FINRA tells firms there's no mandatory RTO — but it's time to register your remote locations

Despite rumors to the contrary, the lapse of FINRA's pandemic-related remote work rules this week doesn't mean firms have to start hauling advisors back to the office.

Instead, Friday was the last day that firms had to maintain remote offices without necessarily listing every one of their locations in regulatory filings. Moving forward, they'll have to make sure their documents used for registering individual employees (Form U4) and branch offices (Form BR) contain up-to-date information. They may also have to resume in-person inspections of their remote offices — unless they sign up for a pilot program meant to further test the industry's ability to police itself at a distance.

Like many industries, wealth management firms quickly switched to allowing employees to work from home shortly after the outbreak of COVID-19 in 2020. The Financial Industry Regulatory Authority, the brokerage industry's self-regulator, accommodated remote work in part by suspending requirements that firms register every new remote location or branch office.

But the message that remote work isn't coming to an end has apparently been missed in parts of the industry. FINRA took the unusual step on May 22 of issuing "a statement to correct information" about its new policies.

The notice says FINRA officials have seen various firms cite FINRA's new rules as grounds for requiring employees to return to the office.

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"This is incorrect," according to the statement. "FINRA notes that a location from which an associated person regularly conducts securities business on behalf of a member firm, including a home office, has always been subject to possible disclosure, registration and inspection under FINRA rules and applicable rules of other regulators. The COVID-19 pandemic prompted FINRA to provide member firms with temporary relief from many of these requirements."

Reeling them back in

Many of the biggest firms in the industry began putting employees under pressure to come back into the office well before the lapse of FINRA's pandemic-related rules. JPMorgan CEO Jamie Dimon, an outspoken critic of remote work, said in July 2023 that roughly three-fifths of the megabank's employees were back to being in the office five days a week.

Other firms, meanwhile, have cited FINRA's new remote rules, approved by the Securities and Exchange Commission in November, as reason for changing their own policies. Bloomberg reported on May 23 that Citi has told 600 of its U.S. employees that they have to return to the office full time. Bloomberg reported similar changes at HSBC and Barclays.

A Citi spokesperson said: "With the expiration of FINRA's COVID-related relief on May 31, approximately 600 Citi colleagues who previously performed certain activities outside an office environment will now be required to work full-time from a Citi office location going forward. The majority of Citi employees will continue to work on a hybrid schedule, with at least three days per week in the office and up to two days remotely."

Charles Schwab issued a statement Friday saying it is "taking steps to ensure we remain in compliance for the minority of our registered supervisors who are regularly working from home."

Smaller firms have also been adjusting their policies, although not necessarily in response to the new FINRA rules. Osaic, a large network of independent broker-dealers, has sent out a memo telling employees living within 40 miles of its main offices in Georgia, Nebraska, Florida, Minnesota and Arizona that they have to come in a few days a week, starting next month.

This hybrid schedule, first reported by the industry publication Citywire RIA, is mainly designed to foster collaboration.

"We believe that being together more frequently will serve as a catalyst for enhanced creativity and problem-solving, drive cross-functional relationship development and collaboration, and help springboard our next phase of growth as a company," Osaic human resources officer Jeffrey Green said in a statement.

Providing some clarity

Ben Marzouk, a partner and securities regulation lawyer at Eversheds Sutherland's Washington, D.C. offices, said the lapse of FINRA's pandemic-related remote work policies seems to have led to confusion about what firms are required to do. Rather than pulling workers back to the office, firms' real immediate task is to figure out how new remote locations and branch offices opened over the past four years should be registered.

One requirement giving rise to privacy concerns is the need to list the addresses of home offices in public documents.

"A lot of people have pushed back and said, 'We don't want to have to do this thing with home addresses for registered reps,'" Marzouk said. "And my understanding is that FINRA is in the process of proposing and speaking with the SEC on some kind of relief from that requirement."

Russell Sacks, a financial services lawyer at King & Spalding, said remote work was uncommon in the brokerage industry before the pandemic and there were few home offices that had to be registered. With many representatives now on hybrid schedules, and regulatory relief expiring, the need for registration has ballooned.

One challenge for firms is to decide which category a home office should be placed in. FINRA allows remote locations to be placed in one of four categories: branch locations, non-branch locations, offices of supervisory jurisdiction and a brand new designation — residential supervisory locations.

Each type of remote office comes with its own restrictions on what types of activities can be performed there and requirements for how often they have to undergo in-house inspections. Sacks said he thinks the industry is pretty well prepared for the coming changes.

"A lot of people have been working hard on this, although a few people are now scrambling," he said. "But no one is ignoring this."

Another big decision firms now have to make, Marzouk said, is whether they want to take part in FINRA's three-year pilot study of remote inspection policies. Firms that don't will have to return to having supervisors make in-person appearances at least once a year at remote locations, including home offices.

That too gives rise to concerns about privacy, Marzouk said. Many brokerage representatives aren't necessarily comfortable with the thought of a fellow employee coming to their house and rummaging through their files for evidence of mistakes or wrongdoing.

To be sure, taking part in FINRA's pilot program allowing continued remote inspections will entail a host of recordkeeping and submission requirements. But despite the likelihood of some additional hassles, many of Marzouk's clients are nonetheless leaning toward opting in to the program.

"The alternative is going into the home of your remote working force, and I think for a whole host of reasons, companies just don't want to get into that," Marzouk said. "I think the struggle and what some people didn't really understand, they initially thought maybe we can do nothing different with these home offices. But FINRA has been clear that that's not the case."

New remote work policies

Firms that do want to join FINRA's pilot program for remote inspections now have until June 26 to sign up. They will then have to provide regulators with quarterly detailed reports about inspections, both remote and in-person, they have conducted of their branch offices. Any findings — such as regulatory breaches and remedial actions — will also have to be reported to FINRA.

Regulators are hoping to use such data to develop permanent remote-work rules for the industry. FINRA has said that it's developing a system that will allow brokers to submit the required data electronically.

Mark Quinn, the director of regulatory affairs at the independent broker-dealer network Cetera, said he expects Cetera to eventually sign up for the pilot program but doubts it will immediately. One concern is a requirement for firms to collect in-house inspection data for all of 2019, the year before the outbreak of the pandemic.

FINRA wants to use that information as a baseline for comparisons with reports submitted during the three years of its pilot program. But for a firm like Cetera, with more than 2,000 branch offices, it will constitute a monumental data-gathering task.

That's not to say sitting out will be free of costs. Not joining the pilot program means Cetera will soon have to resume in-person inspections of its branch offices.

"It's a considerable expense," Quinn said. "And for independent firms like ours with a lot of branch offices that aren't necessarily in major metropolitan areas, getting — say — to the Upper Peninsula of Michigan isn't always an easy thing."

Residential supervisory locations

June 1 also marks the start date for "residential supervisory locations," which are subject to slightly laxer inspection requirements. Formerly, non-branch offices had to be inspected at least once a year; the new rule calls for inspections only once every three years.

As implied by its name, the new designation is reserved for brokerage employees who have supervisory duties. So it's not open to other sorts of representatives. For instance, employees who engage in trading or market making can't work in an office designated as a residential supervisory location. Those activities still have to take place at OSJs, which remain subject to annual inspections.

Not all firms, meanwhile, can have residential supervisory locations. They will be barred, for instance, if either they or regulators have decided their employees deserve heightened supervision. And before designating a home office a residential supervisory location, they will have to conduct a risk assessment looking at how many customer complaints the firm has received, recordkeeping violations or other regulatory red flags.

Quinn said most supervision in the securities industry now involves tracking and recording transactions using electronic means. There's no reason that can't be done as well in a remote location as it can in an office, he said. 

"To the extent we have supervisors who are working full-time remotely doing trade surveillance and account approval or whatever, and they're doing that in a home office location, there's no substantive difference from how we were supervising that activity under the old rules," Quinn said.