The Financial Industry Regulatory Authority has revised its plan involving the use of home offices as non-branch locations, according to ThinkAdvisor.
FINRA refiled the amended plan with the Securities and Exchange Commission. It involves proposed changes to FINRA Rule 3110, which
requires member firms to maintain a system of supervising the activities of their personnel to ensure compliance with securities laws and regulations.
The authority’s ‘Residential Supervisory Locations’ (RSL) proposal would allow a broker working remotely to supervise other brokers without the broker’s home being designated as a branch office. The RSL would be subject to examination by the parent brokerage once every three years instead of the annual inspection that must be performed at an office of supervisory jurisdiction.
The proposed change was initially filed with the SEC last July but during the public comment period it drew criticism from the Public Investors Advocate Bar Association, which asserted that the plan was flawed and left opportunities for “advisors working home from home to skirt the rules.”
The amended plan sets forth certain conditions for a home office to be considered a non-branch residential supervisory location. FINRA said its adjustments are taking into account the concerns expressed by commenters by:
- enhancing the conditions for RSL designation relating to books and records to provide, among things, that records are not physically or electronically maintained and preserved at the location;
- expanding the list of criteria that would make a firm ineligible to rely on proposed Rule 3110.19 to include, among other things, a member firm that has been suspended or a firm that has been a FINRA member for less than 12 months;
- adjusting the ineligibility criterion that would make an office or location ineligible to rely on proposed Rule 3110.19 where an associated person is the subject of an investigation or other action relating to a failure to supervise; and
- requiring firms to provide, on a quarterly basis, a current list to FINRA of all locations designated as RSLs.
The SEC will now have 240 days from the day the plan is published in the Federal Register to approve or deny the changes.
FINRA said it proposed the changes with the expectation that the trend toward remote work brought about by the pandemic will continue. “The technology advancements that facilitated the transition to working outside the conventional office setting on a broad scale has not only effected a profound change in lifestyle and workplace practices for member firms, but provided FINRA an opportunity to consider aspects of Rule 3110 that may benefit from modernization,” the authority said.
The attorneys at Lewitas Hyman understand the complexities that come with being the subject of a regulatory inquiry by the SEC, FINRA, and other self-regulatory organizations, and we have the experience to guide and advise you through any type of regulatory investigation. If you are the subject of a regulatory proceeding, contact us at (888) 655-6002 or through our online contact form for a free consultation.
