SERIES 7 | SERIES 65 | FINANCIAL REGULATION COURSES
FINRA Rule 3220 — Influencing or Rewarding Employees of Others — commonly known as the Gifts Rule — prohibits any FINRA member firm or person associated with a member firm from giving, directly or indirectly, anything of value in excess of three hundred dollars per individual per year to any person, principal, proprietor, employee, agent, or representative of another person where the payment or gratuity is in relation to the business of the recipient's employer — preventing the corruption of business relationships through improper payments that could influence the allocation of order flow, the recommendation of specific securities, or other business decisions affecting the interests of the employing firm's clients.
Rule 3220 was amended effective 2026 — with the SEC approving the rule change on February 12, 2026 — raising the annual gift limit from the long-standing one hundred dollar threshold that had applied since the rule's original adoption to three hundred dollars per person per year, incorporating and codifying extensive interpretive guidance that had accumulated over decades of FINRA staff letters and FAQ responses, and adding FINRA's authority to grant exemptive relief in specified circumstances. The rule change represented the most significant update to the Gifts Rule in its history — recognising that the original one hundred dollar limit had become economically unrealistic relative to modern costs of hospitality and professional courtesy gifts while maintaining the substantive prohibition on payments that could corrupt business relationships.
The three hundred dollar annual limit applies per individual recipient per calendar year — aggregating all gifts from the member firm and all of its associated persons to any single individual in calculating compliance with the limit. A member firm that gives a gift of one hundred dollars to an employee of a counterparty firm in January and a second gift of two hundred and fifty dollars to the same individual in November of the same year has exceeded the three hundred dollar annual limit and has violated Rule 3220 — even though neither individual gift exceeded the limit in isolation.
The Purpose of the Gifts Rule — Why It Exists
The prohibition on gifts and gratuities above the annual limit is designed to address the specific conflict of interest that arises when a member firm or its associated persons give things of value to employees of other firms with which they conduct securities business — creating a financial or personal incentive for the recipient to direct business to the giving firm, to recommend the giving firm's products or services to their employer or its clients, or to otherwise act in a manner that serves the giving firm's interests rather than the interests of the recipient's employer and its clients.
The most common contexts in which gift-giving creates this conflict of interest in the securities industry include gifts from broker-dealers to portfolio managers and traders at institutional investment management firms — where gifts could influence order flow allocation decisions — gifts from mutual fund distributors and advisers to registered representatives at broker-dealers — where gifts could influence fund recommendations to retail customers — and gifts from investment banking firms to corporate finance officers and board members at potential client companies — where gifts could influence the selection of investment banking service providers.
The Gifts Rule is the regulatory expression of the principle that business relationships in the securities industry must be governed by the merit of the products, services, and pricing offered rather than by personal enrichment of the individuals who make purchasing and allocation decisions on behalf of their employers. A gift that creates a personal financial benefit for a portfolio manager who allocates order flow — or a registered representative who recommends investment products — distorts the market for securities services in ways that ultimately harm investors.
What Is Covered — Anything of Value
The Gifts Rule applies to anything of value given to employees of other firms in relation to the business of the recipient's employer — a deliberately broad formulation that encompasses virtually any tangible or intangible benefit with economic value.
Cash gifts are the most obvious form of prohibited payment — a member firm that gives cash directly to an employee of a counterparty firm in exchange for favourable business treatment has clearly violated Rule 3220. But the rule extends far beyond cash to encompass any item or benefit with monetary value — including meals and entertainment, event tickets, travel and accommodation, holiday gifts, wedding gifts, personal services, merchandise, wine and spirits, gift cards, and any other item or benefit that has economic value to the recipient.
The three hundred dollar annual limit applies to the aggregate value of all gifts to any single individual — not to any single gift transaction. A member firm must maintain systems for tracking and aggregating all gifts from all associated persons to all recipient individuals to ensure that the annual limit is not exceeded through the accumulation of individually modest gifts over the course of the calendar year.
The rule applies to gifts given in relation to the business of the recipient's employer — not to purely personal gifts exchanged in the context of a genuine personal friendship that exists independently of the business relationship. A registered representative who gives a wedding gift to a close personal friend who happens to work at a counterparty firm — where the friendship predated and is independent of the business relationship — may not be giving the gift in relation to the business of the recipient's employer. However the burden is on the member firm to demonstrate that such gifts are genuinely personal rather than business-related — and the supervisory system must be designed to identify potentially business-related gifts for compliance review regardless of the giver's subjective characterisation.
The Recordkeeping Requirement
Rule 3220 requires member firms to keep separate records of all payments or gratuities in any amount that are known to the member — creating a comprehensive gift registry that enables compliance monitoring and FINRA examination review of the firm's gift-giving activity.
The separate records requirement means that gift tracking cannot be embedded within general expense reporting systems where it might be obscured — the gifts must be specifically identified and separately maintained in a manner that makes them readily accessible for compliance review. The records must capture the identity of the giver, the identity of the recipient and their employer, the nature and value of the gift, and the date of the gift — providing the complete information needed to assess compliance with the annual per-recipient limit and the business-relation requirement.
The recordkeeping obligation applies to gifts in any amount — not only gifts that approach or exceed the three hundred dollar limit. This comprehensive recordkeeping requirement ensures that the aggregation of small gifts to a single recipient can be tracked throughout the year to identify when the annual limit is being approached, and that FINRA examiners can review the complete gift activity of the firm rather than only the gifts that were identified as potentially problematic.
Member firms are not required to maintain records of gifts that fall within the specific exemptions codified in Rule 3220's supplementary materials — including certain disaster-related donations and other specifically exempt categories — reducing the recordkeeping burden for clearly permissible activities while maintaining comprehensive records for all potentially regulated gift activity.
The Business Entertainment Distinction
Rule 3220's prohibition on gifts above the annual limit must be distinguished from business entertainment — meals, sporting events, concerts, and other entertainment activities at which both the giver and the recipient are present and at which the giver participates alongside the recipient.
FINRA has historically distinguished between gifts — which are given to the recipient to consume or enjoy independently of the giver — and business entertainment — which involves the joint participation of the giver and recipient in a shared experience. Business entertainment involving the giver's attendance alongside the recipient is generally not subject to the three hundred dollar annual gift limit — provided that it is reasonable, not so lavish or extravagant as to suggest an intent to improperly influence the recipient, and consistent with applicable firm policies and reasonable business customs in the industry.
The 2026 amendments to Rule 3220 codified existing guidance on the distinction between gifts and business entertainment — providing greater clarity about when the presence of the giver transforms what might otherwise be a gift into permissible business entertainment. The codification of this guidance reduces the uncertainty that had previously required member firms to rely on individual FINRA staff letters and FAQ responses to understand how the rule applied to specific fact patterns.
Gifts to Individual Retail Customers
A significant clarification codified in the 2026 amendments to Rule 3220 is the explicit acknowledgement that the Gifts Rule does not apply to gifts from a member or its associated persons to individual retail customers — gifts to the firm's own customers who are not employees of another firm.
The Gifts Rule is designed to prevent the corruption of agency relationships — where an employee's duty to act in the best interests of their employer and its clients might be compromised by gifts from third parties seeking to influence the employee's business decisions. Individual retail customers do not stand in an agency relationship of this type — they are the principals who make decisions for their own account rather than employees making decisions on behalf of others. Gifts to retail customers are therefore not within the scope of Rule 3220's prohibition.
Other regulatory frameworks — including the suitability and Regulation Best Interest standards applicable to broker-dealer recommendations — address the relationship between member firms and retail customers without treating gifts to retail customers as a Gifts Rule concern. The clarification of retail customer exclusion in the 2026 amendments removed uncertainty that had existed about whether small promotional items and holiday gifts to retail customers required Rule 3220 compliance analysis.
Supervisory Requirements
Rule 3220's supplementary material — codified in the 2026 amendments — requires member firms to have a supervisory system under FINRA Rule 3110 that is reasonably designed to achieve compliance with the Gifts Rule.
The supervisory system must include procedures designed to ensure that payments and gratuities given by the member and its associated persons to employees of other firms are reported to the member, reviewed for compliance with Rule 3220, and maintained in the member's records. Critically the supervisory procedures must be designed to ensure that the associated person who gives a payment or gratuity is not solely responsible for determining whether that payment or gratuity is in relation to the business of the recipient's employer — the compliance determination must involve supervisory review rather than resting entirely on the individual giver's subjective judgment.
Connection to Non-Cash Compensation Rules
Rule 3220 operates alongside the non-cash compensation provisions of FINRA Rule 2341 — which restricts non-cash compensation received by member firms from investment company distributors in connection with the sale of investment company securities — and the non-cash compensation provisions applicable to variable annuities under FINRA Rule 2330 and direct participation programmes under FINRA Rule 2310.
These related non-cash compensation rules address the receiving side of the gift relationship — restricting what member firms may accept from product manufacturers and distributors — while Rule 3220 addresses the giving side — restricting what member firms may give to employees of other firms. Together they create a comprehensive framework governing the flow of non-cash value throughout the securities distribution chain.
Examination Relevance and Key Takeaways
FINRA Rule 3220 is tested on the Series 7 and Series 65 examinations in the context of conflicts of interest, gifts and gratuities, and the business entertainment distinction.
The key points to retain are these.
FINRA Rule 3220 — Influencing or Rewarding Employees of Others — prohibits member firms and associated persons from giving anything of value in excess of three hundred dollars per individual per year to any employee of another firm where the payment is in relation to the business of the recipient's employer. The three hundred dollar limit — updated from the prior one hundred dollar limit by amendments approved by the SEC on February 12, 2026 — applies per recipient per calendar year aggregating all gifts from all firm associated persons to that individual.
The recordkeeping requirement mandates separate records of all payments and gratuities in any amount known to the member — not only gifts approaching the annual limit — enabling comprehensive compliance monitoring and FINRA examination review. Business entertainment in which the giver participates alongside the recipient is generally not subject to the annual gift limit — provided it is reasonable and not lavishly extravagant. The Gifts Rule does not apply to gifts to individual retail customers — only to gifts to employees of other firms in relation to the employer's business. The supervisory system required by FINRA Rule 3110 must include procedures ensuring that gift activity is reported to the firm and reviewed by supervisory personnel rather than assessed solely by the individual giver. Rule 3220 operates alongside the non-cash compensation provisions of FINRA Rules 2341, 2330, and 2310 — together governing the full framework of gift and non-cash value flows throughout the securities distribution industry.
