Finra asks SEC to extend remote inspections program

The Financial Industry Regulatory Authority plans to extend its remote inspections program, according to a filing with the Securities and Exchange Commission.

In November 2020, Finra introduced a temporary rule to allow for remote inspections of brokerages while much the industry worked from home in response to the coronavirus pandemic. The rule is set to expire at the end of this year, but Finra has requested to delay the expiration until June 30.

Finra has proposed a three-year pilot program for remote inspections as a longer-term solution that is currently awaiting SEC proposal.

“Given the uncertainty as to whether the [SEC] will approve or disapprove the Remote Inspections Pilot Program Proposal by the end of calendar year 2023, FINRA believes that the proposed extension is necessary to provide firms the time to prepare for either the resumption of on-site inspections … or alternatively, the implementation of the proposed remote inspections pilot program,” Finra writes in the document filed with the SEC last Friday.

The news was first reported by AdvisorHub.

Finra’s efforts to allow online supervision of brokerages have faced resistance from state securities regulators. The North American Securities Administrators Association and the Public Investors Advocate Bar Association have criticized Finra’s proposals for not doing enough to protect investors.

In an Aug. 29 comment letter, former NASAA President Andrew Hartnett said NASAA had requested that Finra “be more prescriptive” regarding risk assessment, supervisory procedures and regulatory disclosures for the pilot program.

“We appreciate that Finra incorporated some of these recommendations into the revised proposal,” wrote Hartnett, who is deputy Iowa insurance commissioner. “However, we believe the revised proposal still does not go far enough to protect investors.”

“The amendments made to this rule proposal do not address the significant harm done to investors by rogue brokers working in the absence of adequate supervision,” PIABA president Hugh Berkson wrote in a separate comment letter.

Many brokerages support the use of online supervision. For example, LPL Financial, the country’s largest broker-dealer, said it has performed more than 27,000 remote branch inspections since March 2020.

“Our team has reimagined the branch exam process to leverage publicly available online tools and resources, including secretary of state databases, google searches and google street view, in order to efficiently and effectively examine branches using video calls,” Tara Gilchrist, LPL senior vice president and head of branch examinations, wrote in an Aug. 29 comment letter. “Although the program was built out quickly, over the course of nearly three years our branch examiners have refined their skills and become very adept at identifying risk remotely.”