FINRA Rule 3290: What BD Compliance Changes Mean for Funds

FINRA Rule 3290: What BD Compliance Changes Mean for Funds

FINRA filed Amendment No. 1 to proposed Rule 3290 on May 6, 2026, consolidating outside business activity requirements previously governed by Rules 3270 and 3280. The modernization reduces redundant disclosure obligations for registered representatives while increasing attestation burdens for broker-dealer compliance officers and fund managers operating hybrid advisory-BD structures.

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Why Did FINRA Consolidate Rules 3270 and 3280?

Rules 3270 (Outside Business Activities) and 3280 (Private Securities Transactions) created overlapping disclosure requirements that confused registered representatives and compliance departments. A broker selling limited partnership interests to accredited investors technically triggered both rules—one for the outside activity, another for the private transaction.

The SEC's approval of Rule 3290 eliminates this duplication. Registered persons now file a single outside activity notice covering both employment-based activities and private securities transactions. The change doesn't alter what activities require disclosure. It streamlines how those activities get reported.

For fund managers raising capital through broker-dealer affiliates, this matters. Previously, a GP with a Series 7 license raising a $20M fund filed separate notices for the management company (Rule 3270) and the capital raise (Rule 3280). Under Rule 3290, both disclosures merge into one filing with enhanced detail requirements.

What Activities Still Require Disclosure Under Rule 3290?

Rule 3290 maintains the existing scope of reportable activities. Registered representatives must disclose any business activity outside their broker-dealer employment, including:

• Operating as a general partner or managing member of a private fund
• Serving on boards of portfolio companies or investment vehicles
• Consulting arrangements that compensate based on capital raised
• Real estate syndications structured as securities offerings
• Equity compensation from startups in exchange for advisory services

The rule also covers private securities transactions—selling or facilitating the sale of securities outside the broker-dealer's normal business. This includes introducing investors to Regulation D offerings, even without formal compensation arrangements.

What changed: the notification form now requires detailed attestations about conflicts of interest, time commitment estimates, and compensation structures. A broker-dealer compliance officer must certify the firm reviewed the outside activity for conflicts before the registered person engages in it.

How Does Rule 3290 Affect Hybrid Fund Structures?

Many emerging fund managers operate hybrid structures: an RIA managing the fund, a broker-dealer affiliate raising capital. The registered representative works for both entities. Under the old framework, this person filed Rule 3270 notices for the RIA employment and Rule 3280 notices for capital-raising activities.

Rule 3290 collapses these into a single disclosure. The tradeoff: more granular detail requirements. The new form asks for:

• Estimated hours per week devoted to the outside activity
• All sources and amounts of compensation tied to the activity
• Whether the activity creates conflicts with the broker-dealer's business
• Whether the activity involves selling securities to the firm's customers

For fund managers, this means documenting time allocation between RIA duties (portfolio management, due diligence) and BD duties (investor solicitation, placement activities). A GP spending 30 hours weekly on fund operations must disclose this to the BD compliance team—and attest the time commitment doesn't interfere with BD obligations.

The change reduces friction for straightforward structures. A solo GP raising a $5M angel fund through a small broker-dealer files one notice instead of two. But for complex operations—GPs managing multiple funds, syndicating deals, advising portfolio companies—the enhanced detail requirements increase compliance workload.

What Are the New Attestation Requirements for Compliance Officers?

Rule 3290 shifts liability from registered representatives to compliance officers. The old rules required reps to disclose outside activities. Compliance reviewed the disclosures and approved or denied them.

The new rule requires compliance officers to affirmatively attest they reviewed the outside activity for conflicts and determined it doesn't violate firm policies or securities regulations. This isn't a rubber-stamp approval. It's a certification that creates E&O exposure if the activity later triggers regulatory issues.

Consider a registered rep managing a $15M venture fund while working part-time for a broker-dealer. Under the old rules, the rep disclosed the fund management. Compliance said "okay" and moved on. Under Rule 3290, the compliance officer must certify:

• The time commitment doesn't impair the rep's BD responsibilities
• The fund doesn't compete with the BD's investment products
• The rep isn't soliciting BD customers for the fund without proper disclosure
• Compensation arrangements don't create undisclosed conflicts

For small broker-dealers with lean compliance teams, this is significant. A compliance officer managing 50 registered reps now personally attests to the legitimacy of every outside fund, board seat, and consulting gig those reps pursue. One bad attestation—say, approving a fund that later violates Regulation D—puts the compliance officer in FINRA's crosshairs.

How Should Fund Managers Document Outside Activities Now?

Managers raising capital through broker-dealer channels need tighter documentation. The Rule 3290 disclosure form is more detailed than previous versions. Managers should prepare:

Time allocation logs. Document hours spent on fund management versus BD activities. A GP working 40 hours weekly on portfolio management while maintaining BD registration must show the BD work gets adequate attention. FINRA expects contemporaneous records, not retroactive estimates.

Compensation breakdowns. Separate management fees, carried interest, and transaction-based compensation. If a GP earns $200K annually from the fund and $50K from BD commissions, the Rule 3290 filing must detail both. Undisclosed compensation triggers enforcement actions.

Conflict certifications. Document how the outside activity avoids conflicts with the BD's business. If the fund invests in early-stage software companies and the BD sells public tech stocks, explain why that doesn't create competing interests. Vague assurances don't satisfy the rule.

Customer solicitation policies. If the fund markets to accredited investors, document whether those investors are also BD customers. Rule 3290 prohibits using BD customer lists for outside activities without firm approval and customer disclosure. A GP emailing the BD's client list with fund marketing materials violates the rule.

This documentation burden is higher than before. But it reduces regulatory risk. FINRA enforcement actions increasingly target undisclosed outside activities. Detailed contemporaneous records provide defense if FINRA questions the arrangement.

What Happens If a Registered Rep Fails to Disclose?

FINRA treats undisclosed outside activities as violations of the firm's supervisory obligations and the rep's duty of disclosure. Penalties range from fines to registration revocation.

Recent enforcement patterns show FINRA focuses on three scenarios:

Private funds marketed to BD customers. A registered rep raises $10M for a real estate fund by pitching BD clients. The rep never disclosed the fund to compliance. FINRA views this as selling away—conducting securities transactions outside the firm's supervision. Typical sanctions: $50K-$100K fines, suspension, customer restitution.

Undisclosed compensation. A rep serves as a paid advisor to a startup raising a Regulation D round. The startup pays $25K plus equity. The rep never disclosed the arrangement. FINRA treats this as receiving undisclosed outside compensation, which violates disclosure rules even if the rep didn't solicit BD customers. Typical sanctions: $10K-$25K fines, heightened supervision.

Conflicting business activities. A rep manages a venture fund investing in SaaS companies while the BD's institutional desk pitches SaaS IPOs. The rep trades on information learned through BD employment. FINRA views this as a conflict of interest the firm should have prevented. Typical sanctions: termination, industry bar, referral to SEC for insider trading review.

Rule 3290 doesn't change these enforcement priorities. It makes violations easier to detect. The enhanced disclosure requirements create a clearer audit trail. Compliance officers reviewing Rule 3290 filings can cross-reference time commitments, compensation, and customer interactions against firm records. Discrepancies trigger examinations.

How Does This Impact Fund Managers Without BD Affiliations?

RIA-only fund managers—those without broker-dealer affiliations—don't file Rule 3290 disclosures. But they face indirect effects.

Broker-dealers now scrutinize outside activities more carefully. A small BD previously rubber-stamped outside fund management by registered reps. Under Rule 3290, compliance officers personally attest to the legitimacy of those funds. This means deeper due diligence on the fund structure, investor base, and fee arrangements.

For fund managers seeking BD capital-raising support, expect tougher negotiations. Broker-dealers will demand:

• Detailed fund documentation showing compliance with Regulation D
• Representations that the fund won't solicit BD customers without proper disclosure
• Indemnification provisions if the outside activity triggers regulatory issues
• Higher fees to compensate for increased compliance burden

Some smaller broker-dealers may exit the fund capital-raising business entirely. If a BD generates $100K annually from placement fees but faces $50K in additional compliance costs under Rule 3290, the economics don't work. Fund managers previously relying on boutique BDs for placement services may need alternative distribution channels.

This connects to broader trends in early-stage capital formation. Platforms like BackerKit expanding into Regulation Crowdfunding reduce reliance on broker-dealer networks for seed-stage raises. Rule 3290's compliance burden accelerates this shift.

What Should Broker-Dealer Compliance Teams Do Now?

Compliance officers should audit existing outside activity approvals before FINRA's examination cycle begins. The rule became effective May 6, 2026. FINRA examiners will review Rule 3290 filings during the next examination wave, likely Q3-Q4 2026.

Review all active outside activities. Pull every Rule 3270 and 3280 notice filed in the past 24 months. Cross-reference against the new Rule 3290 requirements. Do current disclosures include time commitment estimates? Compensation breakdowns? Conflict certifications? If not, require updated filings.

Create attestation checklists. Compliance officers must attest to reviewing outside activities. Build a standardized checklist documenting that review. Include questions about time allocation, compensation, conflicts, and customer solicitation. A compliance officer facing FINRA scrutiny needs contemporaneous evidence the review happened—not after-the-fact claims.

Train registered reps on new requirements. Many reps don't understand the enhanced disclosure obligations. A rep managing a venture fund thinks the old Rule 3270 notice suffices. It doesn't. Conduct training sessions explaining the new form, required details, and consequences of incomplete disclosures.

Reevaluate high-risk activities. Some outside activities create more regulatory risk than others. A rep serving on a nonprofit board poses minimal risk. A rep managing a $50M private equity fund while maintaining full-time BD employment poses significant risk. Use Rule 3290 implementation as an opportunity to exit high-risk arrangements or impose stricter oversight.

Document everything. FINRA enforcement actions hinge on documentation. A compliance officer who verbally approved an outside activity has no defense if FINRA challenges that approval. Every attestation, review, and decision must be in writing with supporting rationale.

How Does Rule 3290 Fit Into Broader SEC Modernization Efforts?

Rule 3290 is part of the SEC's multi-year effort to streamline advisor-BD conflicts. The Commission previously harmonized custody rules, advertising standards, and Form ADV requirements. Outside activity disclosure was the last major area with duplicative regulations.

The SEC's 2025 priorities emphasized reducing regulatory friction for hybrid advisors while maintaining investor protection. Rule 3290 achieves both. Advisors file fewer forms. But those forms contain more substantive information, improving regulatory oversight.

This matters for accredited investors evaluating fund managers. A GP operating through a hybrid RIA-BD structure now faces stricter disclosure requirements. That's a positive signal. It means the GP's outside activities underwent compliance review. The broker-dealer's compliance officer personally attested to the legitimacy of the fund structure.

Contrast this with RIA-only fund managers. RIAs disclose outside activities on Form ADV but face less granular scrutiny. An RIA managing a $10M venture fund updates Form ADV annually. A BD-affiliated manager files Rule 3290 disclosures for each outside activity with detailed attestations from compliance.

Which structure offers better investor protection? Depends on execution. A competent RIA with strong internal controls may have fewer conflicts than a BD-affiliated manager with sloppy compliance. But all else equal, the Rule 3290 framework creates more regulatory checkpoints.

What Are the Unintended Consequences for Emerging Managers?

Rule 3290's enhanced disclosure requirements hit emerging managers hardest. A first-time GP raising a $3M seed fund doesn't have compliance infrastructure. Hiring outside compliance consultants to prepare Rule 3290 filings costs $5K-$15K annually—a significant expense for a sub-$5M fund.

This creates a structural advantage for established managers. A GP at a $500M fund has in-house compliance handling Rule 3290 filings. A solo GP at a $2M fund doesn't. The compliance cost as a percentage of AUM is 10x higher for the smaller manager.

Some emerging managers may avoid broker-dealer affiliations entirely. If maintaining BD registration costs $20K annually in compliance expenses, a manager generating $50K in management fees can't justify it. This accelerates the shift toward RIA-only structures for micro-funds.

It also advantages platforms over individuals. Angel Investors Network's broker-dealer directory shows how institutional platforms absorb compliance costs that individual managers can't. A crowdfunding platform filing Rule 3290 disclosures for its employees spreads the cost across thousands of transactions. A solo GP files disclosures for a single fund.

The likely outcome: consolidation. Smaller broker-dealers exit fund capital-raising. Emerging managers without BD affiliations raise capital through RIA channels, Regulation D private placements, or institutional platforms. BD-affiliated fund managers trend toward larger, more established operations that justify the compliance overhead.

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Frequently Asked Questions

Does Rule 3290 apply to RIAs without broker-dealer affiliations?

No. Rule 3290 applies only to registered representatives of FINRA member firms. RIA-only fund managers disclose outside activities through Form ADV but don't file Rule 3290 notices. However, RIAs operating through hybrid structures with BD affiliations must comply if they maintain broker-dealer registrations.

What happens if a compliance officer refuses to attest to an outside activity?

The registered representative cannot engage in the activity. Rule 3290 requires firm approval before the outside activity begins. If compliance determines the activity creates unmanageable conflicts or violates firm policies, the rep must decline the opportunity or resign from the broker-dealer.

Can a registered rep manage a private fund part-time while working full-time at a broker-dealer?

Yes, if the broker-dealer approves and the rep discloses time commitments accurately. Rule 3290 requires detailed time allocation documentation. A rep claiming 10 hours weekly on fund management but actually spending 40 hours violates the rule. FINRA expects contemporaneous time records, not estimates.

How does Rule 3290 affect placement agents raising capital for funds?

Placement agents registered with broker-dealers must file Rule 3290 disclosures for each fund engagement. The disclosure must detail compensation arrangements, potential conflicts, and whether the placement agent solicits the BD's customers. This increases compliance burden for placement agents working with multiple fund clients simultaneously.

What documentation should fund managers keep to prove Rule 3290 compliance?

Fund managers should maintain time logs showing hours devoted to fund activities, compensation records detailing all payments from the fund, communications with the BD's compliance team approving the outside activity, and certifications that the fund doesn't solicit BD customers without proper disclosure. Documentation should be contemporaneous, not retroactive.

Does Rule 3290 change what activities require disclosure?

No. The scope of reportable activities remains the same. Rule 3290 consolidates Rules 3270 and 3280 into a single filing but doesn't expand or contract the types of activities requiring disclosure. What changed is the level of detail required in the disclosure and the compliance officer attestation burden.

Can a registered rep serve on a portfolio company board without Rule 3290 disclosure?

No. Board service at a portfolio company counts as an outside business activity requiring disclosure, especially if the rep receives equity compensation or if the board role creates conflicts with the BD's business. Even unpaid board service may require disclosure if it involves time commitment or access to material nonpublic information.

How should broker-dealers handle Rule 3290 compliance for remote registered reps?

Remote reps face the same Rule 3290 requirements as office-based reps. Broker-dealers should implement systems for remote reps to submit outside activity disclosures electronically and maintain documentation of compliance reviews. Geographic separation doesn't reduce disclosure obligations or the firm's supervisory responsibilities.

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