On July 1, FINRA amended Rule 3110.17 to allow broker-dealers to remotely inspect offices of supervisory jurisdiction (OSJs), branch offices and non-branch locations through the end of 2022. The substantive requirements remain unchanged. A broker-dealer must: (1) have procedures for conducting the remote inspection (procedures always matter); (2) continue to survey the activities conducted at that office or location; and (3) document the offices it inspected remotely and any offices or locations for which it imposed additional procedures or monitoring. There is nothing controversial about this.
However, the end date of 2022 might generate a bit of debate. In April, SIFMA – a trade association for broker-dealers, investment banks and asset managers – held its Private Client Conference. After which, SIFMA posted its Debrief, in which it stated at page 8:
As panelists discussed building the next generation of advisors, they noted the importance of attracting, engaging, developing, and retaining talent. Talent is key to this (and really any) industry, and firms need to be able to compete for talent. Some noted that the ability to offer employees the chance to work from home, at least on some level, is key to retaining and attaining talent.
As such, panelists noted the need for support and guidance from regulators at all levels – states, SRO level, SEC, FINRA, etc. Currently, firms are focused on enabling business to be done in a remote environment, while adhering to the existing regulatory framework. Panelists discussed the need for regulatory guidance to move forward and incorporate more permanent work from home schedules (emphasis added).
Indeed, remote work is commonplace in our post-pandemic society. It is the new normal for some generations or industries (and, if you are a fan of Pret A Manger – which I am – this includes Wall Street). Practus is a virtual firm that conducts its business remotely. I agree with SIFMA; the regulatory community must come to grips with how business is now done.
Until then, compliance staffs must continue to be on the front foot for surveilling their firm’s activity – wherever it is conducted. Two of the bigger issues with remote work that I see are:
Solving the Communications Dilemma
Wall Street caught the regulators’ attention for conducting business through unapproved communication systems. This is not necessarily because of remote work. However, as I see it, remote work puts a greater emphasis on this issue as associates are using their own equipment (probably a cell phone) as opposed to company-provided hardware onsite. Training – and re-training – associates on the proper use of the selected communications systems and having them periodically attest to their compliance with the firm’s communication policies are critical.
Creating the “Recipe” for Conducting the Remote Inspection
Firms will be hard pressed to conduct physical inspections of all of their associates’ remote locations. Assuming that the regulators ultimately craft some sort of permanent remote inspection regime, creating a checklist for conducting a remote inspection – and following it – is important to demonstrating to the regulators that the firm has an appropriate compliance system. It does not necessarily have to be high tech. Steps such as meeting with associates via videoconference to have them demonstrate how they access the firm’s supervisory procedures or secure their workplace are simple, yet meaningful.
Thank you for reading this article. Please know that I wrote it for informational purposes only (some may consider it ADVERTISING MATERIAL) and did not intend for it to be legal advice or to form an attorney-client relationship with you – especially in jurisdictions where I am not licensed to practice law. I encourage you to seek your own counsel to help you with your specific situation. To that end, I invite you to contact me if you would like to discuss my services.
Ryan Smith is a partner at Practus, LLP and enables broker-dealers, registered investment advisers and their associates to spend more time growing their business by helping them with the legal and compliance needs.”