Finra Proposes Clarifications on Residential Supervisory Locations, By Alex Padalka

Financial Advisor IQ (July 13, 2023) - The industry’s self-regulator wants to allow more flexibility as far as what’s counted as experience by brokers wanting to use their home offices as residential supervisory locations, but it also put the burden of assessing a location’s risk on the firms.

The Financial Industry Regulatory Authority says it has taken into account comments it received in response to its proposal to the Securities and Exchange Commission on the use of residential offices.

In July, the industry’s self-regulator proposed a rule that would classify home offices as non-branch locations, or “residential supervisory locations.” That proposal was met with criticism from the Public Investors Advocate Bar Association, which in November said the move would allow advisors to evade compliance.

In December, Finra amended the rule to require firms to keep a list of their non-branch locations and a set of criteria barring certain locations from being considered a residential supervisory location. In March, Finra filed an updated plan with the SEC to make changes to the rule, tightening eligibility rules further.

Earlier this month, the industry’s self-regulator submitted more changes to the residential supervisory location rule.

Finra wants to extend eligibility to more associated persons by allowing experience at a firm’s subsidiary or affiliate registered as a broker-dealer or investment advisor to count toward the one-year supervisory experience minimum requirement, according to a July 3 filing with the SEC.

Finra also wants to require firms to perform a risk assessment for each location before classifying it as a residential supervisory location, according to the filing.

“Finra believes that the proposed risk assessment and accompanying documentation requirement would strengthen supervisory controls to further protect investors by requiring firms to consider higher risk criteria in determining whether to designate an office or location as an RSL,” the watchdog said in the filing.

ThinkAdvisor first reported the recent updates.