In another sign of FINRA's struggle to define its remote work policies, the regulator has resubmitted a proposed rule that would test the efficacy of performing inspections of brokerage offices using technology from afar, rather than visting an advisor in person.
The Financial Industry Regulatory Authority's
In withdrawing the rule, FINRA said it wanted to consider whether more "guardrails and clarifications to the filing would be appropriate." Its resubmitted version hews closely to the original, making only a few small adjustments.
One change, for instance, would require firms that take part in the pilot program to collect inspection data for 2019, when many exams were still being done in-person. That information — on the number of inspections undertaken in a given year and the number and types of remedial actions taken as a result — would then be sent to regulators along with comparable data amassed during each of the years of the pilot program. FINRA would use all that to decide if its remote inspection policies are working as intended or need further modification.
FINRA has already put its remote inspection proposal
It's unclear how long the public will have to comment this time. The Securities and Exchange Commission, which oversees FINRA and approves its proposed rule changes, didn't immediately respond to questions.
Many of the revisions have been made in response to criticisms from two groups: The North American Securities Administrators Association, which represents state and provincial regulators in the U.S., Canada and Mexico; and the Public Investors Advocate Bar Association, which represents investor interests.
Hugh Berkson, the president of PIABA, said he's still reviewing the changes but said he doubts they'll make him and his colleagues any more supportive of remote inspections.
"Under the existing regulatory system, we already have an awful lot of instances in which firms do a lousy job of supervising their registered representatives who are maybe engaged in shady activities or selling unapproved products," he said. "And firms will already say: How can we possibly have known that? And now you are going to make it more difficult to catch them?"
A NASAA spokesman declined to comment.
FINRA's changes to its pilot program proposal come a couple weeks after the regulator
Among other things, the latest changes to that proposal would prohibit brokerage employees from using their homes to store books or records in physical or electronic form. They would also make firms ineligible for the loosened inspections requirements if they had been suspended by FINRA, were the subject of a regulatory investigation or were registered with FINRA only in the past 12 months, among other things.
Berkson said the repeated changes show just how difficult it is to strike the right balance with remote work policies. He said he understands FINRA and firms see policies allowing employees to work from home or other places outside the office as a way to recruit more people into the industry.
"But you can't do you can't do that at the expense of the primary mission of FINRA and the SEC, which is to protect investors," Berkson said.
NASAA and PIABA aside, FINRA's twin remote work proposals have enjoyed widespread support among brokers and advisors. Howard Spindel, the senior managing director of
"Their office is basically their cellphone and their computer and nothing more or less than that," Spindel said.
Removing the option of remote in-house inspections, he said, would only add to the forces that are driving many brokerages from the industry.
Remote work remains popular at wealth management firms even as companies in other parts of the financial services industry press workers to come back to the office.
FINRA and the SEC have allowed
Spindel noted that FINRA and other regulators already conduct many of their own examinations remotely. So why, he asked, shouldn't firms be allowed to do the same with in-house inspections?
Spindel said since most securities transactions leave some sort of digital trail, they can be reviewed using technology. Spindel acknowledged that regulators may think visits from in-house officers are still useful for detecting certain types of violations. If that's the case, he said, they should devise policies requiring in-house inspections at firms that are more likely to commit those violations.
"That's why I say: One size does not fit all," Spindel said.
From the beginning, FINRA has attempted to distinguish between firms that are good candidates for remote inspections and those that are perhaps not. Under the revisions adopted in December, firms would be barred from the pilot program if they've been suspended by FINRA, are subject to other regulatory orders or were formed only within the past 12 months. Individual branch offices would also be excluded if they had an employee who was subject to heightened supervision under FINRA rules or a disciplinary action, among other things.
The proposal also would require firms that participate in the pilot program to make use of certain types of technology that will aid in remote inspections and to meet various recordkeeping mandates. Those requirements were preserved in FINRA's latest version of the proposal.
