SR-FINRA-2023-007

On April 12, 2023, the Financial Industry Regulatory Authority, FINRA, published on its website a press release stating that it has filed with the U.S. Securities and Exchange Commission (SEC) a proposed rule change, SR-FINRA-2023-007, to adopt „Supplementary Material .18 (Remote Inspections Pilot Program) under FINRA Rule 3110 (Supervision)“.
Specifically, FINRA seeks to install a Pilot Program that would provide member firms the option, subject to certain conditions, to complete remotely their annual inspection obligations under FINRA Rule 3110(c) (Internal Inspections) without an on-site visit to the office or location. The Pilot Program would cover the „Office of Supervisory Jurisdiction (OSJ)“, branch offices, and non-branch locations and would align FINRA’s inspection requirements with modern work practices. The participation in the Pilot Program would be subject to stringent conditions including the following, among others:
– Member firms would have to pre-assess specific location risks to determine whether or not an office is suitable for remote inspections and set out a list of criteria for determining suitability;
– Member firms would have to adopt written policies and procedures for remote office inspections which should cover the scope of the inspections, the methodology used for the inspection (e.g. technologies used for the inspections), the frequency of the inspections, etc. to ensure that the „inspected“ location is compliant with all applicable securities rules and regulations;
– Member firms would be required to regularly review their policies and procedures and adjust them – if necessary – to ensure that the offices are functioning as intended. In this context, FINRA particularly notes that any potential red flags identified during previous inspections would have to result in an adjustment of the policies and procedures so as to ascertain a future focus on the issues of concern;
– Member firms would have to adopt adequate recordkeeping procedures for performing remote inspections;
– Member firms would have to adopt adequate supervisory technology that allows them to monitor the operations at (branch) offices; and
– Member firms would have to submit to FINRA a quarterly report on performed office inspections and would have to submit to FINRA the above noted policies and procedures.