FINRA Proposes to Adopt Supervisory Residential Location Requirements

FINRA filed a proposed rule change to "treat a private residence at which an associated person engages in specified supervisory activities as a non-branch location," which would make the location subject to inspections on a regular periodic schedule.

The FINRA proposal would adopt new Supplementary Material .19 ("Residential Supervisory Location") under FINRA Rule 3110 ("Supervision") to align with FINRA’s current residential exclusions. According to FINRA, the proposal draws from lessons learned during the pandemic and commentary from FINRA's earlier 2022 Residential Supervisory Location ("RSL") rule filing.

The proposal aims to align its definition of an office of supervisory jurisdiction and the classification of a location that supervises activities at non-branch locations with the current exclusions under the definition of "branch office." Under the proposal, a residential supervisory location that is a non-branch location would be subject to an inspection requirement every three years rather than an annual inspection requirement.

FINRA described the proposal as striking "the appropriate balance" between maintaining investor protection and a risk-based approach. FINRA said that the proposal would retain key safeguards for books and recordkeeping.