FINRA Proposes Pilot Program for Remote Office Inspections

FINRA filed a proposed rule change with the SEC to implement a three-year pilot program to allow member firms to meet their internal inspections obligations without the need for on-site visits to an office or location.

The FINRA proposal would not alter the supervisory obligations under FINRA Rule 3110 ("Supervision"), but would provide members with the flexibility of satisfying their inspection obligations under Rule 3110(c) without the need for on-site visits, subject to certain conditions. Under the proposed rule, the conditions include (i) requiring firms to conduct risk assessments, (ii) barring certain firms from participating in the program, (iii) requirements for the firm's recordkeeping, surveillance and technological systems and (iv) quarterly data reporting obligations for participating firms. Furthermore, the proposal would require member firms to undergo a remote inspection of their electronic communications, correspondence, and books and records.

According to FINRA, the proposal is aimed at gauging the effectiveness of remote inspections in a supervisory system that reflects modern work environments with technologies that previously did not exist when on-site inspection requirements were initially enacted.