The Importance of Effectively Monitoring Gifts and Entertainment - Part 4: NASD

Last, but not least, another rule that firms should be aware of is NASD Conduct Rule 3060.  This rule prohibits firms from giving any gift or gratuity in excess of $100 per year to any person where such payment is in relation to the business of the recipient’s employer.  The prohibition generally does not apply to personal gifts such as a wedding gift or congratulatory gifts for the birth of a child.  The prohibition also does not apply to gifts of de minimis value such as pens, notepads, or modest desk ornaments, or to promotional items of nominal value that display the firm’s logo such as gym bags, hats and shirts.  Gifts should be valued at the higher of cost or market value.  When valuing tickets to sporting events, you should use the higher of cost or face value.  For example, tickets to popular sporting events such as the Super Bowl will have a secondary market value higher than the original cost of the ticket.

More importantly, this rule outlines the requirements that firms have written policies and supervisory procedures that:

    • Determine and define forms of business entertainment that are appropriate and inappropriate;
    • Are designed to maintain and track detailed records of the nature and expense of any business entertainment and gifts;
    • Are designed to effectively supervise compliance;
    • Establish standards to ensure that persons designated to supervise, approve and document gifts and entertainment expenses are sufficiently qualified, and that periodic monitoring for compliance of the written policies and procedures are conducted by an independent reviewer; and
    • Require appropriate training and education of all applicable personnel.

Furthermore, it is imperative that firms have systems and procedures in place to ensure that all gifts are reported to the firm, reviewed for compliance with Rule 3060, and maintained in the firm’s records.

So how do you keep your firm in compliance? Firms should incorporate guidelines in their compliance manuals for all employees to be mindful of when giving gifts which may be deemed to influence or reward member brokers, dealers, or financial institutions.  If your gifts and entertainment policies are implemented appropriately, your firm will benefit from the strengthening of business relationships through gifts and business entertainment, while at the same time avoiding regulatory issues and the actual and potential conflicts of interest.

For help on this subject or on other compliance topics, please contact Genevieve Tenorio at (619) 278-0020 or genevieve.tenorio@corecls.com.