Think Advisor (April 6, 2023) – The Financial Industry Regulatory Authority has refiled with the Securities and Exchange Commission a revamped plan to make changes to FINRA Rule 3110 to allow a home office to be considered a non-branch “residential supervisory location” under certain conditions.
The SEC had a statutory deadline to respond to FINRA’s Residential Supervisory Locations proposal by the end of March, but FINRA said it would rework the plan after industry pushback. FINRA filed the revised plan, which tightens eligibility rules, on March 31.
After many comments from the industry over the controversial plan, FINRA CEO Robert Cook said in mid-March that FINRA would “work with the commission to keep the constructive dialogue moving forward and create an opportunity for a new filing by us, an updated filing, that’s pulled together what we’ve been working on,” and then publish it for another round of comments, referring to the RSL rule.
The Public Investors Advocate Bar Association, a group of lawyers who represent investors in disputes with the securities industry, complained in December that the plan was “fundamentally flawed” and “leaves considerable opportunity for advisors working from home to skirt the rules.”
The RSL plan would allow a home office to be considered a non-branch “residential supervisory location” under certain conditions. A residential supervisory location would be subject to inspections at least every three years, rather than annually.
The refiled Residential Supervisory Location (RSL) proposal is similar to the 2022 version in many ways, FINRA’s filing states, but the new changes:
- enhance the conditions for RSL designation relating to books and records to provide, among things, that records are not physically or electronically maintained and preserved at the location;
- expand the list of criteria that would make a firm ineligible. For instance, a member firm has been suspended or a firm has been a FINRA member for less than 12 months;
- adjust the ineligibility criterion that would make an office or location ineligible where an associated person is the subject of an investigation or other action relating to a failure to supervise; and
- require firms to provide, on a quarterly basis, a current list to FINRA of all locations designated as RSLs.
The SEC has 240 days from the date of the proposal’s publication in the Federal Register to approve or deny FINRA’s plan.