Representing financial professionals, financial institutions and investors in investment loss, employment and disclosure matters, and in regulatory investigations nationwide.

FINRA issues statement to clarify residential supervisory location rule

On Behalf of | Jun 3, 2024 | FINRA Compliance

The Financial Industry Regulatory Authority issued a statement it said was aimed at correcting misinformation about its new residential supervisory location (RSL) rule, reports ThinkAdvisor.

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.   Rule 3110.19 (Residential Supervisory Location) became effective on June 1, and Rule 3110.18 (Remote Inspections Pilot Program) becomes effective on July 1.

Under the RSL rule, 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.

But according to FINRA, some broker-dealers have been stating incorrectly recently that the new rules will require them to bring their workforce back to the office full time.

In fact, the authority stated, its rules are designed to provide member firms greater flexibility — not less — to allow registered persons to work from home, after the expiration of temporary COVID-19 relief from existing requirements.

The statement read in part, “FINRA notes that a location from which an associated person regularly conducts securities business on behalf of a member firm, including a home office, has always been subject to possible disclosure, registration and inspection under FINRA rules and applicable rules of other regulators. The COVID-19 pandemic prompted FINRA to provide member firms with temporary relief from many of these requirements. After a three year plus rulemaking process on our new rules, during which FINRA engaged in substantial outreach to member firms, FINRA informed member firms in January that the temporary relief would come to an end on May 30, 2024, a year after the official end of the pandemic.”

The authority said it took the comments of member firms into account when developing the final rules, and that there was strong support from firms for the new policy.

As for what prompted FINRA’s statement, one industry expert pointed to comments made by firm CCOs at the authority’s annual conference last month.

Carlo di Florio, Global Advisory Leader at ACA Group, told ThinkAdvisor that the executives discussed “some of the operational challenges firms are facing with the new rules, including statements that some are bringing folks back to the office.” He added, “FINRA is simply clarifying that the new framework they are introducing is designed to create more flexibility for hybrid and work from home, not less,” di Florio said.

“All FINRA is saying is that if you’re going to continue to allow your persons to work remotely … you’ll need to supervise and inspect those offices like you would any other office,” said Ben Marzouk, partner at Eversheds Sutherland in Washington.

Rule 3110.19(d) requires a member firm that elects to designate any of its offices or locations as RSLs to provide FINRA with a current list of them by the 15th day of the month following each calendar quarter in the manner and format as FINRA may prescribe.

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.