Remote Branch Office Inspections

Background

Another issue we are studying through the lens of FINRA360 is branch office inspections. The responsibility of firms to supervise their associated persons is a critical component of federal broker-dealer regulation. Over the last few years, and in comments we have recently received, firms have raised questions about the manner in which they must conduct internal inspections, particularly for those offices or locations with a limited number of associated persons or where only operational or limited supervisory functions take place. These locations often include personal residences of an associated person, an office of convenience where an associated person may meet a customer occasionally and exclusively by appointment, an office used by "circuit riders," or other public places. 

Firms have noted that advances in communications technology and increased acceptance of flexible work arrangements have made remote locations more commonplace. In addition, firms noted that most remote locations do not hold themselves out to the public as a place where securities business takes place and engage in low-risk activity, with no books or records or funds or securities kept on the premises.

In light of these factors, and in recognition of the fact that technology already plays a prominent role in how firms conduct office inspections, firms have questioned the practicality and efficiency of conducting on-site inspections of such locations in fulfilling their obligations under Rule 3110(c).

FINRA has proposed to adopt new Supplementary Material .15 (Remote Inspections), which would give firms the option to fulfill their obligations under Rule 3110(c) by conducting a remote inspection of a "qualifying office," in lieu of a physical, on-site inspection of such office. Specifically, proposed Rule 3110.15(a) would require a firm that conducts remote inspections to have policies and procedures reasonably designed to determine whether a location is eligible for remote inspection as a "qualifying office" and to assess whether a remote inspection of any such office is reasonable. FINRA requested comment on the proposal in Regulatory Notice 17-38.

Summary of Actions

  • Issued Regulatory Notice 17-38 requesting comment on a proposal that would give firms the option to conduct a remote inspection of a "qualifying office."