FINRA Rule 3110 upates
Residential Supervisory Location and Remote Inspections Pilot Program
The SEC recently approved FINRA's amended rule proposal (SR-FINRA-006) to adopt new Supplementary Material .19 (Residential Supervisory Location) under FINRA Rule 3110 which will permit certain broker-dealers to treat any eligible private residence in which an associated person engages in specified supervisory activities as a non-branch location (subject to various conditions and limitations).
Key Dates
Notice 20-08 Relief end date: May 31, 2024
Firms relying on Notice 20-08 must file amendments to Forms U4 and BR, or file
initial Forms BR, by July 1, 2024
FINRA Rule 3110.19 effective date: June 1, 2024
FINRA Rule 3110.18 effective date: July 1, 2024
What does this mean?
FINRA developed its "Residential Supervisory Locations" (RSL) proposal, (FINRA Rule 3110.19) effective June 1, 2024, which would allow a broker working remotely to supervise other brokers without the broker's home being designated as a branch office. The RSL would be subject to examination by the parent brokerage once every three years instead of the annual inspection that must be performed at an office of supervisory jurisdiction (OSJ). FINRA has stated that the new rules "reflect today's hybrid work environment while still providing critical investor protections."
In conjunction with FINRA Rule 3110.19, FINRA is also implementing FINRA Rule 3110.18 (Remote Inspections Pilot Program) effective July 1, 2024. This will allow eligible firms to fulfill their FINRA Rule 3110(c)(1) inspection obligation of qualified branch offices, including OSJ's and non-branch locations remotely, without an on-site visit to such offices or locations, subject to specified terms. Firms must affirmatively elect to participate by providing FINRA with an "opt-in notice" and once enrolled, must affirmatively elect to withdraw by providing FINRA with an "opt-out notice," in the form and manner prescribed by FINRA.
Going Forward
Firms seeking to take advantage of the RSL and Pilot Program rule makings should begin preparing as soon as possible. Each new rule will require substantial preliminary work to establish a compliant framework for initial and ongoing implementation and reporting requirements. Also, firms should start identifying their representatives who will need Form U4s updated to reflect their home address for remote work.
Further consideration should be given to whether an increase in remote office locations warrants a material change of business operations requiring FINRA approval under Membership Application Program rules or to seek guidance through FINRA's materiality consultation process.
Additional FINRA guidance is forthcoming related to the operational process for RSL designations and remote inspection pilot program.
Please give us a call at 631-801-2900 if you have any questions.