The Financial Industry Regulatory Authority is seeking to make its remote inspection pilot program permanent, according to an AdvisorHub report.
The plan, allowing broker-dealers to inspect their branch offices remotely rather than in-person and treat home offices as residential supervisory locations, was approved by the SEC in 2023. It included FINRA Rule 3110.19 (Residential Supervisory Location) and Rule 3110.18 (Remote Inspections Pilot Program).
Under FINRA Rule 3110, member firms are required to maintain a system of supervising the activities of their personnel to ensure compliance with securities laws and regulations. But when the COVID-19 pandemic began, a temporary rule was implemented to relieve firms of the obligation to perform on-site, in-person inspections amid the challenges of the health crisis. Firms were thus permitted to remotely inspect their brokers’ offices.
FINRA now says it is submitting a proposal to the SEC making the pilot remote inspection program permanent before it is due to expire in June 2027.
The plan was disclosed after a June meeting of the authority’s Board of Governors. “The proposal is informed by the data collected during the pilot program and recognizes the evolution of the modern workplace,” FINRA stated. It also incorporates feedback received after a regulatory notice seeking public comment from stakeholders.
It was reported in May that 970 firms were participating in the pilot program, or about 32% of FINRA firm members, covering about 86% of the registered representatives.
Patricia Ledesma, senior economist in FINRA’s Office of Chief Economist, said that onsite and remote inspections were uncovering comparable number of findings per inspection.
“What we observe is that both onsite and remote inspections are able to find all kinds of categories, all the categories of significant findings in the same relative frequency,” Ledesma said. “So that gives us some comfort that remote inspections don’t have any blind spots, which was one of the possible outcomes when we went into the pilot.”
FINRA’s board is also seeking to extend its reclassification of certain home office locations as remote supervisory locations that are required to be inspected once every three years rather than annually.
This proposal would “extend the presumptive inspection cycle for non-branch locations” and “simplify the approach for different types of” residential locations as well as “modify the supervisory ineligibility requirement” for advisors to work from home offices. FINRA said the plan is an effort “to modernize supervisory obligations to reflect how the member workplace operates today.”
FINRA’s rule modernizations in these areas were discussed in Regulatory Notice 25-07, in which the authority noted that advances in technology have transformed the workplace for member firms.
“FINRA believes that regulatory requirements should be routinely reviewed and modernized to reflect how the member workplace operates today—or could operate in the future—to reduce confusion or inconsistences that can arise when those requirements do not account for modern practices, to better support innovative approaches in conducting business, and to enable deployment of new technologies that can better serve markets and investors, among other benefits,” FINRA said.
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