Finra extends brokerage office remote inspections into 2022

The rule change is effective immediately and will become operative on Jan. 1, if the Securities and Exchange Commission does not object.

Finra is on the verge of extending into next year a rule that allows brokerages to conduct remote branch office inspections.

During the coronavirus pandemic, the Financial Industry Regulatory Authority Inc. implemented temporary rules that relieved member firms of the onsite inspection requirement. Finra said the change was necessary because the outbreak made in-person examinations impractical.

The temporary rules were due to expire on Dec. 31. Under a proposal Finra filed on Tuesday with the Securities and Exchange Commission, remote inspections would continue through June 2022.

The rule change took effect immediately, the SEC said in a regulatory notice on Wednesday. It will become operative on Jan. 1, unless the agency temporarily suspends the rule change within the next 60 days. The SEC will solicit public comments on the rule change for 21 days after the regulatory notice is published in the Federal Register.

“The proposed extension of [the temporary rule] is necessary to address the continuing operational challenges resulting from the COVID-19 pandemic many member firms face in planning for and timely conducting, during the first half of calendar year 2022, the on-site inspection component of [the Finra supervision rule] at locations requiring inspection in calendar year 2022,” the Finra proposal states.

The brokerage industry, most of which has been operating remotely during the pandemic, has embraced remote office inspections and has been pushing Finra to extend them.

In a recent blog post, Bernard Canepa, vice president and assistant general counsel at the Securities Industry and Financial Markets Association, said brokerages continue to have trouble functioning normally as the pandemic lingers.

“Firms clearly see the benefit of onsite inspections when the circumstances warrant it, but not now,” Canepa wrote. “Not during an ongoing pandemic when the prudent choice is to do our best to stop the spread of the virus. There is no reason to reinstitute onsite inspections, particularly when the last 18 months demonstrated that remote inspections work well.”

Finra’s experience with remote inspections during the pandemic could cause it to rethink its supervision rule.

“What I’d like to see happen here is that we would extend [the relief] into next year and that we would step back and look at that [supervision] rule holistically and think about whether it could use some updating to accommodate a thoughtful, risk-based approach to when in-person exams would be necessary,” Finra chief executive Robert W. Cook said at SIFMA’s online compliance conference in July.

The issue also was a topic during last month’s Finra board election.