FINRA recently re-proposed amendments to its supervision rule
that would enable firms to treat a private residence as a
non-branch location even if specified supervisory activities are
conducted there. Dubbed by FINRA as a Residential Supervisory
Location or RSL, the permissible supervisory activity largely
tracks that which is specified in the OSJ definition in FINRA Rule
3110(f) (including related to order execution and approval of
retail communications). Today, this location would be an OSJ.
As proposed, RSL activity must, for the most part, fit within
the existing Rule 3110 guardrails for private residence non-branch
office locations. For example, no customer funds or securities
could be handled at the location and no customer meetings or sales
activity could take place at the location. RSJs would also be
subject to periodic inspections, which would be presumed to be at
least every three years, rather than an annual inspection
requirement for OSJs and other supervisory branch offices.
The re-proposal makes several adjustments in response to prior
industry concerns, including:
- Prohibiting records from being physically or electronically
maintained and preserved at the RSL - Expanding the ineligibility criteria to include suspended
firms, firms that have been a FINRA member for less than 12 months,
and residences of associated persons subject to an investigation or
other action relating to a failure to supervise - Requiring firms to provide FINRA with quarterly lists of
designated RSLs
The proposal follows an initial attempt FINRA withdrew in 2022
after opposition from NASAA, PIABA, and other key industry groups.
Those groups argued that permitting remote supervision would
undermine investor protection. They will likely provide additional
comments. NASAA, for example, previously urged the SEC to require
that FINRA embark on a lengthy and complicated process before
re-proposing its RSL rules, including conducting a wide-ranging
examination sweep supervised by the SEC, issuing a public report on
the results of that sweep, and conducting a multi-step notice and
comment process. FINRA did not engage in this process, although it
did respond with adjustments intended to address other concerns
expressed by NASAA and other commenters.
On the other hand, many broker-dealers will likely support the
proposal (even if in their silence), given the challenges they are
experiencing getting their personnel to return to the office.
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guide to the subject matter. Specialist advice should be sought
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