FINRA Offers Amendments to Proposed Remote Inspection Program

FINRA proposed amendments to a previously proposed three-year pilot program to allow member firms to meet their remote office inspection obligations without on-site visits.

In a Letter to the SEC, FINRA proposed amendments in response to comments submitted by, among others, NASAA and the Public Investors Advocate Bar Association, warning that the proposed inspection regime under the pilot program would be insufficient.

The amendments include:

• making clear that member firms' supervisory systems "take into consideration any red flags when determining whether to conduct a remote inspection of an office or location";
• clarifying that firms must submit to FINRA a list of "significant findings" instead of the "most significant findings"; and
• amending a proposed condition to "account for [the] impact of the record maintenance timeframe" under FINRA Rule 3110(c)(2)("Internal Inspections").

As previously covered, the original 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 firms with poor disciplinary histories from participating in the program, (iii) requirements for a firm's recordkeeping, surveillance and technological systems and (iv) quarterly data reporting obligations.