After more than 30 years, the U.S. Financial Industry Regulatory Authority Inc. (FINRA) is boosting the cap on gifts that brokerage firms can hand out — a move designed to make compliance easier while avoiding genuine conflicts.
In a filing with the U.S. Securities and Exchange Commission (SEC), the self-regulatory organization proposed a change to the rules that prohibit firms and their employees from giving any gift worth more than US$100 per year. The change would increase the limit to US$250 per year.
The US$100 annual limit hasn’t changed since it was adopted in 1992. Adjusting for inflation over that period would raise the limit to US$223, it noted in the proposal.
“FINRA believes that the proposed US$250 gift limit would continue to permit the exchange of business courtesies while helping to guard against excessiveness,” it said in its rule proposal.
Boosting the limit would also improve compliance with the rule, it said, by improving the transparency, awareness and understanding of the rule’s requirements.
“The rule seeks to avoid improprieties, such as conflicts of interest, that may arise when a [firm or rep] gives items of value to an employee of another person, such as an institutional customer, vendor or counterparty with the hope of strengthening the business relationship,” it noted — and raising the cap “would promote efficiency without reducing protection for investors and the public interest,” it said.
In addition to boosting the gift limit, the proposals would also adopt existing guidance issued by FINRA over the years to address issues such as incidental gifts, personal gifts, promotional or commemorative items, donations to disaster relief, and the supervision and recordkeeping requirements.
It would also clarify that the gifts rule doesn’t apply to gifts from a dealer to its own reps, or to gifts to retail clients.
The SRO said that, if the SEC approves the proposed rule change, it plans to periodically review the gift limit to determine if further increases are warranted.