The Financial Industry Regulatory Authority (“FINRA”) Rule 3110 gives explicit directives on supervision of all persons related to the broker dealer in order to stay in compliance with all applicable FINRA rules and regulations. Although it takes a solid compliance program to achieve this, it has been manageable. Enter COVID-19: “Stay at home for two weeks to flatten the curve” they said. With that, employees packed up their work, and so began the lifestyle of working from home (“WFH”). The Financial Industry Regulatory Authority had to ease up on broker dealer’s completing branch audits during this time simply due to the nature of offices closing and many people working from home.
Those two weeks turned out to be much longer for some employees, and today, the broker dealer industry has seen a significant shift from what used to be the traditional workplace of every employee sitting at a desk in an office. Today’s workers are becoming increasingly spread out among the main office, branches, and home. Having a hybrid work model is quickly becoming the norm in the broker dealer industry, and compliance was quickly becoming more difficult to enforce.
Running a productive compliance program is complex enough with everyone being in the office, but with employees spread out as they are in today’s work environment, FINRA has had to figure out a way to continue to protect investors while adapting to the workforce changes. In 2022, FINRA proposed some amendments to Rule 3110, but there was much push back from across the broker dealer industry. Many said that the amendments did not do enough to protect investors and that the proposed changes were too relaxed on the broker dealers. With that, FINRA retracted the proposals on March 29, 2023, one day before the Securities and Exchange Commission (“SEC”) was to issue a ruling on the proposals.
On March 31, 2023, FINRA has proposed a new amendment, Proposed Rule Change 3110.19 which would require broker dealers to have associated representatives working from home become a Residential Supervisory Location (“RSL”) under the Office of Supervisory Jurisdiction (“OSJ”). As it stands today, OSJs must receive an onsite compliance visit annually. The amendment would require that compliance officers visit RSLs every three years. Even though it is less frequent, this amendment will be costly for broker dealers who have multiple registered representatives that work from home.
Additionally, more rigid rules have been put in place with this amendment to better protect investors. But is it enough? Some in the broker dealer industry still say that it is not enough to adequately protect investors. As the industry looks ahead, it is wise to go ahead and prepare your broker dealer for additional compliance regulations to come down the pipeline from FINRA. If your broker dealer would like to speak with one of Securities Compliance Management’s professional compliance consultants, please click here to schedule a meeting.
