FINRA officials believe that brokers who work from home do not have to list their addresses online for all to see.
The latest rule proposals being considered by the broker-dealer industry’s self-regulator would allow brokers working out of private residential offices to avoid having their addresses appear in FINRA’s online BrokerCheck database. This online treasure trove provides a wealth of information on brokerage firms and individual brokers, including their locations and whether they have been the subject of customer complaints.
FINRA Chief Executive Robert Cook told an audience at his organization’s annual conference in Washington, D.C., this week that the regulator plans to propose further rule changes to allow brokers to operate away from their home offices. A FINRA spokesperson later confirmed that an idea was under consideration to prevent addresses that brokers identify as belonging to their private residential offices from appearing in the online BrokerCheck database.
Investment advisers registered with the Securities and Exchange Commission, which also oversees the Financial Industry Regulatory Authority, are already permitted to hide the addresses of their home offices from similar public disclosure databases for investment advisers, the spokesman said. FINRA’s proposal, which will soon be submitted to the SEC, would apply the same rules only to brokerage businesses in the wealth management industry.
Hugh Berkson, chairman of the Public Investors Advocacy Bar Association, an investor interest group, said he understood the desire for residential privacy. At the same time, he said, he wondered if clients would be interested in knowing what kind of office it would be if brokers chose to work from home.
“Let’s say an advisor brags about his or her success beyond belief, but a diligent investor discovers that the advisor actually lives in a very, very sleazy neighborhood,” Berkson said in an email. “This discrepancy Might matter because investors determine how much they trust their advisors.”
Despite such skepticism, other FINRA officials confirmed at the annual meeting that they remain committed to ensuring that brokers can still conduct business away from their home offices.
“There are people who desperately need to be able to work from home and be able to get work done from home,” Robert Colby, FINRA’s executive vice president and chief legal officer, said Thursday during a panel discussion with senior agency officials. Supervised activities that can be effectively done at home.”
Colby’s comments come weeks after FINRA made another change to two proposals designed to accommodate brokerages who want to work remotely. The first of a pair allows Residences are considered “non-branch” offices and are only subject to internal inspections every three years. Current rules require an annual inspection.
Second Proposal Would Have FINRA Launch a Three-Year Pilot Program Test whether inspectors can conduct internal compliance inspections as effectively as in-person remote inspections. Under emergency rules passed in March 2020 shortly after the COVID-19 pandemic began, the broker-dealer industry was allowed to conduct remote branch inspections for about three years.
Both proposals have drawn opposition from groups such as PIABA and the North American Association of Securities Administrators, which represents state and provincial regulators in the United States, Canada and Mexico.
Although FINRA has learned about remote regulation over the past three years, its policies may still need to be adjusted, Colby said. The pilot program should give regulators a better idea of what changes are still needed.
Some people were already working remotely when COVID-19 hit, Colby said. But that does nothing to prepare the industry for what’s to come.
“We went into COVID with no preparation,” Colby said.
Colby also confirmed that FINRA plans to revisit two long-standing concerns: brokers’ outside business activities and restrictions on client gifting. For gifts, FINRA now has a $100 limit on the amount that can be given to or received from a customer in one year.
Colby suggested the figure would need to be adjusted for inflation, but he did not specify by how much. FINRA also allows exceptions for gifts given for weddings, the birth of a child, or for purposes other than business relationships.
As for outside business activity, FINRA’s current rules now routinely require brokerage firms to monitor a representative’s side business to prevent possible conflicts of interest. For years, regulators have considered cutting the types of outside business that must be reported.
Proposals finally shelved in 2018for example, would make the firm not responsible for overseeing a representative’s personal investments or business done with an independent advisory firm.
Colby acknowledged that the industry has struggled to strike the right balance with regulation of outside business activity.
“Companies want to know what their representatives are doing,” he said. “They don’t want to be surprised by some activity going on in the background. But they don’t want to have to approve or oversee all of that activity.”
