Finra board approves remote-inspection proposals, sends them to SEC

The Finra board approved regulatory proposals that could enable brokerages to conduct remote inspections of branch offices beyond December.

Since the pandemic began, the Financial Industry Regulatory Authority Inc. has implemented temporary rules to allow remote supervision because brokerage personnel were to a large extent working from home. In January, Finra extended remote office inspections through the end of the year.

At its March 9-10 meeting, the Finra board approved sending to the Securities and Exchange Commission proposals that appear to make remote supervision an ongoing option, according to a Finra announcement Wednesday.

“The Board approved the submission to the SEC of several proposals related to member firms’ supervision obligations and process-related changes in response to remote and hybrid work environments,” Finra said in the announcement.

Finra did not provide any more detail on the proposals, which will be made public when Finra files them with the SEC. When that will happen is not clear.

The SEC must approve Finra rule proposals. The agency can open proposals for public comment if they’re not submitted with immediate effectiveness.

There are various rulemaking routes for Finra regulations. One is for the broker-dealer self-regulator to draft a rule and release a regulatory notice to solicit public input. The organization reviews the comments and advances a final rule to the SEC for approval. Alternatively, Finra can draft rules and submit them directly to the SEC for notice and comment.

Making remote inspections a permanent part of the Finra rulebook has been a priority for the brokerage industry. Skeptics warn that offsite inspections shouldn’t become widespread because they’re not as effective as in-person examinations for detecting regulatory violations.

“The silver lining to the pandemic is really highlighting what firms can do remotely and their supervisory practices,” Linde Murphy, a Finra board member and president of M.E. Allison & Co. Inc., said in a post-meeting video posted on the Finra website. “One of the actions items today was to take a look at how we can continue to work with firms to provide them guidance when they’re looking at post-pandemic operations and how we can update our rulebook to really modernize that with what offices look like now, how remote offices work, how we’re continuing to supervise those and working with firms.”

The Finra board also approved submitting to the SEC amendments to Finra rules that bring them into alignment with recent legislation ending forced arbitration of claims of sexual assault and harassment. Finra operates the arbitration forum that adjudicates disputes between customers, registered representatives and brokerages.

Among other items, the Finra board also approved the allocation of 2021 fines. The details will be revealed in an upcoming publication.  

Finra should retain remote supervision, says SIFMA’s Bentsen

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Andrew is half-human, half-gamer. He’s also a science fiction author writing for BleeBot.

Andrew Vincent
Andrew is half-human, half-gamer. He's also a science fiction author writing for BleeBot.
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