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FINRA remote supervision proposal draws continued opposition

On Behalf of | Sep 19, 2023 | FINRA Compliance

The Financial Industry Regulatory Authority is still facing some opposition over its efforts to allow remote supervision of registered representatives, InvestmentNews reports.

Despite several revisions to the proposal, the North American Securities Administrators Association (NASAA) has said it does not go far enough to protect investors.  NASAA is the association of state securities administrators from throughout the U.S.

FINRA has proposed a three-year pilot program that would allow most firms to conduct inspections of branch offices remotely without visiting them onsite.  It would extend a temporary rule implemented in November 2020 during the COVID-19 pandemic to relieve firms of the obligation to perform on-site, in-person inspections amid the challenges of the health crisis.

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.

NASAA has expressed concerns over the proposal and said it would continue to emphasize areas where it believes changes are needed.  Specifically, the organization said during a public comment period Aug. 29 that the plan should be revised to establish an annual inspection schedule for RSLs.  NASAA also called for additional steps regarding risk assessment, supervisory procedures and regulatory disclosures for the pilot program.

“We have previously noted in comment letters that we appreciate FINRA incorporating some of our suggestions, even as we have encouraged FINRA to incorporate still more and the SEC to require them to do still more,” NASAA spokesperson Fred Baldassaro said. “We will continue to work with FINRA.”

Another opponent of the FINRA plan has been the Public Investors Advocate Bar Association, an international bar association whose members represent investors in disputes with the securities industry.

The PIABA spoke out against the plan during the public comment period. “PIABA submits this comment because the bar association believes the rule proposal runs counter to FINRA’s stated objective of investor protection,” the comment letter said. “While it is understood that FINRA is attempting to change with the increased use of virtual technology, it leaves considerable opportunity for advisors working from home to skirt the rules.”

The Securities and Exchange Commission must approve FINRA’s proposal before the rule becomes final.

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