New Year, New Policies? FINRA’s Pending Remote Office Policy Changes

By Lindsey Neal

More than two years after issuing pandemic-driven temporary authorizations related to home offices and remote inspections, the Financial Industry Regulatory Authority (FINRA) may be close to making these changes permanent. In separate filings to the Securities and Exchange Commission (SEC), FINRA has proposed allowing home offices to be classified as “non-branch offices,” thus reducing the frequency of internal inspections from annually to every three (3) years and extending its COVID-era pilot program for conducting office inspections remotely. The current temporary authorizations will expire on Dec. 31, 2022. 

With change on the horizon, broker-dealers and securities professionals need to be aware of how these changes will affect their operations. Here’s a breakdown of what FINRA-regulated organizations should know about these pending work-from-home and office inspection policy changes: 

Work from Home 

FINRA’s proposed changes to Rule 3110 would, under certain circumstances, allow organizations to classify home offices as non-branch “residential supervisory locations.” FINRA and the SEC significantly relaxed the current rule’s stipulations during the COVID-19 pandemic to accommodate the need for remote work, and recognizing the new reality of a hybrid or fully remote work environment, FINRA has proposed extending this flexibility post-COVID with some limitations, including: 

  • Limiting the number of associated persons that can conduct business at the location to one
  • Prohibiting entities from advertising the location to the public and employees from meeting with clients or prospects there
  • Barring the handling of customer funds or securities at that location
  • Assigning the associated person to a specific branch office
  • Requiring that all electronic communications be made through the member’s electronic system; and
  • Ensuring that books and records are being maintained. 

These officially recognized home offices will also be subject to regular, periodic inspections, though the proposed changes would decrease the frequency from annual, which is the current standard, to every three years. 

Remote Inspections 

In addition to its remote office supervision changes, FINRA has also proposed extending its pilot program for conducting remote inspections, with certain exceptions, to allow more time for data collection regarding the efficacy of these inspections. Firms with disciplinary records or under regulatory investigation would still be required to conduct in-person inspections of remote offices. FINRA covered several best practices for conducting office inspections virtually under the temporary changes to Rule 3110, and many, if not all, hold true under the proposed permanent changes. 

With the expiration of comment periods for both the proposed changes, broker-dealers and securities professionals should anticipate a final decision from the SEC before the year’s end and prepare accordingly. Technology will be essential to FINRA-regulated firms’ ability to meet these new requirements and address the inherent risks of remote work environments, so now is the time to search for solutions to facilitate these remote office inspections.