Back in May, the Financial Industry Regulatory Authority (“FINRA”) advised that they were planning to clarify responsibility for supervisors concerning remote work in the financial industry, and hoped to have new rules finalized by the end of 2022. That plan is getting closer to reality.
On July 15, FINRA submitted to the Securities and Exchange Commission (“SEC”) its proposed change to FINRA Rule 3110.[1] The SEC will hold a public comment period and then vote on whether to approve it. The rule change is meant to make it easier for supervisors to work remotely from home by giving firms and brokers the ability to more easily register and submit to inspections of home offices. For instance, the proposal would allow a broker’s private residence where supervisory activities are carried out to be considered a “residential supervisory location,” if certain conditions are met.
Under the proposal, for a home office to qualify as a “residential supervisory location” it must have just one person associated with a firm conducting business at that location, while also assigned to a specific branch office reflected on all business cards, stationary, and other communications to the public. The private residence cannot be used to meet with clients, handle funds or securities, and communications by a broker must go through the broker-dealer’s monitored electronic system. Moreover, all books and records that are to be preserved under all securities laws and FINRA rules must be maintained outside the residential location. Further, these new rules are not to apply to brokers or firms that are ”restricted,” are under review by FINRA, or satisfy certain other conditions requiring heightened supervision.
Prior to the onset of the COVID-19 pandemic, residential locations where supervisory activities were carried out would have had to file a Uniform Branch Office Registration Form and have their home registered as a branch. This would then subject the location to FINRA’s regulatory regime of annual inspections and other rules. Back in 2020, FINRA suspended that filing requirement, and since the work-from-home trend has not abated and has even grown, their proposal to Rule 3110 will essentially make permanent the post-pandemic remote office regime for supervisors. If adopted, inspections of a “residential supervisory location” would happen every three years, not annually like other branch locations that engage in supervisory activity.
We will continue to monitor for additional developments. If you need any individualized counseling on FINRA’s proposed supervisory work from home rule, contact Mattiace Tetro LLC.
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