Exploring outside business activity

Published on December 11, 2023 by Rushali Upwanshi

“Never mistake activity for achievement” – John Wooden

Imagine you are an investment advisor entrusted with managing your clients’ hard-earned money. What if you were told that a business activity you are involved in outside of your day job but undisclosed to your company could jeopardise your full-time work? This is the type of outside business activity (OBA) that companies in the financial sector keep tabs on. This blog discusses the risks, regulations and importance of transparency relating to OBA.

OBA refers to any activity an individual engages in outside of their primary employment, such as freelance work, consulting, entrepreneurial ventures, board memberships or involvement in professional organisations.

What is the attraction of OBA?

OBA is an activity that requires significant commitment outside of an individual’s contract with the company they are primarily employed by. This includes personal business, consulting and investing in other companies. OBA is usually characterised by a significant financial interest but could include activities that demand a time commitment.

Engaging in OBA has its advantages. First, it can provide extra income and help achieve personal goals faster. Second, it enables pursuing a passion and achieving a sense of fulfilment beyond one’s primary job. It also promotes personal and professional growth through developing new skills and expanding knowledge. It offers flexibility, allowing an individual to set their own schedule and make independent decisions. It facilitates networking, connecting you with like-minded professionals and potential clients. It also enables you to diversify your income streams, providing financial stability.

What are the risks?

Regulatory and legal considerations – the OBA may require compliance with certain regulations and obtaining licences and permits, and failure to meet these requirements could have legal consequences.

Time commitment – the OBA may require a substantial time investment that could put a strain on your personal life and primary job, leading to increased stress and potential burnout.

Conflicts of interest with primary employment – some companies have policies that restrict OBA, especially if it compromises confidentiality.

Financial risk – the OBA may require upfront investment, with the potential for financial loss or business failure.

Effective strategies for managing OBA

Managing OBA while ensuring compliance with applicable regulations and policies is crucial. The following are key considerations:

• Review employment contracts and policies: Familiarise yourself with your company’s policies regarding OBA. Understand what is permitted and what is prohibited.

• Consult legal and HR professionals: If you have complex OBA or questions about compliance, consider seeking legal advice to ensure you are meeting all legal obligations.

• Disclose and obtain permission: Always disclose OBA to your employer or the relevant authority. Transparency is key to building trust and ensuring compliance with company policies.

• Respect confidentiality and non-disclosure agreements: This is crucial for maintaining the trust of your primary employer and avoiding legal complications; it is also important to handle any potential conflict of interest or shared information with care and transparency.

• Keep abreast of applicable laws and regulations.

Safe disclosure of outside business pursuits

The disclosure process typically involves the following:

1. Reporting forms: These forms typically require detailed information on the nature of the business or employment, the individual’s role, ownership interest, time commitment and any other conflict of interest.

2. Timelines: The timeframe for disclosing OBA can vary depending on your company’s policies and industry regulations. For example, initial disclosure is often required within 30 days from the start of the activity.

3. Updates: This includes notifying your employer of any material change to the disclosed activities, such as modifications to the business structure and alterations in time commitments.

4. Internal compliance review: Financial institutions often conduct these reviews to assess the disclosed OBAs and ensure compliance with regulatory requirements and internal policies.

Responsible disclosure and adherence to compliance related to OBAs contribute to the integrity and ethical standards of individuals and organisations, promoting a culture of accountability and professionalism.

How Acuity Knowledge Partners can help

We are an influential player in the global market, offering compliance expertise and services such as e-communication, marketing material and advertisement review, regulatory compliance review, distribution compliance, code of ethics monitoring and social media surveillance. Combined with our expertise in compliance, our subject-matter experts help maintain internal controls and redesign workflow to mitigate inherent and potential risks identified under a policy or regulation.

Sources:

• Outside Business Activity Disclosure Form Best Practices – MasterCompliance

• MyComplianceOffice | FINRA Outside Business Activity Compliance

• Enron scandal | Summary, Explained, History, & Facts | Britannica

• The Wells Fargo Cross-Selling Scandal (harvard.edu)

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