Regulatory News Update: FINRA Voluntary Remote Inspection Pilot Program Approved by the SEC

What: The SEC approved FINRA’s amended rule proposal (SR-FINRA-2023-007) to adopt a voluntary, three-year remote inspections pilot program.

Who: Eligible FINRA member firms who opt-in to the pilot.

When: The SEC order approving the rule change was issued on November 17, 2023. FINRA will announce the effective date of the program in a Regulatory Notice.

Why: FINRA has explained that the pilot program will provide it the opportunity to gauge the effectiveness of remote inspections as part of a modernized, reasonably designed supervisory system that reflects the current work environment and availability of technologies that did not exist when the on-site inspection originally was conceived.

How: The new rule will permit participating member firms to perform required inspections of OSJs, branch offices, and non-branch locations remotely under the applicable provisions of FINRA Rule 3110(c)(1), subject to specified safeguards and limitations. The pilot program will automatically sunset on a date that is three years after its effective date.

Why it matters: The potential operational flexibility to eligible firms comes at a cost.Firms that are interested in opting into the pilot should carefully weigh the various eligibility criteria and participation conditions (e.g., quarterly data collection and reporting to FINRA) to determine if the voluntary election makes sense for the firm.

CRC keeps its thumb on the pulse of the evolving regulatory landscape. Keep an eye out for additional information, including updated guidance, risk alerts, and CRC’s thoughts on how to ensure successful compliance with evolving regulatory expectations within your firm’s existing regulatory compliance program.

Contact Mitch Avnet for further details: (646)346-2468 | mavnet@compliance-risk.com