and record the value of the gift on a pro rata per
recipient basis for purposes of ensuring compliance with the gift
limit.\25\ FINRA proposes to substantially codify this guidance in
proposed Rule 3220.02, which FINRA believes would improve transparency,
awareness, and understanding of how to apply the gift limit in
situations where a gift, such as a gift basket, is to be shared among
multiple recipients.
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\25\ See NTM 06-69, supra note 5.
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(iii) Proposed FINRA Rule 3220.03 (Aggregation of Gifts)
Under the current guidance, members must aggregate all gifts given
by the member and each associated person of the member to a particular
recipient over the course of the year.\26\ In addition, each member
must state in its procedures whether it is aggregating all gifts given
by the member and its associated persons on a calendar year, fiscal
year, or on a rolling basis beginning with the first gift to any
particular recipient.\27\
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\26\ See NTM 06-69, supra note 5.
\27\ See NTM 06-69, supra note 5.
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Consistent with the current guidance in NTM 06-69, FINRA proposes
to add Rule 3220.03 to provide that members must aggregate all gifts
given by the member and each associated person of the member to a
particular recipient over the course of the year for purposes of
ensuring compliance with the $250 limit in paragraph (a) of the Gifts
Rule. In addition, proposed Rule 3220.03 would provide that each member
must state in its procedures whether it is aggregating all gifts given
by the member and its associated persons on a calendar year, fiscal
year, or on a rolling basis beginning with the first gift to any
particular recipient.
In NTM 06-69, FINRA indicated that aggregating all gifts given by
the member or associated person to a particular person over the course
of a year was necessary in order to comply with the Gifts Rule.\28\
FINRA continues to believe that the aggregation requirement is
necessary to avoid the potential conflicts of interest the Gifts Rule
is intended to prevent, because aggregation helps ensure that persons
who give multiple gifts in a year to the same recipient do not
circumvent the gift limit.
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\28\ See NTM 06-69, supra note 5.
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Proposed Rule 3220.03 would also provide that the aggregation
requirements do not apply to a personal gift under proposed Rule
3220.04, or to a gift of de minimis value or a promotional or
commemorative item under proposed Rule 3220.05. The purpose of the
aggregation requirement is to determine whether the value of multiple
gifts given throughout a year to a particular recipient does not exceed
the gift limit. Because de minimis, promotional, commemorative, and
personal gifts are not subject to the gift limit, they should not be
included when aggregating the value of gifts that are subject to the
limit.
(iv) Proposed FINRA Rule 3220.04 (Personal Gifts)
Under the current guidance, gifts that are given for infrequent
life events (e.g., a wedding gift or a congratulatory gift for the
birth of a child) are not subject to the restrictions in paragraph (a)
of the Gifts Rule or the recordkeeping requirements in paragraph (c) of
the rule, provided that the gifts are not in relation to the business
of the employer of the recipient.\29\ Likewise, bereavement gifts that
are customary and reasonable are not considered to be in relation to
the business of the employer of the recipient and, therefore, are not
subject to the restrictions in paragraph (a) of the Gifts Rule or the
recordkeeping requirements in paragraph (c) of the rule.\30\
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\29\ See NTM 06-69, supra note 5.
\30\ See Aly Letter, supra note 6. FINRA considers bereavement
gifts to be a type of personal gift because bereavement gifts are
given for infrequent life events. The exception for personal gifts
would not apply to gifts given for events that occur frequently, or
even annually, such as birthdays.
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In determining whether a gift is ``in relation to the business of
the employer of the recipient,'' the current guidance states that
members should consider a
[[Page 25677]]
number of factors, including the nature of any pre-existing personal or
family relationship between the person giving the gift and the
recipient, and whether the associated person paid for the gift.\31\ The
current guidance states that when the member bears the cost of the
gift, either directly or by reimbursing an associated person, FINRA
presumes that such gift is not personal in nature and instead is in
relation to the business of the employer of the recipient.\32\
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\31\ See NTM 06-69, supra note 5.
\32\ See NTM 06-69, supra note 5.
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Consistent with the current guidance, FINRA proposes to add Rule
3220.04 to provide that gifts that are given for infrequent life events
(e.g., a wedding gift, a congratulatory gift for the birth of a child,
or a bereavement gift) are not subject to the restrictions in paragraph
(a) of the Gifts Rule or the recordkeeping requirements in paragraph
(c) of the Gifts Rule, provided that the gifts are customary and
reasonable, personal in nature, and not in relation to the business of
the employer of the recipient. Consistent with the current guidance,
proposed Rule 3220.04 would provide that in determining whether a gift
is ``personal in nature and not in relation to the business of the
employer of the recipient,'' members should consider a number of
factors, including the nature of any pre-existing personal or family
relationship between the person giving the gift and the recipient, and
whether the associated person paid for the gift. It would also provide
that when the member bears the cost of the gift, either directly or by
reimbursing an associated person, FINRA presumes that such gift is not
personal in nature and instead is in relation to the business of the
employer of the recipient.
FINRA believes this exception for personal gifts is appropriate
because such gifts for infrequent life events do not typically create
the types of improper incentives that the Gifts Rule seeks to avoid
when gifts are given in relation to the business of the recipient's
employer.
(v) Proposed FINRA Rule 3220.05 (De Minimis Gifts and Promotional or
Commemorative Items)
(a) De Minimis Gifts and Promotional Items
Under the current guidance, gifts given of a de minimis value
(e.g., pens, notepads, or modest desk ornaments) or promotional items
of nominal value that display the member's logo (e.g., umbrellas, tote
bags, or shirts) are not subject to the restrictions in paragraph (a)
of the Gifts Rule or the recordkeeping requirements of paragraph (c) of
the rule.\33\ The current guidance requires the value of de minimis or
promotional items to be ``substantially below'' the current $100 gift
limit.\34\
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\33\ See NTM 06-69, supra note 5.
\34\ See NTM 06-69, supra note 5.
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Consistent with the current guidance, FINRA proposes to add
proposed Rule 3220.05(a) to provide that gifts of a de minimis value
(e.g., pens, notepads, or modest desk ornaments) or promotional items
of nominal value that display the member's logo (e.g., umbrellas, tote
bags, or shirts) are not subject to the restrictions in paragraph (a)
of the Gifts Rule or the recordkeeping requirements in paragraph (c) of
the rule.\35\ In addition, proposed Rule 3220.05(a) would provide that
the value of the de minimis gift or promotional item must be
substantially below the $250 limit.
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\35\ Expensive leather luggage and crystal pieces,
notwithstanding the presence of a firm logo, would not be eligible
for the exclusion of promotional items of nominal value.
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Gifts valued in amounts above or near $250 would not be considered
nominal. FINRA believes it is appropriate to specify that de minimis
gifts and promotional items must have a value substantially below the
proposed $250 limit because such items often have utility.\36\
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\36\ See NTM 06-69, supra note 5.
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(b) Commemorative Items
Under the current guidance, customary Lucite stones, plaques, or
other similar solely decorative items commemorating a business
transaction are not subject to the restrictions in paragraph (a) of the
Gifts Rule or the recordkeeping requirement of paragraph (c) of the
rule, even when such items have a cost of more than $100.\37\
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\37\ See NTM 06-69, supra note 5.
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Consistent with the current guidance, FINRA proposes to add
proposed Rule 3220.05(b) to provide that customary and reasonable
solely decorative items commemorating a business transaction are not
subject to the restrictions in paragraph (a) of the Gifts Rule or the
recordkeeping requirements in paragraph (c) of the rule. For example,
Lucite stones, plaques, or other similar customary and reasonable
solely decorative items commemorating a business transaction would be
excluded from the requirements of the Gifts Rule, even when such items
have a cost of more than $250.\38\
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\38\ See NTM 06-69, supra note 5.
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FINRA does not believe it is necessary to explicitly limit the
value of customary commemorative items because they must be solely
decorative. Thus, the restrictions of the Gifts Rule would apply where
the item is not solely decorative, irrespective of whether the item was
intended to commemorate a business transaction. For example, providing
employees of an Institutional Customer with elaborate electronic
equipment following the closing of a transaction would be subject to
the gift limit.
(vi) Proposed FINRA Rule 3220.06 (Donations Due to Federally Declared
Major Disasters)
FINRA has published a Disaster-Related Donations FAQ on its website
to address whether it would be consistent with the Gifts Rule for a
member or an associated person to donate goods or money (either
directly or through a fundraising platform) to employees of an
Institutional Customer for losses sustained due to a federally-declared
major disaster.\39\ As stated in the Disaster-Related Donations FAQ,
FINRA had not previously addressed the application of Rule 3220(a) to
donations to employees of an Institutional Customer to help such
individuals with losses sustained in a natural event that the President
has declared to be a major disaster, such as a wildfire, hurricane,
tornado, earthquake, or flood. Due to the nature of such disasters,
which are unpredictable and catastrophic, FINRA does not consider
donations by a member or an associated person to an employee of an
Institutional Customer to provide assistance to the individual in
connection with such a disaster to be ``in relation to the business of
the employer of the recipient'' for purposes of Rule 3220(a).\40\
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\39\ See Gifts/Business Entertainment/Non-Cash Compensation
FAQs, supra note 7.
\40\ FINRA encourages members to establish written procedures
concerning disaster-related donations to employees of Institutional
Customers. See Gifts/Business Entertainment/Non-Cash Compensation
FAQs, supra note 7.
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Consistent with the current guidance in the Disaster-Related
Donations FAQ, FINRA proposes to add Rule 3220.06 to provide that
donations by a member or an associated person to any person, principal,
proprietor, employee, agent or representative of another person to
provide assistance to the individual for losses sustained in a natural
event that the President has declared to be a major disaster, such as a
wildfire, hurricane, tornado, earthquake, or flood, are not considered
``in relation to the business of the employer of the recipient'' for
purposes of Rule 3220(a).\41\
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\41\ Solicitation of charitable contributions to an organization
exempt from federal income tax under Section 501(c)(3) of the
Internal Revenue Code is addressed in Notice to Members 06-21 (May
2006).
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[[Page 25678]]
(vii) Proposed FINRA Rule 3220.07 (Supervision and Recordkeeping)
The Gifts Rule requires separate recordkeeping of all payments or
gratuities.\42\ Rule 3110 requires a member to have a supervisory
system reasonably designed to achieve compliance with the Gifts Rule.
Under the current guidance, to meet these standards, members are
required to have systems and procedures reasonably designed to ensure
that gifts in relation to the business of the employer of the recipient
given by the member and its associated persons to employees of clients
of the member are (i) reported to the member, (ii) reviewed for
compliance with the Gifts Rule, including aggregation, and (iii)
maintained in the member's records. The current guidance in NTM 06-69
provides that such procedures should include provisions reasonably
designed to ensure that an associated person who is making a gift is
not responsible for determining whether such gift is personal rather
than in relation to the business of the recipient's employer. The
current guidance also provides that gifts of de minimis value or
promotional or commemorative items are not subject to the rule's
recordkeeping requirements.\43\
---------------------------------------------------------------------------
\42\ See Rule 3220(c).
\43\ See NTM 06-69, supra note 5.
---------------------------------------------------------------------------
Consistent with the current guidance, FINRA proposes to add
proposed Rule 3220.07 to provide that to have a supervisory system
reasonably designed to achieve compliance with the Gifts Rule, members
are required to have systems and procedures reasonably designed to
ensure that payments and gratuities in relation to the business of the
employer of the recipient given by the member and its associated
persons to employees of another person \44\ are: (i) reported to the
member; (ii) reviewed for compliance with the Gifts Rule; and (iii)
maintained in the member's records. The proposed supplementary material
would also provide that such procedures must be reasonably designed to
ensure that an associated person who is giving a payment or gratuity is
not responsible for determining whether such payment or gratuity is in
relation to the business of the recipient's employer. Rather, FINRA
believes that requiring a person other than the associated person
giving the gift to assess the nature of the gift would encourage
objectivity in the determination of whether a gift is personal.
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\44\ The Gifts Rule applies to gifts given to ``any person,
principal, proprietor, employee, agent or representative of another
person where such payment or gratuity is in relation to the business
of the employer of the recipient of the payment or gratuity.'' As
discussed above, the term ``another person'' includes an
institutional customer, vendor, or counterparty (for purposes of
this discussion, referred to collectively as ``Institutional
Customers'').
---------------------------------------------------------------------------
Consistent with the current guidance, the proposed supplementary
material would also make explicit that the recordkeeping requirements
of the Gifts Rule do not apply to gifts that are excluded from the
restrictions of the rule. Thus, the recordkeeping requirements would
not apply to personal gifts, de minimis gifts, promotional or
commemorative items, or donations due to federally declared major
disasters. Although recordkeeping is not required, members may
determine to implement a recordkeeping requirement for such gifts as
part of their supervisory system to achieve compliance with the Gifts
Rule. FINRA recognizes that there are a variety of methods for ensuring
compliance with the Gifts Rule. Members should implement a reasonable
process for assessing their individual needs and business models to
determine systems and procedures that are reasonably designed to
achieve compliance with the Gifts Rule.
(viii) Proposed FINRA Rule 3220.08 (Gifts to a Member's Associated
Persons or Individual Retail Customers)
Currently, by its terms, the Gifts Rule does not apply to gifts a
member gives to its own associated persons or to gifts a member or a
member's associated person gives to individual retail customers.
However, FINRA is aware that there may be some misunderstanding about
the scope of the Gifts Rule, particularly regarding its application to
gifts from a member or its associated persons to individual retail
customers.
To clarify the scope of the Gifts Rule and improve awareness and
understanding of its scope among members, associated persons, and
customers, FINRA is proposing to add Rule 3220.08 to state expressly
that the Gifts Rule does not apply to gifts from a member to its own
associated persons, or to gifts from a member or an associated person
to individual retail customers.
The Gifts Rule is intended to avoid improprieties, such as
conflicts of interest, that may arise when a member or an associated
person gives items of value to an employee of an Institutional Customer
with the hope of strengthening the business relationship with the
Institutional Customer.\45\ It is not intended to address potential
conflicts that may arise from a member giving a gift to its own
associated persons,\46\ or a member or an associated person giving a
gift to individual retail customers.
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\45\ See Notice, supra note 4.
\46\ Note that if a member gives non-cash compensation to an
associated person that is in connection with the sale and
distribution of securities covered by the Non-Cash Compensation
Rules, the arrangement would be governed by those rules, rather than
the Gifts Rule.
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(3) Proposed Conforming Changes to the Non-Cash Compensation Rules
The Non-Cash Compensation Rules prohibit members and their
associated persons from directly or indirectly accepting or making
payments or offers of payments of any non-cash compensation to any
person in connection with the sale of variable insurance contracts,\47\
investment company securities,\48\ direct participation programs
(``DPPs''),\49\ and the public offerings of securities.\50\ The Non-
Cash Compensation Rules currently include an exception from the
prohibition on members and associated persons directly or indirectly
accepting or making payments or offers of payments of any non-cash
compensation for gifts that do not exceed $100 per individual per year
and are not preconditioned on the achievement of a sales target.\51\
Consistent with the discussion above regarding the proposed increased
dollar limit under the Gifts Rule, FINRA proposes to raise the gift
limit under the Non-Cash Compensation Rules from $100 to $250.\52\
---------------------------------------------------------------------------
\47\ See Rule 2320(g)(4) (Variable Contracts of an Insurance
Company).
\48\ See Rule 2341(l)(5) (Investment Company Securities).
\49\ See Rule 2310(c) (Direct Participation Programs).
\50\ See Rule 5110(f) (Corporate Financing Rule--Underwriting
Terms and Arrangements).
\51\ See Rules 2310(c)(2)(A); 2320(g)(4)(A); 2341(l)(5)(A); and
5110(f)(2)(A).
\52\ FINRA notes that the proposed rule change would impact
members that have elected to be treated as capital acquisition
brokers (``CABs''), given that the CAB Rules incorporate FINRA Rule
3220 by reference. See CAB Rule 322 (Influencing or Rewarding
Employees of Others). The CAB Rules do not incorporate by reference
Rules 2310, 2320, 2341, or 5110.
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If the Commission approves the proposed rule change, FINRA will
announce the effective date of the proposed rule change in a Regulatory
Notice.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\53\ which requires, among
other things, that
[[Page 25679]]
FINRA rules must be designed to prevent fraudulent and manipulative
acts and practices, to promote just and equitable principles of trade,
and, in general, to protect investors and the public interest.
---------------------------------------------------------------------------
\53\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------
FINRA believes the proposed rule change will protect investors and
the public interest by updating the Gifts Rule. For example, the
proposal to increase the gift limit from $100 to $250 reflects the rate
of inflation and accounts for future cost increases. The proposed rule
change will also incorporate and substantially codify existing guidance
and interpretations into the Gifts Rule, which will improve
transparency, awareness, and understanding of the rule's requirements.
In addition, this may facilitate compliance with the proposed rule
change. Thus, the proposed rule change represents a significant step
toward modernizing the Gifts Rule, while codifying existing guidance in
a manner that will promote efficiency without reducing protection for
investors.
B. Self-Regulatory Organization's Statement on Burden on Competition
FINRA does not believe that the proposed rule change would result
in any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
Economic Impact Assessment
FINRA has undertaken an economic impact assessment, as set forth
below, to further analyze the need for the proposed rulemaking, the
regulatory objective of the proposal, the economic baseline of the
analysis, the economic impacts, and the alternatives considered.
(a) Regulatory Need
FINRA's retrospective review of the Gifts Rule, among other things,
concluded that this rule has been largely effective in meeting its
intended investor protection objectives, but there are certain areas
where the investor protection benefits may not align with the
associated economic costs.\54\ The retrospective review also identified
certain areas for updating and streamlining. For example, some
stakeholders suggested that a $100 gift limit was too low and that
raising the limit would not undermine the purposes of the Gifts Rule
and the Non-Cash Compensation Rules. The proposed rule change promotes
efficiency without reducing protections for investors.
---------------------------------------------------------------------------
\54\ See Retrospective Review Report, supra note 5, at 3.
---------------------------------------------------------------------------
(b) Economic Baseline
The current structure of the FINRA rules and guidance regarding
gifts serves as an economic baseline to assess the potential impacts on
members and investors. Such information on the current state of the
rules is discussed above in Self-Regulatory Organization's Statement of
the Purpose of, and Statutory Basis for the Proposed Rule Change,
respectively.
FINRA's retrospective review provides some information on the
practice of giving gifts at the time of the review. The report provides
survey results based on the responses of about 600 member firms.\55\ As
of 2014, the survey showed that most members responding to the survey
spent some amount on gifts, as well as business entertainment and other
non-cash compensation. However, except for the very largest members
(i.e., exceeding $100 million in annual revenue) and a few members with
annual revenue between $10 million and $100 million, survey respondents
generally did not spend more than $10,000 in total on gifts in 2013.
---------------------------------------------------------------------------
\55\ See Retrospective Review Report, supra note 5, at 6 (Figure
1).
---------------------------------------------------------------------------
The proposed amendments would impact members and associated
persons. Using FINRA registration data, as of December 31, 2024, there
were approximately 649,000 broker-dealer registered persons, of which
approximately 530,000 are associated with large firms, approximately
58,000 are associated with mid-size firms, and approximately 61,000 are
associated with small firms. The proposed amendments would also impact
associated persons who are not broker-dealer registered persons.
Information from other FINRA data suggests that there are approximately
the same number of non-registered associated persons as registered
persons.
(c) Economic Impact
The proposed amendments would directly impact members that
regularly engage in gift giving. The increase in the gift limit from
$100 to $250 per person per year in the Gifts Rule, and the conforming
changes to the gift exception to the Non-Cash Compensation Rules,
reflects the rate of inflation since adoption of the $100 gift limit
and accounts for future cost increases. Thus, the increase would
somewhat restore the historical balance between the economic benefits
of developing relationships and goodwill through gifts and the
potential for conflicts of interest.\56\ However, because the proposal
would impose the same requirements for firms of all sizes, smaller
firms with fewer resources may not benefit from the increase as much as
larger firms.\57\
---------------------------------------------------------------------------
\56\ See Ying Fan, Promoting Business with Corporate Gifts--
Major Issues and Empirical Evidence, Corporate Communication: An
International Journal, 2006. 11:1, 43-55, https://bura.brunel.ac.uk/bitstream/2438/1284/3/Corporate+gifts-1.pdf.
\57\ See Retrospective Review Report, supra note 5, at 9
(``[S]everal respondents provided comments stating that an industry-
wide standard (i.e., `one-size-fits-all' approach) . . . may have
unintended negative consequences, particularly for small firms.'').
---------------------------------------------------------------------------
The codification of current guidance regarding personal gifts, de
minimis gifts, promotional or commemorative items, and disaster-related
donations, including that members would not have to keep records of
such gifts given, should provide regulatory certainty.\58\ Regulatory
certainty allows for longer-term investments in compliance processes
and systems, mitigating costs. As discussed above, FINRA has excluded
some gifts, such as personal gifts and disaster-related donations,
among others, from the restrictions and recordkeeping requirements of
the Gifts Rule because such gifts do not typically create the types of
improper incentives that the Gifts Rule seeks to avoid when gifts are
given in relation to the business of the recipient's employer.\59\
Thus, the expected costs of recordkeeping for such gifts (which include
time spent by the gift givers and member compliance staff) outweigh the
benefits of doing so.\60\
---------------------------------------------------------------------------
\58\ See proposed Rule 3220.04, 3220.05, 3220.06 and 3220.07.
\59\ See supra Item II.A.1.(2)(C)(vii).
\60\ See Retrospective Review Report, supra note 5, at 4
(``Stakeholders indicated that due to the technology, recordkeeping,
training and personnel costs associated with ensuring compliance
with the rules' requirements, the costs and benefits may not be
aligned.'').
---------------------------------------------------------------------------
The proposed codification of existing guidance in supplementary
material should also reduce costs associated with supervision by
improving transparency, awareness, and understanding of the rule's
requirements. Further, as discussed above with respect to gift
valuation, the proposed rule change would require that gifts (other
than tickets to sporting or other events) be valued at cost, exclusive
of tax and delivery charges. This proposed change from the current
guidance in NTM 06-69, which requires the valuation of gifts at the
higher of cost or market value, should further reduce compliance costs
associated with the complexity, subjectivity, and burden that may
sometimes arise in determining a gift's
[[Page 25680]]
market value.\61\ In situations where a gift's market value is higher
than its cost, this proposed change in valuation method may effectively
allow a member or associated person to increase the value of gifts
given (e.g., an item that costs $250 may have a market value greater
than $250). FINRA believes any such occurrence is likely to be rare,
especially since situations in which market value exceeds costs occur
mostly with respect to tickets to sporting or other events, which would
continue to be valued at the higher of cost or face value. Thus,
investor protections are not expected to be meaningfully affected.
---------------------------------------------------------------------------
\61\ See supra Item II.A.1.(2)(C)(ii).
---------------------------------------------------------------------------
(d) Alternatives Considered
FINRA considered a principles-based approach to the gift limit and
determined that retaining a dollar-based gift limit would better serve
the intended objective of the Gifts Rule that is consistent with
investor protection by establishing a bright line standard that
facilitates compliance, coupled with anti-evasion provisions.
Alternative gift limits were considered in 2016 and FINRA at the time
proposed to increase the limit from $100 to $175 per person per year as
the proposed limit took into account the rate of inflation since
adoption of the $100 gift limit. However, after considering the
comments and with the additional passage of time, FINRA believes a $250
limit would be appropriate, taking into account the rate of inflation
since adoption of the $100 gift limit and potential future cost
increases. As mentioned earlier in Item 3(a)(2)(A) of this proposed
rule change, FINRA recognizes, however, that a gift limit of $250 may
need to be further adjusted at a later date to keep pace with
inflation, among other factors. Thus, if the SEC approves the proposed
rule change, FINRA intends to review periodically the gift limit to
determine if further increases are warranted.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
In August 2016, FINRA published Regulatory Notice 16-29, requesting
comment on proposed amendments to the Gifts Rule, among other
things.\62\ A copy of the Notice is available on FINRA's website at
http://www.finra.org. A list of the comment letters received in
response to the Notice and copies of the comment letters received in
response to the Notice are available on FINRA's website.\63\ FINRA
received 17 comments in response to the Notice. Commenters were
generally supportive of the proposed rule change but also expressed
some concerns.
---------------------------------------------------------------------------
\62\ See supra note 4.
\63\ See SR-FINRA-2025-003 (Form 19b-4, Exhibit 2b) for a list
of abbreviations assigned to commenters (available on FINRA's
website at http://www.finra.org).
---------------------------------------------------------------------------
Material comments related to the proposed changes to the Gifts Rule
and FINRA's responses are set forth in detail below.
(A) Gift Limit
In the Notice, FINRA proposed to increase the gift limit from $100
to $175 per person per year. The proposed increase in the gift limit to
$175 took into account the rate of inflation since adoption of the $100
gift limit.\64\
---------------------------------------------------------------------------
\64\ Using the same methodology described supra note 12, FINRA
staff had determined at the time that the inflation-adjusted gift
limit from 1992 to 2016 rose from $100 to $174.03.
---------------------------------------------------------------------------
FINRA received a number of comment letters in response to the
proposed changes to the Gifts Rule.\65\ The commenters were generally
supportive of increasing the gift limit and several commenters
suggested that the gift limit be increased more than $175.\66\ For
example, NAIFA noted that the ``current limit of $100 has been in place
since 1992, and does not reflect the steady increases in costs and
prices which have taken place since that year.'' Therefore, NAIFA
``recommend[ed] that the dollar limit for gifts . . . be increased to
$300.'' Other commenters recommended the gift limit be set at $200,\67\
$250,\68\ $275,\69\ $300,\70\ or $350.\71\
---------------------------------------------------------------------------
\65\ See, e.g., ABA, BDA, CAI, Commonwealth, First Asset
Financial, FSI, NAIFA, PIRC, Securities Center, SIFMA, WFA and
Woodforest.
\66\ See, e.g., ABA, CAI, Commonwealth, First Asset Financial,
FSI, NAIFA, Securities Center, SIFMA, WFA, and Woodforest.
\67\ See, e.g., BDA, CAI, Securities Center, and WFA.
\68\ See, e.g., ABA and SIFMA.
\69\ See, e.g., First Asset Financial.
\70\ See, e.g., FSI and NAIFA.
\71\ See, e.g., Commonwealth.
---------------------------------------------------------------------------
However, some commenters did not support the increase.\72\ BDA
urged FINRA to leave the gift limit unchanged at $100. PIRC stated that
it advocated for a limit of $0 to avoid unacceptable conflicts of
interest; however, at a minimum, PIRC stated that it supported
maintaining the $100 limit.
---------------------------------------------------------------------------
\72\ See, e.g., BDA and PIRC.
---------------------------------------------------------------------------
Some commenters suggested a principles-based approach to the gift
limit.\73\ FSI stated that a ``principles-based approach would allow
firms to tailor their compliance to more accurately take into account
the economic differences between geographic areas.'' ABA recommended a
two-pronged approach that would allow for a principles-based standard
for gifts above a specified limit. CAI recommended embedding in the
rule a formalized recalculation that would allow for increases to the
limit on a periodic basis.
---------------------------------------------------------------------------
\73\ See, e.g., FSI and SIFMA.
---------------------------------------------------------------------------
After considering the comments and for the reasons discussed above,
FINRA believes it is appropriate at this time to propose raising the
gift limit to $250.\74\
---------------------------------------------------------------------------
\74\ See supra Item II.A.1.(2)(A).
---------------------------------------------------------------------------
(B) Gifts Received
The Gifts Rule applies only to gifts a member or an associated
person gives to employees of other persons. It does not apply to gifts
a member or its associated persons receive from such employees or
persons. FINRA sought comment in the Notice on the scope of the Gifts
Rule and whether it should be extended to apply to gifts received by a
member or associated person as well as gifts given.
The majority of the commenters supported the continued application
of the Gifts Rule to gifts given by a member or associated person but
not to gifts they receive.\75\ The majority of the commenters did not
believe that a member or associated person receiving gifts presented
the same potential for conflicts of interest as gifts they give.\76\
WFA noted that ``[m]ember firms should already have detailed policies
and procedures to adequately address the receipt of gifts by team
members. Adding further industry regulations, including recordkeeping
requirements, is unnecessary and burdensome.'' ABA noted that ``FINRA
member firms have voluntarily adopted policies regarding the receipt of
gifts by member firm personnel. Nonetheless, [the ABA] believe[s] an
across-the-board requirement to limit the receipt of gifts is
unnecessary . . .'' PIRC disagreed, however, believing the receipt of
gifts by a member or its associated persons ``. . . raise similar
conflicts of interest and improper incentives concerns as those given
to a member firm or its associated persons.''
---------------------------------------------------------------------------
\75\ See, e.g., ABA, First Asset Financial, PIRC, WFA, and
Woodforest.
\76\ See, e.g., ABA, First Asset Financial, WFA, and Woodforest.
---------------------------------------------------------------------------
FINRA notes that the Non-Cash Compensation Rules impose limits on
gifts received where the gifts are made in connection with the sale and
distribution of DPPs, variable insurance contracts, investment company
securities, or public offerings of securities.\77\ By contrast, the
Gifts Rule applies to gifts given in relation to the
[[Page 25681]]
business of the employer of the recipient. Thus, the Gifts Rule is
intended to address a different concern--that is, the relationship with
an Institutional Customer--than the Non-Cash Compensation Rules, which
apply to gifts made in connection with the sale and distribution of
certain products. Due to this difference and after considering the
comments, FINRA has determined to retain the current scope of the Gifts
Rule rather than to propose to apply it to gifts received by members
and associated persons.\78\
---------------------------------------------------------------------------
\77\ See Rule 2310(c)(2)(A); Rule 2320(g)(4)(A); 2341(l)(5)(A);
5110(f)(2)(A).
\78\ FINRA notes that a member's policies and procedures may
restrict or prohibit gifts received in contexts other than the sale
and distribution of securities.
---------------------------------------------------------------------------
(C) FINRA Rule 3220(b)
Rule 3220(b) provides that the Gifts Rule ``shall not apply to
contracts of employment with or to compensation for services rendered
by persons enumerated in paragraph (a) provided that there is in
existence prior to the time of employment or before the services are
rendered, a written agreement between the member and the person who is
to be employed to perform such services.'' The purpose of paragraph (b)
is to exclude from the gift limit contracts of employment or contracts
for services to be rendered by an individual who is also an employee,
agent, or representative of a third-party firm. To rely on this
exclusion, however, there needs to be a written agreement documenting
the individual's employee or services relationship with the member. It
does not require that the contract establish a statutory employer-
employee (``W2'') relationship; rather, it envisions that the agreement
may instead document an independent contractor relationship between the
individual and member.
In the Notice, FINRA did not propose substantive changes to Rule
3220(b). However, ABA raised concerns that the rule ``is confusing as
written and may have unintended consequences'' noting that typically
firms ``do not enter into formal employment contracts with . . . `dual
employees' or may engage persons as `independent contractors' and not
statutory `W2' employees . . .'' ABA stated, ``[i]t is not clear to
[ABA] that this provision adequately addresses such arrangements and,
indeed, may be read as requiring formal employment arrangements and
employment contracts, which is not the norm, particularly for lower-
level personnel.'' ABA suggested that ``this provision be modified and
simplified to exclude compensation provided under such circumstances if
the other employer is notified of the arrangement . . . and does not
object to the employee continuing in a dual capacity.''
While FINRA acknowledges the commenter's concern, FINRA continues
to believe that for purposes of complying with Rule 3220(b), a written
agreement is needed to verify the existence of an employee or services
relationship with a person who is also ``a person, principal,
proprietor, employee, agent or representative of another person''
(emphasis added). Thus, FINRA has determined to retain the current
application of Rule 3220(b), which does not apply to gifts given to
traditional employees, independent contractors, or dual employees who
are employed by a member and by an affiliated or unaffiliated third
party, provided there is a written agreement in place between the
member and the employee, independent contractor, or dual employee.
(D) Supplementary Material Incorporating Existing Guidance and
Interpretative Positions
In the Notice, FINRA proposed to incorporate the guidance in NTM
06-69, as well as its interpretation regarding the application of the
Gifts Rule to bereavement gifts, into proposed Rule 3220 as
supplementary material. The comments received in response to the
supplementary material proposed in the Notice are discussed below.
(i) Proposed Supplementary Material Regarding Gifts Incidental to
Business Entertainment
In the Notice, FINRA proposed in supplementary material that there
is no express exclusion from the restrictions in paragraph (a) of the
Gifts Rule for gifts given during the course of business entertainment,
unless the gift is of de minimis value, or a promotional or
commemorative item. FINRA did not receive any comments on this proposed
supplementary material.
As discussed above, proposed Rule 3220.01 would make clear that the
prohibition in paragraph (a) of the Gifts Rule does not apply to any
gift given in compliance with proposed Rule 3220.04 (Personal Gifts)
and 3220.05 (De Minimis Gifts and Promotional or Commemorative
Items).\79\ Thus, if a gift qualifies for one of these exceptions,
paragraph (a) of the Gifts Rule would not apply to these gifts even if
given during the course of a business entertainment event.
---------------------------------------------------------------------------
\79\ See supra Item II.A.1.(2)(C)(i).
---------------------------------------------------------------------------
(ii) Proposed Supplementary Material Regarding Valuation of Gifts
In the Notice, FINRA proposed in supplementary material to codify
existing guidance regarding the Gifts Rule that gifts must be valued at
the higher of cost or market value, exclusive of tax or delivery
charges.\80\ In addition, FINRA proposed to codify existing guidance
that when valuing tickets to sporting or other events, a member must
use the higher of cost or face value.\81\
---------------------------------------------------------------------------
\80\ See NTM 06-69, supra note 5.
\81\ See NTM 06-69, supra note 5.
---------------------------------------------------------------------------
Several commenters to the Notice stated that requiring market value
for the valuation of gifts would add unnecessary complexity and
subjectivity into the rule without adding a benefit.\82\ For example,
ABA stated that ``the requirement to determine a `market value' for a
gift item is too difficult and costly a burden . . .''
---------------------------------------------------------------------------
\82\ See, e.g., ABA, First Asset Financial and NAIFA.
---------------------------------------------------------------------------
After considering the comments and as discussed above, FINRA has
modified proposed Rule 3220.02 to require that gifts be valued at cost,
exclusive of tax and delivery charges, thereby eliminating the
requirement to value gifts at market value.\83\ Also as discussed
above, consistent with existing guidance, proposed Rule 3220.02 would
retain the requirement that gifted tickets for sporting or other events
are to be valued at the higher of face value or actual cost paid by the
member or associated person.\84\
---------------------------------------------------------------------------
\83\ See supra Item II.A.1.(2)(C)(ii).
\84\ See supra Item II.A.1.(2)(C)(ii).
---------------------------------------------------------------------------
(iii) Proposed Supplementary Material Regarding Aggregation of Gifts
In the Notice, FINRA proposed in supplementary material to codify
existing guidance regarding the Gifts Rule that members must aggregate
all gifts given by the member and each associated person of the member
to a particular recipient over the course of the year.\85\ In addition,
each member must state in its procedures whether it is aggregating all
gifts given by the member and its associated persons on a calendar
year, fiscal year, or on a rolling basis beginning with the first gift
to any particular recipient.\86\
---------------------------------------------------------------------------
\85\ See NTM 06-69, supra note 5.
\86\ See NTM 06-69, supra note 5.
---------------------------------------------------------------------------
FINRA received one comment opposing the proposed aggregation
requirement.\87\ WFA stated that it believed it would be extremely
difficult to collectively document gifts given across WFA by individual
team members to specific recipients. WFA
[[Page 25682]]
proposed a gifting policy that would apply individually for each
instance of an exchange between a specific offeror and a specific
recipient and would not require the aggregation of all gifts to a
single recipient.
---------------------------------------------------------------------------
\87\ See WFA.
---------------------------------------------------------------------------
For the reasons discussed above, proposed Rule 3220.03 would
require aggregation consistent with the current guidance in NTM 06-
69.\88\
---------------------------------------------------------------------------
\88\ See supra Item II.A.1.(2)(C)(iii).
---------------------------------------------------------------------------
In addition, FINRA received comments requesting clarification
regarding the application of the aggregation requirements.\89\ For
example, NAIFA stated that it ``should be expressly stated that
bereavement, personal and [de minimis] gifts are not to be included
when calculating the aggregation of gifts . . . .'' SIFMA also
recommended that FINRA clarify that gifts excluded from the Gifts Rule
under the proposed supplementary material are excluded from the
aggregation requirement.
---------------------------------------------------------------------------
\89\ See, e.g., NAIFA and SIFMA.
---------------------------------------------------------------------------
After considering the comments, and for the reasons discussed
above, proposed Rule 3220.03 would explicitly exclude from the
aggregation requirement gifts meeting the requirements of proposed Rule
3220.04 (Personal Gifts) and 3220.05 (De minimis Gifts and Promotional
or Commemorative Items).\90\
---------------------------------------------------------------------------
\90\ See supra Item II.A.1.(2)(C)(iii).
---------------------------------------------------------------------------
(iv) Proposed Supplementary Material Regarding Bereavement Gifts and
Personal Gifts
In the Notice, FINRA proposed in supplementary material to
substantially codify its existing interpretive position regarding the
Gifts Rule that bereavement gifts that are customary and reasonable are
not considered to be in relation to the business of the employer of the
recipient and, therefore, are not subject to the restrictions in
paragraph (a) of the Gifts Rule or the recordkeeping requirements in
paragraph (c) of the rule.\91\ FINRA did not receive any comments on
the proposed supplementary material regarding bereavement gifts.
---------------------------------------------------------------------------
\91\ See Aly Letter, supra note 6.
---------------------------------------------------------------------------
Also in the Notice, FINRA proposed in supplementary material that
gifts given for infrequent life events (e.g., a wedding gift or a
congratulatory gift for the birth of a child) are not subject to the
restrictions in paragraph (a) of the Gifts Rule or the recordkeeping
requirements in paragraph (c) of the rule, provided the gifts are
customary and reasonable, personal in nature, and not in relation to
the business of the employer of the recipient. In addition, the
proposed supplementary material stated that, in determining whether a
gift is ``personal in nature and not in relation to the business of the
employer of the recipient,'' members should consider a number of
factors, including the nature of any pre-existing personal or family
relationship between the person giving the gift and the recipient and
whether the associated person paid for the gift. When the member bears
the cost of the gift, either directly or by reimbursing an associated
person, FINRA presumes that such gift is not personal in nature and
instead is in relation to the business of the employer of the
recipient.
FINRA received two comments requesting further clarification on the
application of the personal gift exclusion.\92\ SIFMA stated that the
proposed language could be read to ``limit[ ]'' personal gifts to those
given for infrequent life events, whereas SIFMA read NTM 06-69 more
broadly than the proposed supplementary material: ``[t]he guidance in
Notice to Members 06-69 . . . was more broadly written, noting that
`[t]he prohibitions in Rule 3060 generally do not apply to personal
gifts such as a wedding gift or a congratulatory gift for the birth of
a child, provided that these gifts are not ``in relation to the
business of the employer of the recipient.'' ' '' SIFMA requested that
the proposed supplementary material be revised to align with NTM 06-69.
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\92\ See SIFMA and Woodforest.
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Woodforest recommended revising the proposed supplementary material
to remove the last sentences stating that ``[i]n the first several
sentences the rule seems to allow a member firm to give a personal gift
for occasional life events.'' However, Woodforest stated that this
ability is negated by the last sentence, which notes that if the member
reimburses the associated person or pays for the gift, it is presumed
that it is not a personal gift.
FINRA has determined not to revise the proposed supplementary
material as suggested by the commenters. The purpose of the exclusion
for personal gifts is to eliminate the restrictions and recordkeeping
requirements for gifts that are personal in nature and commemorate an
infrequent life event because such gifts do not typically create the
types of improper incentives that the Gifts Rule seeks to avoid when
gifts are given in relation to the business of the recipient's
employer. The exclusion is not intended to cover gifts given for events
that occur frequently or even annually, such as birthdays. FINRA
believes that proposed Rule 3220.04 is consistent with, and not
narrower than, the guidance in NTM 06-69.
(v) Proposed Supplementary Material Regarding De Minimis Gifts and
Promotional or Commemorative Items
In the Notice, FINRA proposed in supplementary material to codify
its existing interpretive position in NTM 06-69 regarding de minimis
gifts and promotional or commemorative items, and to establish a dollar
threshold for de minimis gifts and promotional items. Thus, in the
Notice, the proposed supplementary material provided that: ``(a) Gifts
of a de minimis value (e.g., pens, notepads or modest desk ornaments)
or promotional items of nominal value that display the member's logo
(e.g., umbrellas, tote bags or shirts) are not subject to the
restrictions in paragraph (a) of [the Gifts] Rule provided that the
value of the gift or promotional item is below $50. (b) Customary
Lucite stones, plaques or other similar solely decorative items
commemorating a business transaction are not subject to the
restrictions in paragraph (a) of [the Gifts] Rule. The restrictions of
[the Gifts] Rule shall apply, however, where the item is not solely
decorative, irrespective of whether the item was intended to
commemorate a business transaction.''
With respect to the exclusion for de minimis gifts and promotional
items, commenters to the Notice were generally supportive of the
proposed supplementary material, but some commenters disagreed as to
the appropriate dollar threshold, as to whether the threshold applies
to commemorative items, and as to the application of the Gifts Rule
when there is a pattern of giving de minimis gifts or promotional items
in order to circumvent the Gift Rule's restrictions.
Commenters did not agree on what the appropriate dollar threshold
should be for these items.\93\ For example, Woodforest and WFA
supported a $50 de minimis threshold. First Asset Financial supported a
$100 de minimis threshold due to the cost of recordkeeping and because
the rule has not been updated in many years. NAIFA and FSI also
supported a $100 threshold. FSI noted that the de minimis ``exception
may ultimately become meaningless, because the proposed level is so low
that firms will have to assume the value of the gift is more than $50,
and firms would be disclosing all gifts received, which is not the
intent of the
[[Page 25683]]
rule.'' However, PIRC stated that the threshold should be lower at $25
to ``ensure that such gifts are truly of nominal value and that the
lack of recording those gifts will not adversely affect investors.''
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\93\ See, e.g., First Asset Financial, FSI, NAIFA, PIRC, WFA,
and Woodforest.
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After considering the comments and as discussed above, FINRA
believes that rather than establishing a dollar threshold at this time,
it is appropriate to codify the current guidance that the value of
gifts under this exclusion must be substantially below the gift limit,
which is $250 as proposed.\94\ Examples of gifts of de minimis value
include pens, notepads, or modest desk ornaments.
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\94\ See supra Item II.A.1.(2)(C)(v)(a).
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SIFMA requested clarification regarding the value for promotional
or commemorative items. As discussed above, FINRA believes it is
appropriate to make clear that the value of promotional items must be
substantially below the $250 limit because promotional items typically
have utility (e.g., umbrellas, tote bags, or shirts). By contrast,
FINRA does not believe it is necessary to explicitly limit the value of
customary commemorative items, so long as they are reasonable, because
such gifts are solely decorative.\95\
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\95\ See supra Items II.A.1.(2)(C)(v)(b).
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FINRA also received comments regarding its statement in the Notice
that a member or its associated persons may not engage in patterns of
providing de minimis gifts or promotional items in order to circumvent
the Gifts Rule's restrictions.\96\ Both WFA and ABA raised concerns
about this statement. ABA noted that ``in order to comply with this
requirement, member firms will still need to employ a reporting and
recordkeeping mechanism designed to monitor gifts given that are under
$50 in value so that questionable patterns can be identified and
appropriately addressed.''
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\96\ See Notice, supra note 4, at 12 n.11.
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FINRA made clear in the Notice that giving numerous de minimis
gifts in order to avoid the limitations of the Gifts Rule would be
considered a violation of the Gifts Rule. However, FINRA did not intend
to suggest that there is a bright line for determining when a pattern
of giving promotional items or de minimis gifts arises to a violation
of the Gifts Rule's restrictions. Whether a member or associated person
engages in a pattern of giving promotional items or de minimis gifts
that are designed to evade or that may result in a violation of the
Gifts Rule's restrictions would depend on the facts and circumstances,
including for example, whether the frequency of gifting promotional
items or de minimis gifts that are each substantially below the $250
limit appears to be for the purpose of circumventing the $250 gift
limit.
(vi) Proposed Supplementary Material Regarding Supervision and
Recordkeeping
In the Notice, FINRA proposed in supplementary material to codify
existing guidance in NTM 06-69 that members must have systems and
procedures reasonably designed to ensure compliance with the Gifts Rule
as well as Rule 3110.\97\
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\97\ See NTM 06-69, supra note 5.
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FINRA did not receive any comments on the proposed supplementary
material. However, FINRA has modified the supplementary material in the
proposed rule change to make clear that the procedures must be
reasonably designed to ensure that an associated person who is giving a
payment or gratuity is not responsible for determining whether such
payment or gratuity is in relation to the business of the recipient's
employer. As discussed above, FINRA believes that requiring a person
other than the associated person giving the gift to assess the nature
of the gift would encourage objectivity in the determination of whether
a gift is personal.\98\
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\98\ See supra Item II.A.1.(2)(C)(vii).
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In addition, FINRA has further modified the proposed supplementary
material in the proposed rule change to make clear that the
recordkeeping requirements of the rule do not apply to gifts that are
excluded from the restrictions of the rule (i.e., personal gifts, de
minimis gifts, promotional or commemorative items, and disaster-related
donations).\99\ As noted above, these proposed amendments substantially
codify existing guidance regarding the Gifts Rule.\100\
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\99\ See supra Item II.A.1.(2)(C)(vii).
\100\ See NTM 06-69, supra note 5.
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(vii) Proposed Supplementary Material Regarding Gifts to a Member's
Associated Persons or Individual Retail Customers
In the Notice, FINRA sought comment on whether the Gifts Rule
should apply to gifts a member gives to its own associated persons or
to gifts a member or a member's associated person gives to individual
retail customers. All of the comments received regarding this question
supported the current application of the rule.\101\ For example, ABA
stated that ``[g]ifts from employers to employees are quite common and
we do not believe over-arching rules prohibiting or limiting such
activity are necessary or appropriate. . . . [G]ifts given by member
firm[s] to incentivize inappropriate behavior by member firm personnel
would be addressed by other rules applicable to member firms.''
However, FSI stated that further clarity is needed because ``many, and
perhaps even the majority, of FINRA member firms have interpreted this
rule to apply to gifts given by financial advisors to their individual
retail clients . . . FSI therefore suggests that FINRA include a clear
definition of the application of the rule by explicitly stating in the
rule text that it does not apply to gifts given by individual
registered financial advisors associated with a FINRA member firm to
their individual retail clients.''
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\101\ See, e.g., ABA, First Asset Financial, FSI, and
Woodforest.
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As discussed above, FINRA proposes to make this current application
of the Gifts Rule explicit in proposed Rule 3220.08.\102\
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\102\ See supra Item II.A.1.(2)(C)(viii).
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III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-FINRA-2025-003 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
[[Page 25684]]
All submissions should refer to File Number SR-FINRA-2025-003. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10 a.m. and 3
p.m. Copies of such filing also will be available for inspection and
copying at the principal office of FINRA. Do not include personal
identifiable information in submissions; you should submit only
information that you wish to make available publicly. We may redact in
part or withhold entirely from publication submitted material that is
obscene or subject to copyright protection.
All submissions should refer to file number SR-FINRA-2025-003 and
should be submitted on or before July 8, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\103\
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\103\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-10978 Filed 6-16-25; 8:45 am]
BILLING CODE 8011-01-P