PIABA Urges FINRA to Bring Back In-Person Inspections

The Public Investors Advocate Bar Association is urging the Financial Industry Regulatory Authority to prioritize investor protection as the self-regulator seeks to modernize its rules, particularly those regarding its remote inspection program and its treatment of electronic communications by brokers.

Remote inspections “should not replace in-person inspections,” Piaba President Adam Gana wrote in a comment letter to the industry’s self-regulator.

Piaba argues that the “flexibility” Finra granted firms in its pilot program, which allowed inspections to take place without on-site visits, “creates a significant gap in supervision, particularly for representatives operating out of residential or remote offices.”

The group said it has, in prior comments, highlighted “numerous” actions by regulators concerning brokers “selling away” or running Ponzi schemes, among other misconduct, from remote offices.

To protect investors, Piaba suggested that, “at a minimum,” such offices “should be subject to annual, unannounced, in-person audits,” saying that in-person inspections — even if administered only once every three years — would be better than remote-only inspections.

Piaba also expressed concern with the rising use of “often unapproved and unsupervised messaging platforms” by brokers to communicate with customers, which the group said has come with a rise in misconduct.

Piaba suggested that Finra treat all communications as it does outside business activities: by requiring brokers “to disclose all communication platforms they use to engage with clients.”

Piaba urged the industry’s watchdog to adopt “presumption of impropriety associated with the use of any undisclosed communication platform.”

The group also suggested various changes related to modernizing brokerage account statements; transparency, or lack thereof, about commissions and fees; the manner in which Finra regulates brokers’ communications on social media platforms such as LinkedIn, WhatsApp, iMessage and Instagram, and other areas.

Finra in March announced that it was undertaking a “broad review of its regulatory requirements applicable to member firms and associated persons,” in a move “to modernize its own rules.”

“We urge FINRA to issue specific, enforceable guidance affirming that technological convenience must not come at the expense of investor protection,” Gana wrote in conclusion.