FINRA Adopts Residential Supervisory Location and Remote Inspections Pilot Program, and Announces End of Temporary Relief Related to Updates of Office Information on Forms U4 and BR

In accordance with FINRA Rule 3110.19, a private residence may be designated as a Residential Supervisory Location (RSL) under certain eligibility conditions. These conditions include, but are not limited to, the requirement that the associated person’s direct supervisor must approve the designation, the residence must be the associated person’s primary residence, and the firm must maintain regularly scheduled contact with the associated person at the RSL. Ineligibility criteria for RSL designation include locations that are shared with individuals not affiliated with the firm and residences subject to any legal or disciplinary action.

Firms may elect non-branch designation for a private residence where an associated person engages in specified supervisory activities, provided they implement safeguards such as conducting an annual inspection of the RSL and maintaining records of supervisory activities. Limitations for RSL designation include the prohibition of customer visits and the requirement for the associated person to promptly notify their supervisor of any changes to the RSL. These rules aim to ensure appropriate supervision of associated persons working remotely while maintaining investor protection and regulatory compliance.

On the other hand, FINRA Rule 3110.18 introduces a three-year remote inspection pilot program that allows member firms to conduct remote inspections in certain circumstances. This program aims to provide flexibility to firms while maintaining effective supervisory systems.

Additionally, the temporary relief related to updates of office information on Forms U4 and BR is coming to an end. This means that firms must resume regular updates for any changes to their office locations, including pandemic-related impacts. Firms should be cautious about exceeding safe harbor thresholds for office count expansions, as this may trigger additional supervisory requirements. 

Firms that choose to participate in the Pilot Program must comply with specific data and information requirements. This includes providing access to electronic records, as well as additional documentation and procedures for remote inspections.

Firms interested in participating in the Pilot Program must adhere to the opt-in and opt-out deadlines to notify FINRA of their decision. Failure to provide timely notice to FINRA can have implications on a firm’s eligibility to participate in the Pilot Program.

The opt-in deadline for firms to participate in the Pilot Program is June 1, 2024 through June 26, 2024, while the opt-out deadline is December 27, 2024. Firms need to carefully review the requirements and consider the implications before making their decision.

MAP Rules

FINRA reminds firms that they should consider whether any potential increase in the number of offices or locations may implicate Rule 1017 (Application for Approval of Change in Ownership, Control, or Business Operations), which requires a firm to seek FINRA’s approval for a “material change in business operations,” if the changes do not qualify under IM-1011-1 Safe Harbor for Business Expansions.

A firm should perform an assessment of all relevant facts and circumstances that may include, among others:

• the nature of the proposed expansion;
• the qualifications and experience of the firm’s personnel; and
• the degree to which the firm’s existing financial, operational, supervisory and compliance systems can accommodate the change.

Notice 20-08 Relief Ends on May 31, 2024

As of May 31, 2024, firms that relied on Notice 20-08 Relief must ensure compliance with the end of the relief by updating Form U4 and Form BR with current registration and address information for each office or location. Firms must review and update the registration and address details for each office by the deadline to avoid any penalties or non-compliance issues.

To ensure compliance, firms should thoroughly review all Form U4 and Form BR filings and update any outdated registration or address information. It is crucial to meet the specific requirements and deadlines for updating these forms. Firms should also make sure to review any other compliance requirements related to the end of Notice 20-08 Relief and take necessary actions.

For firms that relied on the relief, the deadline for updating Form U4 and Form BR with current registration and address information is May 31, 2024. It is essential for firms to complete this process in a timely manner to avoid any disruptions in their operations. Taking these steps will help ensure that firms remain compliant with the end of the relief and avoid any potential regulatory issues.

Key Dates at a Glance

Key Dates at a Glance:

• Effective date for Rule 3110.19: June 1, 2024
• Firms to provide first set of Pilot Year 1 data to FINRA: October 15, 2024
• Deadline to affirmatively withdraw from Pilot Year 2: December 27, 2024
• Deadline for firms to provide Pilot Year 1 data for January 1, 2024 through June 30, 2024 and 2019: December 31, 2024

In addition, firms are required to submit their RSL lists by specific dates, and potential waivers for timeframes may be available for certain requirements. It is important for firms to stay updated on these key dates and compliance requirements to ensure they fulfill their obligations in a timely manner.