FINRA Seeks to Make Remote Inspection Program Permanent
From the desk of Jim Eccleston at 蘑菇传媒
The Financial Industry Regulatory Authority (FINRA) is seeking approval from the Securities and Exchange Commission (SEC) to make its pandemic-era remote inspections program permanent before the current pilot is scheduled to expire in June 2027, according to AdvisorHub and FINRA's summary of its recent Board of Governors meeting.
The program, which began during the COVID-19 pandemic and was formally extended in July 2024, allows member firms to conduct remote inspections of offices rather than relying exclusively on in-person examinations. FINRA has now proposed preserving that flexibility on a permanent basis.
According to AdvisorHub, FINRA said its decision was driven by data collected during the pilot program as well as feedback received from industry participants and other stakeholders.
At FINRA's annual conference in May, Patricia Ledesma, a senior economist in FINRA's Office of Chief Economist, reported that 970 firms currently participate in the pilot program. Those firms represent approximately 32 percent of FINRA member firms and account for about 86 percent of registered representatives.
Ledesma stated that FINRA's analysis found comparable results between remote and on-site inspections. According to her remarks, both inspection methods identified significant findings across similar categories and at similar rates. She noted that the data provided reassurance that remote inspections do not appear to create supervisory blind spots, one of the concerns regulators considered when launching the pilot.
FINRA has also submitted a separate proposal addressing home office supervision. Beginning in June 2024, the organization allowed certain residential supervisory locations to undergo inspections once every three years rather than annually.
According to the board meeting summary cited by AdvisorHub, the new proposal would extend the presumptive inspection cycle for certain non-branch locations, simplify the regulatory framework for different types of residential offices, and modify the supervisory ineligibility requirements applicable to advisors working from home offices.
FINRA began developing the residential-location framework in 2022, and the SEC approved the initial rule changes in November 2023. At the time, investor advocates and state securities regulators raised concerns about the potential risks associated with less frequent inspections. The SEC nevertheless concluded that the framework remained consistent with firms' obligations to supervise for fraud and protect investors.
The North American Securities Administrators Association later expressed support for the program while emphasizing the importance of strong safeguards and diligent oversight.
If approved by the SEC, FINRA's proposal would permanently incorporate remote inspections into the regulatory framework and continue providing firms with greater flexibility in supervising offices and certain residential work locations.
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Tags: eccleston, eccleston law, finra, sec, remote inspections, securities regulation, broker-dealer compliance
