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Virtual Conference Panels: Fireside Chat on Current Issues

July 21, 2020

With the cancellation of the 2020 FINRA Annual Conference and other in-person events throughout the year, we’ve gone virtual with a variety of on-demand conference panels on regulatory hot topics.

On this episode, we’re dropping in for a quick listen to the latest FINRA Virtual Conference Panel with FINRA CEO Robert Cook, Member Supervision Head Bari Havlik and Chief Legal Officer Bob Colby, moderated by Chip Jones, head of Member Relations and Education, as they talk about the continued impact of the coronavirus on firm and FINRA operations, recent conversations around racial justice in America and more.

You can watch this full panel and nearly a dozen more on the FINRA website at any time.

Resources mentioned in this episode:

FINRA Senior Leaders Fireside Chat on Current Issues


Regulatory Notice 20-16

Statement from the Board of Governors, June 2020

Listen and subscribe to our podcast on Apple PodcastsGoogle PlaySpotify or where ever you listen to your podcasts. Below is a transcript of the episode. Transcripts are generated using a combination of speech recognition software and human editors and may contain errors. Please check the corresponding audio before quoting in print. 


00:01 - 00:16

Kaitlyn Kiernan: With the cancellation of the 2020 FINRA Annual Conference and other in-person events throughout the year, we've gone virtual with a variety of on demand conference panels on regulatory hot topics. On this episode we're dropping in for a quick listen to the latest panel.

00:16 – 00:26

Intro Music

00:26 - 01:03

Kaitlyn Kiernan: Welcome to FINRA Unscripted I'm your host Kaitlyn Kiernan. For this episode we're providing an abridged look at the latest in a virtual conference panel with FINRA CEO Robert Cook, Member Supervision Head Bari Havlik and Chief Legal Officer Bob Colby, as moderated by Chip Jones, head of Member Relations and Education. They talk about the continued impact of the Coronavirus on firm and FINRA operations, recent conversations around racial injustice in America and more. You can watch this full panel and nearly a dozen more on the FINRA website at any time at the link in our show notes. But for now, I'll let Chip take it away.

01:04 - 01:21

Chip Jones: Robert, let's talk about coronavirus which has been a cause of financial strain on the financial services industry, in all industries for that fact. What have you heard from member firms and how do you think this will have a lasting impact on our industry?

01:21 - 03:13

Robert Cook: Well sure, Chip. And I'm not sure anyone really knows the answer to that with complete clarity, but I guess a couple of things. It's been the coronavirus and, of course, the associated significant disruption in the markets. Both of those have had a major impact on firms and investors. In terms of the coronavirus itself, I think we can all agree that none of us imagined working this way—working from home, all of us are joining us from our respective homes—and that obviously is something that we've seen replicate throughout the industry.

So, one area in which I think there's a lot of consensus is that many of us will be thinking about how to organize our work differently going forward. So one of the areas that I'm most interested in hearing from firms about is how do they expect their future to look like even after a vaccine may clear up the health concerns with this very significant—essentially mandatory—work from home that many firms have been going through.

I've been hearing from a lot of firms that that's been working very well, that they've been maintaining a high degree of productivity and that while they may eventually return to the office, they don't expect everybody to go back to the office the way they were. And that has implications for our work, our supervision of the firms and that's a dialogue that we'd like to have with firms. Where do they see the future of the workplace going, so that we can adjust our rulebook our supervisory oversight.

In terms of financial impacts on the industry, we have a very diverse industry that operates in a lot of different sectors of the financial services area, so frankly what I've been hearing is differences based on business models. There are some firms who practice and, or some business lines that are in areas that are much more challenged during this time. There are other firms or business lines especially those that involve trading activity that are seeing very high volumes and very strong business. So, depending on the business model in the firm, there very different kinds of experiences.

03:14 - 03:29

Chip Jones: Bob, FINRA has taken a number of steps to provide regulatory relief for member firms as they adapt their operations in the wake of coronavirus. Is FINRA considering making any of this relief that we provided permanent?

03:30 - 05:33

Bob Colby: So, we provided over 40 some odd FAQs. A lot of these were very specific to the very short-term problems that firms were having because they couldn't access their records and so those have rolled off already. Others were longer-term issues that involve travel, for instance going into offices. So, we recently filed immediately on effective rule filing to give firms at least to March 30 first. A number of firms have said that's not enough. If you think that's too short. We flagged in our filing that we thought maybe it's too short. You can respond to that and share your views with the SEC if you want.

But there are a couple of areas that have proven to be something that can be done longer term. Some of them are so minor it's hardly worth noting, and that's things like ink on paper signatures for Form U4 and for some other documents. So, we waived that temporarily and we're going through a process now to allow electronic signatures to the Form U4 long term, working with the states on that.

We've had to move in some situations to video hearings for our adjudicatory processes. That's less than ideal. People like to be in the room. They like to have their counsel in the room with them in arbitrations or in our hearings, and so we very much prefer in-person hearings. But there's some areas that we might be able to have video as an option longer term. So that's been a learning for us.

And probably the most important for us is that we were already looking at our rules that required onsite inspections on various cycles for all office locations. And so, we have been working on a proposal that for the smallest offices with very limited range of securities activities taking place in those offices and with highly trustworthy individuals, whether we couldn't give some relief to the onsite inspection component. We're hopeful that we'll be filing that rule with the SEC pretty soon.

05:33 - 05:57

Chip Jones: That's one of the questions that I think we all received quite frequently. So, I know everyone is interested to see that filing and hope that the SEC takes action on that very quickly. Bob, you've previously mentioned that drinks or food sent to clients for a virtual meeting would be treated as a gift under FINRA rules rather than entertainment. What is FINRA's latest thinking on this issue?

05:57 - 07:20

Bob Colby: What I tried to say before is that our starting point is that food and beverages in a virtual context, our starting point would be to view these as gifts. We've been talking to a number of people directly, through trade groups, through legal counsel about really what's the distinction between a virtual entertainment or virtual meeting and a personal one. And in our view it boils down to the core concepts before were that the meeting needed to be hosted by an Associated Person of the member firm and whatever entertainment, food or beverages needed to be reasonable, so it wasn't really an unseemly inducement for something, as opposed to facilitating the time to get together.

And so we've been working on an FAQ or so to try to just express those concepts that in a virtual concept we could conceive of there being a hosting element—you could host a meeting for purpose these rules virtually—and that food and drink that was reasonable and was designed to be largely consumed during those entertainment, dinner or meetings could be provided and be consistent with the business entertainment interpretation of our rules. And we're working on it, we'll be talking to the SEC about it and hopefully if we can get to a meeting of the minds, we'll post an FAQ on it.

07:22 - 07:37

Chip Jones: Robert, one of the things that I suspect you hear on a daily basis—I know I do from firms—they ask how is coronavirus impacting FINRA? And when is FINRA going to be ready to go back to its offices? And maybe you can talk a little bit about what FINRA has been doing.

07:37 - 09:00

Robert Cook: Sure. Well, as we alluded to before, we're in a virtually entirely remote work environment now and we're all getting our fill of video conferences as is everyone else, I know. And throughout this time, we've been maintaining a very high degree of productivity and continuity of operations. There are a couple of areas where our work, by its nature, has to be in person. And Bob alluded to some of that before. We're doing exams, but we're doing them primarily remotely now, or digitally would be a better way to say it. So, we're continuing to get our work done while finding new ways to do it.

In terms of when are we going back to the office, we have a task force that's been helping to guide us through a series of phases that we would expect to follow to eventually return to the office based on a variety of triggers. Those might be things like local health and safety conditions, local stay at home or other governmental guidelines, the availability of public transportation, a whole range of different factors. And we would look at these factors at each of our offices.

So, we are not beginning, at this point yet, to initiate this phased, staged process of returning to the office, but we're developing our plans and the thresholds that we would seek to focus on when deciding when to move to the next stage. And again, that would be very much something we would look at doing office by office.

09:00 - 09:15

Chip Jones: Bari, now Robert just talked about sort of a massive transfer that FINRA's done from its offices to working from home. What best practices or trends have you seen when it comes to leading a remote workforce?

09:16 - 10:18

Bari Havlik: So, I'll answer that by first stating that we did publish a notice, Regulatory Notice 20-16 in May, that notice didn't share best practices, because we haven't been able to go in and test. But it did their practices that, as our risk monitoring analysts have been working with firms, as they've adjusted to this fully remote environment, and so it's a collection of practices that we've heard firms have implemented. Again, we haven't tested it. So, I can't say they are best practices or can't validate the effectiveness, but the Notice includes a number of areas, including a section and supervision, one on general supervision practices that firms have implemented, one on trading, another one on communications with customers and the public. So, I encourage firms, if they want to get a sense of what other firms are doing, to see if they can glean some ideas, that's a good Notice to look at. Again, it's Notice 20-16 and it was published at the end of May.

10:18 - 10:27

Chip Jones: Do you expect that the examiners will have a deeper focus on business continuity plans or BCP plans?

10:27 - 11:16

Bari Havlik: Not beyond what we would normally look at. I think that that question generally coming from is FINRA going to look at how firms adapted to this new environment. And that won't be a specific focus, but we will look at if the exam period that's covered in the firm's next exam includes this period of time, and of course we'll be testing the supervisory practices that were put in place. I said a couple of other venues that as firms have changed their procedures, their supervisory practices to adapt to this environment, they should make sure to put that in writing and the time period in which those changes were implemented, so that, again, when we come in to do an exam they can make it clear to us they've got documentation that says that for this period of time this is what changed.

11:17 - 11:39

Chip Jones: Robert, although our test vendor Prometric has begun to open back up the test centers, is FINRA doing anything more to launch a remote exam proctoring system? And how is FINRA planning to address any backlog for examinations that may exist because of the Prometric shut down?

11:39 - 12:38

Robert Cook: Sure. Well, first, I should point out that my understanding is the Prometric test centers all across the country have virtually all been open for a number of weeks now. So those who may have focused their attention elsewhere but are interested in scheduling a window to take their exam, I encourage them to go ahead and try to do that.

I think this pandemic has taught us across a number of different areas that we need to think about alternative ways of achieving things that we used to do in person. And one of those is taking tests. So we are, as you alluded to, working with relevant stakeholders particularly NAASA and consultations with the SEC on the development of a remote, proctored exam platform that would allow people to take their qualification exams without having to go to a test center.

This is an important thing for us to be focused on because who knows what the future will bring, if there is a subsequent wave and a need to close down test centers again, we want to be as well prepared for that as we can be.

12:39 - 12:54

Chip Jones: Transitioning to another topic. Robert, given the recent news and conversations arising from the deaths of George Floyd, Ahmaud Aubrey and Breonna Taylor, among others, what role does FINRA play in this conversation?

12:54 - 15:11

Robert Cook: Well thank you very much for asking that question, Chip. It's such an important question. The conversation is incredibly important. It's important for all of us to be part of, both as individuals and as organizations, and beyond that not just to be part of our conversation but be part of an action plan to implement our thoughts and ideas here. So, our Board issued a statement after its last meeting and I encourage those of you who might be interested in it to take a look. There are broadly three areas that we're thinking about how FINRA can engage in a conversation around this.

The first has to do with diversity within FINRA itself. We've had a very robust diversity inclusion program for over 10 years. I'm incredibly proud of the efforts that have gone into that. But we have more work to do. And so, our first bucket of ideas that we're working on is how can we, FINRA, better reflect society internally and really truly sponsor a collaborative, innovative, diverse and inclusive workspace.

The second bucket of issues that we're focused on is how can we collaborate with other stakeholders in the industry, member firms, trade associations, others, and how do we help the industry better reflect society and the communities that the industry would like to serve. We have for many years sponsored a wonderful Diversity Summit that has included speakers from all across the industry putting forward best practices, ideas. It's always been sold out. We're going to keep sponsoring that, but that's a good example about how we can play a role in helping to promote dialogue and understanding around these issues within the industry.

And then the third cluster of issues has to do with our communities, and in particular, we're focused on—consistent with our investment protection mission—how can we promote greater financial literacy and capability among minority communities. So that's an area where we're looking to build on the extensive work our investor education program currently does and the work of the FINRA Investor Education Foundation.

So, we have a task force internally that's collecting a lot of great ideas across all these three buckets and going to help us as we move forward to develop concrete action plans for how to we're going to address and implement some of these ideas.

15:11 - 15:19

Chip Jones: Thank you for those very important thoughts. I want to thank Robert, Barry and Bob for joining me today. Thank you, guys.

15:19 - 15:20

Robert Cook: Thank you, Chip.

15:21 - 15:42

Kaitlyn Kiernan: To watch the full 40-minute panel including questions on Reg BI and FINRA's long-term financial planning, including a discussion around raising our fees, be sure to visit the link in our show notes. New panels are being added all the time. As always you can submit ideas for future episodes and [email protected]. Until next time.

15:42 – 15:48

Outro Music

15:48 – 16:15

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16:15 – 16:21

Music Fades Out

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