S6:E14 | Recent Rulemaking – OBAs, Custody, and Pay-To-Play | Compliance in Context

Welcome back to the Compliance In Context podcast! On today’s show, we will be exploring some recent rulemaking from both FINRA and SEC, focusing on what has changed, why it matters, and what securities legal and compliance professionals should be thinking about now. In our Headlines section, the SEC recently released its 2027 examination priorities from the Division of Exams and the CFTC and SEC sign a memorandum of understanding to protect the integrity of pro basketball in prediction markets. And finally, we close up today with another installment of History Has Your Back, where we examine what the life of an intrepid Polynesian wayfinder can teach us about navigating the sometimes choppy waters of compliance.

Show

Headlines

• SEC Division of Examinations releases 2027 Examination Priorities
• The CFTC and the NBA signed a Memorandum of Understanding (MOU) to protect the integrity of professional basketball in prediction markets

Interview with Andrew Mount and Issa Hanna

• Reviewing new FINRA Rule 3290: Outside Activities
• What problem is FINRA trying to solve with the new outside-activities framework?
• What are the most important differences between new Rule 3290 and former Rules 3270 and 3280?
• Evaluating the SEC’s Custody Rule Proposal
• How does this proposal differ from the SEC’s prior safeguarding proposal?
• What does the proposal tell us about the SEC’s current philosophy toward custody regulation?
• Examining the SEC’s Pay-to-Play Rule Proposal
• Why is the SEC considering rescission of Rule 206(4)-5, rather than simply amending or modernizing it?
• What practical problems with the existing rule appear to be driving the SEC’s reconsideration?
• With all the recent rulemaking, what are some best practices compliance officers should keep in mind moving forward?

History Has Your Back

• Examining the life of “Papa” Mau Piailug and what the journey of the Hōkūleʻa can teach us about navigating the choppy waters of regulatory compliance

Quotes

12:25–13:10: “It captures a wide range of activities, both investment-related and not. It captures activities like refereeing sports games, driving for a car service, Ubering, bartending, things that really have no or very, very, very little impact on the work that that person is doing with the broker-dealer that they're registered with. So through this proposal, what FINRA's looking to do is really eliminate all this white noise that compliance departments have had to deal with in reviewing, or first intaking OBAs related to non-investment-related activities, reviewing them, and maintaining records related to them.” – Andrew Mount

20:01–20:34: “And now we don’t have to answer that question because FINRA, through this new rulemaking, has changed that setup. So hybrid RIA activity is no longer gonna be treated as an outside securities transaction. It's gonna be treated as an outside activity. So you'll have to have that activity reported to you, and you'll have to assess it up front. But once you've assessed it up front, you do not have to engage in that ongoing supervision and review and documentation of transactions, and that's a huge change in that space.” – Andrew Mount

44:48–45:30: “If and when this does get adopted, there are going to be some, you know, some updates to your policies and procedures that are going to be very nuanced, you know, that are doing to require a fair amount of surgical precision to make sure that you do get right. You know, and that all the kind of conditions and pitfalls and little exceptions associated with every single, you know, piece of relief here is reflected in those policies and procedures because, as I mentioned earlier, a lot of these, you know, a lot of these changes are coming with significant conditions that are very, very detailed. – Issa Hanna