The Financial Industry Regulatory Authority has proposed regulating the use of home offices as non-branch locations.
The proposed rule change — which would classify eligible home offices as home offices as a "residential supervisory location" — would "allow some of the work arrangements adopted during the pandemic to continue with only small additional compliance costs."
The proposal also "creates an opportunity for continued innovation in workforce arrangements" and supports "the competitiveness of the broker-dealer industry," according to Finra.
These residential supervisory locations must have only one associated person conducting business at the location and that person must be assigned to a specific branch office; must not be held out to the public as an office and thus can't be used to meet with clients or prospects; musn't handle customer funds or securities; must use electronic communications within the broker-dealer's electronic system; and must maintain books and records.
Homes serving as non-branch locations soared by 53% to 37,290 at the end of April from 24,369 on Dec. 31, 2019, coinciding with the Covid-19 pandemic and companies allowing their staff to work on site as well as remotely, according to the proposal.
By April 30, Finra had 151,463 registered branch locations, down from 152,682 at the end of 2019.
Regardless of the state of the pandemic, Finra says feedback from its member firms suggests that “this model will endure.”
Some of these residential locations would have had to file the Form BR — the Uniform Branch Office Registration Form used for branch office registration, notice filing, closing or withdrawal — but Finra temporarily suspended the filing requirement during the pandemic, according to the self-regulator's proposed rule change explanation.
Finra has filed the proposed change with the Securities and Exchange Commission, noting it is meant to “align Finra’s definition of an office of supervisory jurisdiction and the classification of a location that supervises activities at non-branch locations with the existing residential exclusions set forth in the branch office definition to treat a private residence at which an associated person engages in specified supervisory activities as a non-branch location, subject to safeguards and limitations,” the watchdog says.
However, these locations will still need to register as OSJs if the current proposal doesn’t get adopted, according to the proposal.
Under the proposal, meanwhile, non-branch locations would be subject to inspections at least every three years. OSJs and other supervisory branch locations are subject to annual inspections, according to Finra.
The proposal was first reported by ThinkAdvisor.
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