S5:E4 | Analyzing FINRA Remote Supervision | Compliance in Context

The Securities Compliance Podcast: Compliance In Context

Welcome back to the Compliance In Context podcast! On today’s show, we review one of the most important topics impacting broker-dealers this year, namely the issue of remote supervision and how to address the new Residential Supervisory Location Designation and the Remote Inspections Pilot Program. In our Headlines section, we review the recent Supreme Court decision impacting 10b-5 disclosures and a recent FinCEN report tracking new information and trends surrounding elder financial exploitation. And finally, we’ll wrap up today’s show with another installment of Outtakes, where we look at the recent risk alert from the Division of Examinations focusing on new SEC Marketing Rule violations.

Headlines

• Supreme Court decision impacting 10b-5 disclosures
• FinCEN Issues Analysis on Elder Financial Exploitation

Show

Interview with Ben Marzouk and Andrew Mount

• Reviewing the history of remote work and related compliance monitoring and supervision
• What does FINRA consider an office? What are the implications of how that’s defined?
• How FINRA is managing remote work in general?
• What is Regulatory Notice 24-02?
• Discussing the impact of FINRA Rule 3110.19 (Residential Supervisory Location) and FINRA Rule 3110.18 (Remote Inspections Pilot Program)
• What are the practical applications of these new rules?
• How do you see the issue or remote work evolving throughout the course 2024?

Outtakes

• SEC Risk Alert: Initial Observations Regarding Advisers Act Marketing Rule Compliance

Quotes

14:50 – “People soon realized that no one was really going back to the way things used to be five days a week in a set physical office location. To some extent, people were going to continue to work from home for some period of time, even at the pandemic subsided. So with that in mind, FINRA reminded firms that, ‘hey, if you’re going to continue to allow people to operate their home and do brokerage business from their homes, you’re going to need to supervise that location.’ And that supervision would mean inspection on some regular set schedule. It would also mean, and we can get into it later, thinking about your membership agreement.” – Ben Marzouk

20:13 – “If an associated person works two days a week from home and three days from the office, FINRA’s staff has said that that would mean towards being a regularly working at home arrangement, and you’d have to count that residential location and as a person. office. I would say that that’s not to say that just because someone’s one day at home and four days in the office during the week you don’t need to count the one day at home, you need to look at the locations where your associated persons work on a routine and predictable schedule with a firm’s knowledge and some sort of formalized arrangement and, you know, make that determination. by case basis. It’s a really a facts and circumstances analysis. You know, that FINRA, as staff has said recently, at least, that of locations that you use on an ad hoc basis, so I’m thinking locations where you work from the office five days a week, but you stay at home on Friday because you have a contractor coming or your kids are coming.” – Ben Marzouk

28:10 – “The one area where FINRA’s management of remote work has evolved has been, I think, with the inspection requirements, and we can get into the specifics of the rule later. But, you know, traditionally, FINRA had always taken the view that under 3110, the obligation to inspect an office needed to be done in person, that you had to show up to, you would typically have a principal of the firm that would show up to the actual branch office location and inspect it and go through the actual physical location, look at files, look at the way business was being done and FINRA’s view is that you couldn’t phone it in. You had to physically be there to inspect the office.” – Andrew Mount

37:11 – “It’s something that FINRA staff, at least, has tried to get out in front of by saying, everything’s going to be reported on an aggregated basis. We won’t be able to tie the findings to any specific office or location or person. So they’re trying to get out in front of it and say that this is purely for data collection. It’s purely to support the eventual permanence of remote inspections. I would say that some firms do remain skeptical there. The last thing I’ll say on the remote inspections [pilot program] is a key takeaway. Like I said at the top, firms aren’t required to participate, but if you don’t participate in the pilot program, you’re going to have to go back to doing on-site inspections.” – Andrew Mount