Brokerage firms are pushing back on newly proposed Finra rules regarding non-cash gifts Finra members can give to other professionals they do business with.

The proposed rules would raise gift limits and extend the rule to cover all kinds of products, but the industry also wants the approach to be based on principles rather than hard and fast rules to avoid the appearance of impropriety.

As proposed, the rule would raise the gift limit from the current $100 cap to $175 per person per year. Firms would not have to record gifts given or received if the value was under $50.

In addition, Finra wants to prohibit product-specific internal sales contests (currently allowed for total sales of mutual funds and variable annuities), extend the rules to cover all securities products (not just packaged products and the public offerings of securities) and create a separate new rule for business entertainment expenses.

Finra began wading into the tricky business of updating its rules on gifts and entertainment more than two years ago by asking for industry feedback. In August, it released a proposal for comment (http://www.finra.org/industry/notices/16-29).

In comment letters filed late last month, the brokerage industry praised Finra for updating the rules, but took issue with many of the complicated details that have always made complying with the non-cash compensation rules a challenge.

The Financial Services Institute said many B-Ds have misunderstood the rule as applying to gifts to retail clients, when the rule only covers gratuities that are connected to the employer of the business associate.

“If Finra were to clarify for firms that the requirements do not apply to gifts provided to individual retail clients, firms would then be free to reallocate the resources to other compliance efforts,” the FSI said in a letter.

The gift rule comes into play “in connection with an employee’s business [and] that can be tricky to define,” said securities attorney Joel Beck of the Beck Law Firm LLC in Lawrenceville, Ga. As a result, firms may go beyond the requirements of the rule and prohibit or restrict client gifts, Beck said in an interview.

The FSI and the Securities Industry and Financial Markets Association also want Finra to use a principles-based gift limit instead of the proposed $175 hard cap. Short of that, they want a higher threshold and an automatic inflation escalator.

The industry also complained that the $50 exemption to cover small gifts would, in practice, have little benefit. That’s because the proposal would require firms to track the total value of gifts given to a particular recipient. The aggregation requirement would force them to record gifts of nominal value even below the $50 threshold.

Additionally, Finra wants to incorporate current guidance that allows product sponsors to pay for legitimate training expenses for reps—as long as the location is appropriate—and to pay for meals if training sessions cover “substantially all of the work day.”

SIFMA wants Finra to remove the full workday requirement for meals, and allow reimbursement for training at national meetings, which may not meet the current location requirements.

“We question whether the vicinity conditions provide any meaningful investor protections in practice,” SIFMA said in a comment letter.

Finra is proposing to keep its requirement that a training location be in the U.S., and at or near an office of a product sponsor or B-D.

Finally, Finra wants a separate rule covering business entertainment. Currently, business entertainment is covered under the gifts rule, which allows the occasional meal or sporting event provided that it is “neither so frequent nor so extensive as to raise any question of propriety.”

The new entertainment rule would let firms create their own policies. B-Ds would have to define permissible expenses, supervise for improper quid pro quos, and ensure that entertainment was not preconditioned on a sales target.

Industry groups are happy with the principles-based approach Finra took with the entertainment rule, but SIFMA objected to what it said could be burdensome requirements to track “every dollar of business entertainment.” The trade group urged Finra to incorporate a de minimis amount in the entertainment rule, similar to the $50 gifts rule.

A Finra spokesman said the regulator is reviewing the comments and has no estimate of when final rules might be filed with the SEC.

“What they actually send up and propose to the SEC may be different than what they propose now,” said Beck, who expects that Finra might add an automatic inflation adjustment to the $50 threshold gift amount.