As the Financial Industry Regulatory Authority prepares to launch its Remote Inspections Pilot Program, the authority is providing resources about the initiative for member firms.
According to a report by ThinkAdvisor, FINRA launched a web page with a detailed overview of the program that is due to begin on July 1 and will run through June 30, 2027.
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 Securities and Exchange Commission in November and adopted by FINRA in January.
Under FINRA Rule 3110.18, the authority is establishing a voluntary, three-year remote inspections pilot program “to allow eligible member firms to fulfill their Rule 3110(c)(1) inspection obligation of qualified branch offices, including OSJs and non-branch locations remotely, without an on-site visit to such offices or locations, subject to specified terms.”.
Firms must affirmatively elect to participate in the program by providing FINRA with an “opt-in notice” and once enrolled, must affirmatively elect to withdraw by providing FINRA with an “opt-out notice,” in the form and manner prescribed by FINRA.
The web page covers key topics pertaining to the pilot program. It explains that “eligible member firms will have the flexibility to be inspected “without an on-site visit to the office or location, subject to specified terms that include conducting and documenting a risk assessment, and producing written supervisory procedures for conducting remote inspections and inspection data to FINRA.”
The page also includes a reminder that Rule 3110.17, the temporary remote inspections rule, will end on June 30. Thus, a firm that does not participate in the Pilot Program cannot satisfy its obligations under Rule 3110(c)(1)(A), (B) and (C) remotely. These firms must conduct on-site inspections of each of their offices of supervisory jurisdiction (OSJs), supervisory branch offices, non-supervisory branch offices and non-branch locations (i.e., unregistered offices).
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, the temporary remote 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 is reminding firms that those who take part in the Remote Pilot Program must conduct a risk assessment for that office or location. The assessment must document the factors considered and take into account any higher risk activities or people assigned to the office or location.
As stated in Rule 3110.18(b)(2), the risk assessment must consider a number of different factors which include:
-The volume and nature of customer complaints;
-The volume and nature of outside business activities, particularly investment-related;
-The volume and complexity of products offered;
-The nature of the customer base, including vulnerable adult investors;
-Whether associated persons are subject to heightened supervision;
-Failures by associated persons to comply with the member’s written supervisory
-Any recordkeeping violations.
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.
