When creating an outside business activity (“OBA”) disclosure form, it’s important to understand how FINRA defines an outside business activity and what information must be disclosed. Firms can request additional information however it is recommended that Firm’s ensure the required information is collected, reviewed and approved by the Firm’s designated principal.
What is an Outside Business Activity?
An outside business activity (“OBA”) is defined as a registered person acting as an “employee, independent contractor, sole proprietor, officer, director or partner of another person, or be compensated, or have the reasonable expectation of compensation, from any other person as a result of any business activity outside the scope of the relationship with his or her member firm” (FINRA Rule 3270) . Non-investment-related activity that is exclusively charitable, civic, religious or fraternal and is recognized as tax exempt is generally excluded.
What Information Requires Disclosure on the Form U4?
The following information is required to be reported on the Registered Representatives form U4 and should be used when creating the Firm’s outside business activity disclosure form.
- The name of the other business
- Whether the business is investment-related
- Address of the other business
- Nature of the other business
- Position, title, or relationship with the other business
- Start date of the relationship
- Approximate number of hours/month devoted to the other business
- Number of hours devoted to the other business during securities trading hours
- Description of Duties
The above items provide the basic framework for the form; however you may want to consider additional areas to ensure that you are collecting the appropriate information to mitigate risk. FINRA provides additional guidance through its section on Regulatory Obligations and Related Considerations. Additional considerations include but are not limited to:
- Does the Firm require disclosure of potential conflicts of interest
- Does the Firm consider less obvious activities such as digital assets
- Does the Firm have a process in place to distinguish between, OBA and PST activities and is pre-approval required?
- Does the Firm require updates through questionnaires and attestations regarding involvement—or potential involvement—in OBAs and PSTs; and if yes, how often?
- What is the Firm’s process to go from the OBA form to accurate disclosure on the Form U4?
- Does the Firm have a surveillance program to spot any undisclosed activities
For additional information on OBA disclosure requirements, challenges and best practices check out our additional blog topics here.
MasterCompliance provides expert consulting, outsourcing, and implementation tools in planning and budgeting for your firm’s compliance responsibilities. Also, if there are any areas where you would like to explore additional assistance or services, please contact us.