FINRA Remote Supervision Proposal Draws

Continued Opposition

NASAA is pushing back against FINRA’s attempt to allow remote supervision of

registered representatives. The agency is worried there are not enough safeguards
in place to protect investors.

The Financial Industry Regulatory Authority is still facing some opposition over its efforts
to allow remote supervision of registered representatives, InvestmentNews reports.

Despite several revisions to the proposal, the North American Securities Administrators
Association (NASAA) has said it does not go far enough to protect investors. NASAA is
the association of state securities administrators from throughout the U.S.

FINRA has proposed a three-year pilot program that would allow most firms to conduct
inspections of branch offices remotely without visiting them onsite. It would extend a
temporary rule implemented in November 2020 during the COVID-19 pandemic to
relieve firms of the obligation to

perform on-site, in-person inspections amid the challenges of the health crisis.

The proposal would amend FINRA Rule 3110, which requires member firms to maintain
a system of supervising the activities of their personnel to ensure compliance with
securities laws and regulations. The authority’s ‘Residential Supervisory Locations’ (RSL)
proposal would allow a broker working remotely to supervise other brokers without the
broker’s home being designated as a branch office. The RSL would be subject to
examination by the parent brokerage once every three years instead of the annual
 inspection that must be performed at an office of supervisory jurisdiction.

NASAA has expressed concerns over the proposal and said it would continue to
emphasize areas where it believes changes are needed. Specifically, the organization
said during a public comment period Aug. 29 that the plan should be revised to
establish an annual inspection schedule for RSLs. NASAA also called for additional steps
regarding risk assessment, supervisory procedures and regulatory disclosures for the
pilot program.

“We have previously noted in comment letters that we appreciate FINRA incorporating
some of our suggestions, even as we have encouraged FINRA to incorporate still more
and the SEC to require them to do still more,” NASAA spokesperson Fred Baldassaro
said. “We will continue to work with FINRA.”

Another opponent of the FINRA plan has been the Public Investors Advocate Bar
Association, an international bar association whose members represent investors in
disputes with the securities industry.

The PIABA spoke out against the plan during the public comment period. “PIABA
submits this comment because the bar association believes the rule proposal runs
counter to FINRA’s stated objective of investor protection,” the comment letter said.
“While it is understood that FINRA is attempting to change with the increased use of
virtual technology, it leaves considerable opportunity for advisors working from home to
skirt the rules.”

The Securities and Exchange Commission must approve FINRA’s proposal before the
rule becomes final.

The attorneys at Lewitas Hyman understand the complexities that come with being the
subject of a regulatory inquiry by the SEC, FINRA, and other self-regulatory
organizations, and we have the experience to guide and advise you through any type of
regulatory investigation. If you are the subject of a regulatory proceeding, contact us at
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