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FINRA extends relief for onsite office inspections through 2022

January 25, 2022
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onsite office inspections

By Jennifer DiValerio, Managing Director

Amid the ongoing concerns related to the COVID-19 variants, FINRA Rule 3110.17 was amended to extend relief to conduct remote office inspections through December 31, 2022.  FINRA has recognized the difficulties firms may face in conducting onsite office inspections and therefore will permit firms to satisfy their inspection obligations by conducting virtual inspections.

Office inspection protocols are embedded in FINRA’s supervision rule, which requires a firm to adopt a compliance program that is reasonably designed and tailored to its business.  There is no one size fits all definition for a reasonably designed supervisory system.

Collaboration tools and video conferencing have been implemented to replicate onsite supervision.  Firms have increased the use of technology solutions, surveillance tools, and exception reports to successfully perform remote supervision and to assist in identifying potential compliance failures without being in person or on-site.  However, in certain instances where registered representatives are engaged in activities requiring close supervision, such as trading or selling complex products or services, there may be no replacement for onsite, in-person, face-to-face supervision.  While an onsite inspection may uncover potential compliance failures, it is difficult to envision that other red flags would not be discovered with a firm’s use of artificial intelligence, exception reports, or other compliance monitoring tool to support its overall risk mitigation and supervisory program.

Some of the widely publicized enforcement actions in 2021 (https://www.sec.gov/news/press-release/2021-262 and https://www.finra.org/media-center/newsreleases/2021/finra-orders-record-financial-penalties-against-robinhood-financial) were based on supervisory failures that an onsite office inspection likely would not have remediated.

Firms must remain dedicated to ensuring their compliance programs are reasonably designed and that relief has been granted for the “onsite” requirement only; ultimately there is no relief for supervision, documentation, and recordkeeping obligations.

This article is not a solicitation of any investment product or service to any person or entity. The content contained in this article is for informational use only and is not intended to be and is not a substitute for professional financial, tax or legal advice.