FINRA Gets Thumbs Up from SEC for Remote Work Proposals

The U.S. Securities and Exchange Commission (SEC) approved a proposal by the Financial Industry Regulatory Authority Inc. (FINRA) to improve control of brokerage industry personnel working from home.

The proposed rule would allow firms to classify private residences used for monitoring activity as “non-branch locations.” Instead of the annual inspections required of typical branches, these locations would be subject to compliance assessments at least every three years.

“To help mitigate the potential risks associated with a less frequent inspection cycle, the proposed rule change also would establish safeguards that limit [residential supervisory location] designation to certain firms and locations based on criteria designed to minimize risk,” according to the proposal.

The safety measures include prohibiting certain firms from using this model, establishing conditions for designation — such as prohibiting client meetings and handling clients’ securities at the location — and requiring firms that use the model to provide certain data to FINRA on a regular basis.

The suggested modification was introduced in response to the pandemic, which spurred many businesses to use remote working and resulted in authorities temporarily suspending certain compliance standards.

The SEC also authorized FINRA’s request for a three-year pilot program to allow remote inspections, which would allow businesses to complete some inspection criteria without on-site visits, subject to certain restrictions, such as limiting participation to particular firms.

The proposal also requires data collection from companies participating in the pilot program to assist FINRA in making permanent rule modifications.