The Financial Industry Regulatory Authority is once again seeking to extend a temporary rule allowing firms to remotely examine branch offices as it searches for a more permanent solution.
Finra on Monday submitted for immediate approval from the Securities and Exchange Commission a proposal to allow remote inspections through 2023. The temporary relief was set to expire at the end of 2022, and a separate rule proposal filed in July that would establish a pilot program for remote inspections could still be under review into next year, Finra said in the filing.
The extension “would avoid a potential lapse in the temporary relief while challenges from COVID-19 persist, provide firms regulatory continuity in meeting their inspection obligations during the remaining Commission review period of the Pilot Proposal, and allow firms time to adapt to the pilot program, if approved, and prepare for conducting on-site inspections, as applicable,” Finra said.
Under Monday’s proposal, the temporary relief will automatically expire on the effective date of the pilot program, if it takes effect, or on December 31, 2023.
The extension reflects the challenge Finra faces in crafting a permanent solution that gives firms more flexibility in hybrid work environments without sacrificing investor protections.
Finra in a separate proposal in July also sought to reclassify brokers’ home offices as “remote supervisory locations” requiring exams once every three years instead of annually. But the SEC on Monday further pushed back that proposal and issued an order to extend the review period rule by 21 days and allow for more comments.
That follows a previous delay when Finra in September extended the deadline to Monday for the SEC to approve or deny the proposal amid concerns about whether it would reduce oversight of brokers.
In August, state securities regulators asked the SEC, which oversees Finra, to extend the temporary relief as necessary for Finra to “build the record necessary to assess and then offer evidence-based proposals.”
“Underpinning the Proposals is Finra’s largely unsupported assertion that electronic monitoring has advanced sufficiently to allow industry to risk replacing in-person inspections and supervision with unspecified technological alternatives,” Melanie Senter Lubin, the former president of the North American Securities Administrators Association and the Maryland Securities Commissioner, wrote in the comment letter.
Finra responded in its own comment letter on Monday saying that it stands by the original proposal on remote supervisory locations and will not be making amendments based on feedback.
“FINRA believes that home offices can be effectively supervised under this Proposal, and the proposed limitations on which locations would qualify to be designated as an RSL [remote supervisory location] provide important safeguards to allow the frequency of inspections potentially to be reduced only for lower risk locations,” the regulator wrote.
Finra’s response letter noted the “strong support” that the rule changes had received from the industry, including from its lobbying group, the Securities Industry and Financial Markets Association, and firms such as The Charles Schwab Corp.
Sitting NASAA president Andrew Hartnett in a statement lauded Finra’s push to extend the temporary relief as a sign that it and the SEC are taking “a more measured approach” to the issue of remote inspections.
Source: AdvisorHub
