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FINRA Proposes Rule Change on Remote Inspections

Steven.Lofchie@cwt.com's picture
Commentary by Steven Lofchie

FINRA proposed a rule change that would allow member firms to complete their inspection obligations remotely through calendar years 2020 and 2021. The rule change was necessitated by concerns related to COVID-19.

FINRA proposed to adopt temporary Supplementary Material .17 under FINRA Rule 3110 ("Supervision") to permit the use of remote inspections to satisfy the obligations set out by Rule 3110(c)(1)(A), (B) and (C) that require each member to conduct an annual office inspection.

Rule 3110.17 also would provide that a member firm (i) amend written supervisory procedures under Rule 3110(b)(1) accordingly, (ii) impose additional supervisory procedures if red flags are identified during the remote inspection, and (iii) maintain centralized records that identify the remote inspection and any such imposed additional supervisory procedures.

Comments on the proposal must be submitted no later than 21 days after its publication in the Federal Register.

Commentary

First, a musical selection.

Secondly, if this works out reasonably well for the two-year period, regulators will need to give serious consideration as to extending the relief permanently, even if the virus has ceased to be a material threat. See also SEC Officials Urge AMAC to Recommend Operational Changes in Light of Pandemic.

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