Latest sign of regulators’ ongoing efforts Adapting to Financial Planners’ New Love for Remote Work, FINRA has again adjusted its branch executive resident office proposal.
Broker-Dealer Self-Regulator Amendments filed on Wednesday A previous proposal would have allowed a supervisor’s residence to be designated as a “non-branch” subject to internal inspections every three years, rather than the current annual requirement. Among other things, the latest tweaks increase the criteria for disqualifying a residence from being classified as a non-branch and require firms to conduct a risk assessment before allowing less frequent internal inspections of the regulator’s head office.
The amendment is just the latest change to FINRA’s rules for branch supervisory headquarters, also known as residential supervisory locations. FINRA’s remote work proposal was first submitted in July 2022.
after the deadline has been extendedthe proposal is Repealed and replaced on March 29 Prohibits firms from having a residential regulatory location if, among other things, they are subject to regulatory investigation or have only registered with FINRA within the past 12 months
As the deadline has been extended again, the rule Plan to get approval from the SEC Wednesday.New Amendment Now Available to the Public 35 days left to comment on the proposal After publication in the Federal Register.
Jennifer Szaro, chief compliance officer at brokerage XML Securities in Falls Church, Va., said she was optimistic the latest round of tweaks meant the rule would be adopted soon.
“I’ve started reviewing the terms and trying to comply with the rule amendments,” Saro said.
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Saro said the proposal would modernize regulations designed for the “brick and mortar” world. This would save companies from having to spend time and internal resources each year overseeing their own regulators.
“It really distracts us from the things that need attention,” she said.
Like many industries, Remote work has become commonplace for brokers and investment advisors during the COVID-19 pandemic. FINRA and other industry regulators have responded to social distancing orders and business closures imposed to slow the spread of the disease with a variety of emergency measures aimed at encouraging remote work. But regulators have since struggled to find ways to make those policies permanent.
FINRA’s amendment says the latest round of adjustments comes largely from Responses to 13 communications received About the latest version of the proposed rule. In a comment, Mark Quinn, director of regulatory affairs at Cetera Financial Group, expressed general support for FINRA’s plan, but said the current wording is too vague about what regulatory action might disqualify a business from having a residential regulatory location.
Quinn wrote that unsubstantiated customer complaints were enough.
He wrote: “The securities industry is unusual in that it requires persons to report allegations of securities-related matters, regardless of their accuracy or veracity, without formal adjudication and which may persist for several years after being fired or settled. years of public notice.”
FINRA’s amendment responds to this and other similar criticisms by stating that firms can only have a residential supervisory location if they are subject to an investigation or proceeding “alleging that they failed to reasonably supervise others.”
Quinn also challenged a provision that would disqualify a person from working at a residential supervisory location if that person had been an executive at their current company for less than a year. Quinn said many of the company’s employees had supervisory experience from a previous employer and should not be affected by a recent job change.
FINRA’s amendment would allow regulators to count the experience of firm affiliates or subsidiaries that are “registered as broker-dealers or investment advisers.”
While FINRA’s amendments have loosened requirements for residential regulatory locations in some areas, they have tightened them in others. For example, it would disqualify companies that, at their discretion, impose enhanced supervision of their employees from having a residential supervisory location. The previous version only excluded brokerages subject to increased oversight by external regulators.
The amendment would also prevent companies from designating a home office as a residential regulatory location unless they first carry out a risk assessment. The assessment will consider, among other things, the number of customer complaints the company receives, record breaches or other regulatory “red flags”.
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In addition to these stricter requirements, there are other restrictions on what supervisors can do in remote offices. For example, anyone working in a residential regulatory location cannot use it to store records or documents required by FINRA or federal rules.
They must also abide by existing rules, including bans on meeting with clients in remote offices, conducting certain types of transactions from home and using anything other than the parent company’s computer system for electronic communications.
Many of the restrictions came in response to criticism from groups such as the investor protection group Public Investor Advocacy Lawyers Association and the North American Securities Administrators Association, which represents state regulators. PIABA President Hugh Berkson wrote in a letter to the SEC on April 26 that he remains skeptical about the industry’s ability to regulate remotely.
“PIABA submitted this comment because the Bar Association believes that the amendment is contrary to FINRA’s stated investor protection goals,” Berkson wrote. “It is understood that FINRA is attempting to make changes as the use of virtual This leaves considerable opportunity for advisors working from home to circumvent the rules and creates new opportunities for these advisors to engage in sales abuse.”
