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Harry Cassin
Publisher and Editor

Andy Spalding
Senior Editor

Jessica Tillipman
Senior Editor

Bill Steinman
Senior Editor

Richard L. Cassin
Editor at Large

Elizabeth K. Spahn
Editor Emeritus

Cody Worthington
Contributing Editor

Julie DiMauro
Contributing Editor

Thomas Fox
Contributing Editor

Marc Alain Bohn
Contributing Editor

Bill Waite
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Shruti J. Shah
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Russell A. Stamets
Contributing Editor

Richard Bistrong
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Eric Carlson
Contributing Editor

FINRA’s important guidance on ‘gifts and entertainment’ in the age of remote work

Remote work isn’t so temporary after all, as businesses think about new work-from-home arrangements amid the Covid-19 pandemic, accelerating an already emerging trend.  But rules from the Financial Industry Regulatory Authority (FINRA) haven’t always contemplated remote working and meeting practices, at least not explicitly.

This is has led to the question of whether meals and beverages paid for by a FINRA member during a virtual meet-up would be subject to the customary $100 gift limit for anything of value per year. And the regulatory response came in the form of an answer to a hypothetical frequently-asked-question (FAQ) quietly issued by FINRA last month.

Let’s recap the main rule briefly: FINRA’s Rule 3220 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.

Likewise, the non-cash compensation rules prohibit members and their associated persons from giving or accepting such gifts in connection with the sale of specified products.

The non-cash compensation rules permit business entertainment provided by “offerors,” generally product sponsors and their affiliates, to representatives of third-party broker-dealers and their guests that is not subject to the $100 limit as long as it “is neither so frequent nor so extensive as to raise any question of propriety and is not preconditioned on achievement of a sales target.”

FINRA staff has interpreted Rule 3220 to permit similar business entertainment of a member’s clients and their guests.

These rules do not apply to meetings involving retail customers, nor do they specify whether the meeting or entertainment must be in-person.

FINRA now clarifies in the FAQ that if a member firm’s associated persons personally host an interactive virtual business entertainment event or meeting, FINRA would view the associated persons’ provision of reasonable amounts of food and beverage designed to be consumed by the recipient employees and their guests during that virtual business entertainment or meeting as not being subject to the $100 gift limit.

That is valid as long as the cost of the food and beverage as well as the frequency with which it is provided do not raise questions of propriety and are not preconditioned on achieving a sales target.
As hosts, the associated persons who send the food and beverage should control who can participate in the meeting, interact with each participant during the meeting and remain present and visible throughout the meeting.

The FAQ notes that the member firm or its associated persons should not provide any other cash or non-cash compensation, such as gift cards or other non-food items, to the recipient employees or their guests.

I’d also add that members should consider a formal maintenance process for recording these meetings and events, including a description of the purpose, attendees, and the value of the food and beverage, with receipts attached, in a manner similar to in-person meetings and events.

So, although the event is remote and conducted via a networking platform, the same vigilance and need for documentation apply to the costs and purpose of entertainment or food. A gift and entertainment log that is consistently updated and curated by the compliance department can serve as evidence of an effective, evolving policy to show regulators.

In fact, because people are in different locations during these virtual meet-ups and not in a work environment, having precise policies over who is responsible for compiling and securely storing these records and which details are needed in the records should be clearly spelled out in the company’s policies.

Send a note out about the rule, while reminding staff of their responsibilities over the amounts and frequencies of such gifts that could raise a question of propriety. Consider providing examples of what the company considers permissible and non-permissible would be helpful to employees.

Regular training of the gifts and entertainment of the firms’ policies and procedures serves as evidence to the regulator that the rules and the intentions behind them are important to corporate leadership.

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