AdvisorHub (March 30, 2023) - The Financial Industry Regulatory Authority has submitted to the Securities and Exchange Commission another revision to one of its two proposals to make it easier for firms to supervise brokers working remotely.
The new proposal would still reclassify brokers’ home offices as “remote supervisory locations,” meaning they would require an examination once every three years rather than annually. But it tightens limits on which firms can qualify and adds that books and records should not be “physically or electronically maintained or preserved” at the broker’s house.
The new proposal aims to “take into account” the concerns of the state regulators and investor advocates, who have said they could result in more lax supervision of broker misconduct and make it harder to police unapproved outside business activities and other potential conflicts, Finra officials said in their March 29 filing with the SEC.
The filing comes shortly before the deadline by which the SEC would have had to bless a prior proposal for it to become effective. Finra’s Chief Executive Robert Cook said earlier this month that it was likely to take its remote supervision proposals back to the drawing board.
The revised rule would expand the criteria that would make a firm ineligible to participate in longer time-tables for required inspections of remote offices. Firms that have been suspended or have been a Finra member for less than 12 months would not be able to qualify.
Also ineligible would be a location where any registered representatives has been the subject of an investigation “or other action relating to failure to supervise,” the filing said. Finra would also require firms to provide each quarter a current list of its remote locations.
The new proposal adds some common-sense reforms but still doesn’t go far enough, said Michael Edmiston, a plaintiff lawyer in Studio City, California, and past president of the Public Investors Advocate Bar Association. Even though firms do not want the headache of visiting far flung offices once a year, it is necessary to ensure they are not engaging in misconduct such as selling away or moonlighting at an outside business, he said.
“It just doesn’t address the problems,” Edmiston said.
The new draft did not address its second proposal, which the SEC has until mid April to approve and which would establish a pilot program allowing some firms to conduct branch office exams remotely. Finra in December tweaked the proposal and previously extended that deadline.
Rules that allow for permanent flexibility about working from home will bolster the industry’s efforts to add more diversity to its workforce, the Finra officials argued in their filing, as they did in prior versions.
“[S]everal firms stated that the move to a hybrid approach for the industry has also allowed them to hire broadly across the entire country instead of localized markets, which profoundly impacts and strengthens a firm’s diversity and inclusion hiring efforts,” Finra said.