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Gifts/Business Entertainment/Non-Cash Compensation FAQs

Q.  Would it be consistent with FINRA Rule 3220 (Influencing or Rewarding Employees of Others) and the non-cash compensation provisions of FINRA Rules 2310, 2320, 2341 and 5110 for an associated person to host a virtual business entertainment event or a video meeting with the employees of an institutional customer or third-party broker-dealer and provide food and beverage that is designed to be consumed during that event or meeting?

A.  FINRA 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 or entertainment involving retail customers.)

The provisions permitting business entertainment do not specify whether the entertainment must be in-person.  Nevertheless, a key distinction between gifts and business entertainment is that the latter involves an associated person of a member personally hosting employees of institutional customers or third-party broker-dealers and their guests, rather than simply giving those employees something of value.  Accordingly, where 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, provided that the cost of the food and beverage as well as the frequency with which it is provided do not raise questions of propriety.  The provision of food and beverage must not be 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, which may be part of a larger video setting involving entertainment.  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.  In addition, members should supervise and maintain records of these meetings and events, including a description, the amount, and the value of the food and beverage, in a manner similar to in-person meetings and events.