Remote branch inspections for broker-dealers are likely to continue as a viable option through 2022 and could be part of the future of exams in the years beyond, according to comments from Financial Industry Regulatory Authority executives.
Finra CEO Robert Cook said yesterday that he’d like to see relief from Rule 3110 — which requires firms to inspect branches that don’t supervise other locations every three years — extended through 2022.
The self-regulator has been operating under a temporary change since July 2020 that allowed for inspections to occur without a visit to the office during the pandemic. That change is set to expire at the end of the year.
“What I'd like to see happen here, at least where my thinking currently is, is that we would extend it into next year,” Cook said at the Securities Industry and Financial Markets Association’s Compliance and Legal Virtual Forum.
“But I hope we'll also step back and learn from the experiences [we had] over the last two years. Many firms learned a lot from how they conducted remote exams, and I think that we can put that learning together to think about a more risk-based approach, ensuring there's real, good standards that firms would be held to for going on site — but also recognizing that that doesn't necessarily make sense 100% of the time and that the rule would have some flexibility built into that,” he added.
At a different session at the same conference, Finra chief legal officer Robert Colby said firms have expressed concern about having to hold branch inspections in their homes and potentially register hundreds of remote work locations as branches.
In December, Finra issued regulatory notice 20-42, which asked for comments on lessons learned from the pandemic. Many commented that rules relating to a physical location or office were outdated due to technology, according to Colby.
“If home’s viewed as a firm office, then it is supposed to be in a three-year cycle. The idea of having people come into their house with their kids, likely not vaccinated, it gives them a lot of concern,” Colby said. “We are talking to the [Securities and Exchange Commission] about extending the exemption at least as a start at least into some part of ’22, so we can give some certainty. We hope that we’ll do that relatively soon.”
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