The Financial Industry Regulatory Authority, Inc. (FINRA) has received approval from the SEC that a proposed rule change has been accepted, enabling its remote inspections and residential supervisory location programs to be adopted.
After a voluntary, three-year pilot program, FINRA can now more formally implement remote inspections of eligible branch offices, offices of supervisory jurisdiction, and non-branch locations without an onsite visit to such locations, subject to specified safeguards and limitations.
FINRA said the pilot had given it the opportunity to gauge the effectiveness of the program and reflected the current work environment and availability of technologies that did not exist when onsite inspections were originally conceived.
Securities laws and regulations
As part of FINRA’s Supervision Rule 3110, member firms must conduct a review, at least annually, of the businesses in which it engages in a manner reasonably designed to assist the member firm to detect and prevent violations of, and achieve compliance with, applicable securities laws and regulations, and with applicable FINRA rules.
It also requires a review of the activities of each of the member firm’s locations, including a periodic examination of customer accounts to detect and prevent irregularities or abuses, and each member firm must also retain a written record of the date on which the review and inspection occurred.
Residential supervisory locations
The SEC also formally permitted FINRA to treat a private residence in which an associated person engages in specified supervisory activities, subject to certain safeguards and limitations, as a non-branch location that would be subject to inspections on a regular periodic schedule. This schedule is presumed to be every three years, and it replaces the annual inspection schedule currently required for “offices of supervisory jurisdiction” and “supervisory branch offices”.
FINRA said this change would enable it to maintain a supervisory system that oversees the activities of its associated persons in a way that is reflective of modern-day work arrangements, while also being designed to protect investors, plus achieve compliance with securities laws, regulations, and FINRA rules.
Under FINRA Rule 3110, member firms must be inspected in accordance with the rule’s requirements, and the frequency is based (in part) on whether the location has been deemed a supervisory branch office, a non-supervisory branch office, and office of supervisory jurisdiction, or a non-branch location.