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Bar association opposes FINRA plan on remote inspections

On Behalf of | Jun 8, 2023 | FINRA Compliance

The Financial Industry Regulatory Authority’s plan to allow remote office inspections continues to draw opposition from an organization of attorneys, AdvisorHub reports.

The Public Investors Advocate Bar Association spoke out against the proposal in a recent comment letter filed with the Securities and Exchange Commission. The PIABA is an international bar association whose members represent investors in disputes with the securities industry.

FINRA has proposed a three-year pilot program that would allow most firms to conduct inspections of branch offices remotely without visiting them onsite. In April, FINRA filed the latest revision to its plan with the Securities and Exchange Commission, the third version to be submitted since August 2022.

The proposal would amend 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.

In its letter to the SEC, the PIABA called FINRA’s proposed rule change “misguided”, and a “fundamentally flawed idea.”

“While it is understood that FINRA is attempting to leverage the increased use of virtual technology, the rule proposal leaves considerable opportunity for advisors to skirt the rules,” said PIABA President Hugh Berkson. “The amendments made to this rule proposal do not address the significant harm done to investors by rogue brokers working without someone adequately supervising them.”

The amended plan sets forth certain conditions for a home office to be considered a non-branch residential supervisory location. FINRA said it made the adjustments to address concerns expressed by previous commenters. The authority said it believes the pilot program has safeguards that enable it to preserve the investor protection objectives of its inspection rule.

The SEC has until late July to approve or deny the authority’s latest proposal.

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