FINRA Rule 3280 treats a single introduction the same as a completed sale. You do not have to buy or sell a security yourself to violate it, which is where many brokers get caught off guard.
The rule governs how associated persons of FINRA member firms handle private securities transactions, the conduct often called selling away. It requires written notice, firm approval, and firm supervision. Breaking it can lead to fines, suspensions, or a permanent bar from the industry. Our investment fraud lawyers break down what the rule requires and what it means for investors who lost money to an unauthorized deal.
What Is FINRA Rule 3280?
FINRA Rule 3280 governs how associated persons of a FINRA member firm take part in private securities transactions that fall outside their normal job duties. Before you participate in any way, the rule requires prior written notice to your firm. The firm then decides whether to approve, and if it does, it must supervise and record the transaction.
The written notice has to describe the proposed transaction in detail, explain your role, and state whether you have received or expect to receive any selling compensation. If the firm approves, it supervises and records the deal as if the firm had executed it.
FINRA 3280 casts a wide net. Most associated persons underestimate how broadly FINRA reads the phrase “participate in any manner.” You do not have to buy or sell securities to trigger the rule. FINRA counts referrals, introductions, and forwarding offering materials as participation. That holds whether or not you are paid for it. If you are unsure whether your involvement rises to that level, assume that it does.
One more distinction matters. FINRA Rule 3270 applies only to registered persons, such as registered representatives, while FINRA Rule 3280 reaches both registered and non-registered associated persons of a FINRA member firm. In practice, an unregistered associated person can trip the rule just as fast as a licensed one.
What Counts as a Private Securities Transaction?
A private securities transaction is any securities transaction that happens outside the regular course or scope of your employment with a member firm. Common examples include new offerings that are not registered with the SEC, private placements, and investments in startups or real estate ventures your firm does not offer or supervise.
FINRA often calls this kind of deal an outside securities transaction, because it sits beyond the firm’s review. The products range widely. They can include non-traded real estate investment trusts, interests in private funds or other unregistered investment companies, and stakes in early-stage ventures. What ties them together is that they involve financial assets your firm never approved. Brokers get pulled into these deals by higher payouts or a personal tie to the sponsor, which is often when disclosure slips. The rule usually bites on these unregistered offerings, not the registered investment companies a firm already sells.
Selling Compensation
Selling compensation under Rule 3280 goes well beyond a standard commission. It covers any payment or benefit you receive in connection with a private securities transaction. That includes finder’s fees, securities or the right to acquire them, and profit-sharing interests. It also reaches tax benefits and expense reimbursements tied to the deal.
Whether selling compensation is involved decides which approval path applies. If you will be paid, your firm must approve or disapprove your participation in writing. If no compensation changes hands, the firm still has to acknowledge your notice and may attach conditions to your involvement.
How Does Rule 3280 Apply to Associated Persons and Member Firms?
FINRA Rule 3280 puts duties on both sides of private securities transactions (PSTs). For associated persons, the core duty is disclosure. You have to tell your firm about every private securities transaction before you take part.
For member firms, the core duty is oversight. The rule frames that oversight as a set of supervisory and recordkeeping obligations, so any approved transaction goes on the firm’s books and gets watched like the firm’s own business.
Written Notice Requirements
Your written notice must describe the proposed transaction in detail, spell out your role, and state whether you have received or may receive selling compensation. When a series of related transactions involves no selling compensation, you can file a single notice for the whole series instead of one for each deal.
Timing is not flexible. The notice has to come before your participation starts. You must have provided prior written notice before you lift a finger. If you provide written notice only after the fact, or at the same time, it does not satisfy the rule. The safest habit is to file the moment a deal is on the table, well before any money or paperwork moves. A late notice is treated the same as no notice at all.
Firm Approval and Supervision
When selling compensation is involved, your firm has to answer your notice in writing, either approving or disapproving your participation. That written sign-off is the firm’s prior written approval of the associated person’s participation. If it approves, the firm records the transaction on its books and supervises it as if the firm had executed it.
Once cleared, approved transactions live on the firm’s books and stay under firm supervision. In practice, that puts the deal under the same compliance and oversight the firm applies to any transaction it runs.
When no selling compensation is involved, the firm still owes you prompt written acknowledgment of your notice. It can also set specific conditions on your participation if it chooses.
What Is the Difference Between FINRA Rule 3280 and Rule 3270?
FINRA Rule 3280 and FINRA Rule 3270 cover related but separate conduct. FINRA Rule 3280 governs private securities transactions that an associated person conducts outside the firm. FINRA Rule 3270 applies more broadly to a registered person’s outside business activities, meaning almost any outside work or role, whether or not it touches securities. For a financial advisor, that sweeps in a wide range of business activities.
The disclosure triggers differ too. Under FINRA Rule 3270, a registered person has to report any outside business activity, investment-related or not. FINRA Rule 3280 applies only to securities transactions that fall outside the firm’s supervision. Many enforcement cases involve both rules at once, usually when an outside business quietly turns into selling investments to clients without disclosure or approval. The line blurs when investment related activities hide inside ordinary business activities.
FINRA has proposed folding both rules into one framework, proposed FINRA Rule 3290, to cut the overlap and simplify compliance. That proposal would narrow disclosure to investment related activities instead of every outside business a registered person takes on.
What Changes Under Proposed Rule 3290?
In March 2025, FINRA issued Regulatory Notice 25-05 and proposed Rule 3290 to replace FINRA Rule 3280 and Rule 3270. The stated goal is to reduce unnecessary burdens and simplify the existing rules. So the proposed rule centers on investment related activities instead of every outside role.
That is a real shift from the current approach, and it aims to focus firm oversight where the actual risk sits.
FINRA ties investment related activities to financial assets. The proposed new rule reaches securities, crypto assets, and other investment products, rather than unrelated side jobs. Dual roles at investment companies and outside investment advisers are the classic gray area the rule now targets. The definition also captures specific outside roles. It covers acting as or working with an investment company or an investment adviser. It reaches work as a commodity trading advisor, a commodity pool operator, or a municipal advisor. Roles at a bank, a savings association, or a credit union are included as well.
Under the current rules, registered persons report every outside business activity. That includes low-risk work like coaching youth sports, driving for a rideshare service, or bartending on weekends. FINRA has acknowledged that these disclosures create compliance “white noise” that pulls attention away from real risk. The proposed rule would drop reporting for non-investment activity and let firms concentrate on the outside activities that raise genuine supervisory concern. FINRA views the dropped items as low risk activities that pose little threat to customers.
The proposal also carves out clear exclusions. Certain personal investments sit outside the rule, and work done for an affiliate or a dually registered firm counts as inside the member, not away from it. Securities transactions for immediate family members, where the associated person takes no compensation, are excluded too. Because the proposal excludes personal investments and routine affiliate work, firms can spend their attention on the outside activities that carry real risk.
On notice, the proposal maintains existing requirements. A registered person who plans an outside activity, and an associated person who plans an outside securities transaction, still has to provide written notice to the firm first. Nothing about the streamlined scope removes that step.
For compensated deals, the heavier duties stay in place. A member firm still has to approve the outside securities transaction, record it, and supervise it when selling compensation is involved. The proposal layers extra obligations onto firms when associated persons take part in outside securities activities, so the compensated path stays the most closely watched.
The proposal also closes an ambiguity in the current rules. It makes clear that portfolio managers and investment committee members have to give prior written notice and get prior written approval before taking part in outside investment-related activity. If you hold one of those roles, do not assume your firm’s current policies will carry over unchanged once the new rule takes effect.
Reach over outside investment advisers has drawn the most debate. Critics argue that supervising an adviser’s separate advisory work stretches a broker-dealer beyond its lane, and that many advisers lack the oversight systems a member firm must keep. That fight aside, the proposed new rule keeps the core investor protections that FINRA Rule 3280 and Rule 3270 were built on.
The aim runs through the whole package by narrowing what must be reported. FINRA wants the change to reduce unnecessary burdens, encourage firms to focus their compliance resources, and enhance efficiency across the industry.
The consolidation could also reshape enforcement. From the start of 2024 through early 2025, the average FINRA suspension for standalone Rule 3280 violations was 10.7 months, nearly five times the 2.2-month average for standalone Rule 3270 violations. Merging the two rules into one framework could change how FINRA charges and sanctions these cases going forward.
How to Avoid Violating FINRA Rule 3280
The safest way to stay compliant is to disclose every private securities transaction to your firm, in writing, before you get involved in any way. Your disclosure has to lay out the facts of the deal, your specific role, and whether you expect any selling compensation.
If your firm disapproves the transaction, step away completely. That means no direct role and no indirect one. You cannot make referrals, forward materials, or help move communications along after the firm has said no.
Before you file a notice, read your firm’s written supervisory procedures for PST reporting. Firms often set internal deadlines and documentation rules that go beyond the rule itself, and missing an internal deadline can create problems even when you technically comply.
Quick compliance tips:
- Put every private securities transaction in writing to your firm before you participate in any way.
- Disclose the full deal, your exact role, and whether you expect selling compensation.
- Treat a disapproval as final, and avoid even indirect involvement like referrals or forwarding materials.
- Check your firm’s written supervisory procedures for internal PST deadlines that go beyond the rule.
Best Practices for FINRA Rule 3280 Compliance
FINRA 3280 puts real weight on firm-side diligence. Firms can catch private securities transactions (PSTs) early by building a few habits into their compliance program.
- Require detailed questionnaires and regular attestations at onboarding and at set intervals, with open-ended questions that surface activity a person might not realize qualifies as a PST.
- Monitor for lifestyle or performance changes that can signal undisclosed outside securities activity.
- Screen electronic correspondence for signs of PST involvement that has not been reported.
- Train staff on the full scope of what FINRA treats as participation. Cover referrals, introductions, and facilitating communications.
- Enforce clear consequences for non-compliance, from heightened supervision to fines or termination.
- Record every compensated PST on the firm’s books and records.
At the Law Offices of Robert Wayne Pearce, P.A., we have seen these warning signs missed firsthand. The investors caught in those deals are the ones who pay for it.
What Are the Penalties for Violating FINRA Rule 3280?
FINRA can impose fines, suspensions, or a permanent bar for FINRA Rule 3280 violations. How severe the sanction gets depends on the facts of the case, from the dollar volume of sales to how long the activity ran and whether investors were harmed. The greater the investor harm, the harsher the outcome.
Several factors drive the outcome. FINRA weighs the dollar volume of sales, the number of customers affected, and how long the selling away continued. It also looks at the type of product sold and whether you disclosed any financial or proprietary interest in the venture.
According to FINRA’s Sanction Guidelines, the recommended fine for an individual in a selling away case runs from $5,000 to $40,000. Suspensions scale with the size of the activity, starting at 10 business days for smaller cases and reaching a permanent bar when the dollar volume is high or aggravating factors are present.
A FINRA member firm is exposed too. If it fails to supervise an approved transaction or fails to catch an undisclosed PST, it can face action under FINRA Rule 3110, the rule governing supervision at member firms. The responsibility never rests on the associated person alone.
Contact the Law Offices of Robert Wayne Pearce, P.A.
If your broker took part in unauthorized private securities transactions, or your firm failed to supervise outside activity that cost you money, you have options. Our investment fraud lawyers have spent more than 45 years representing investors in FINRA arbitration and securities disputes, recovering over $185 million for our clients. We know how these cases unfold, and we know how to hold brokers and firms accountable when they break the rules meant to protect you. Call us today at (800) 732-2889 for a free consultation about your case.
