What: The SEC recently approved FINRA’s amended rule proposal (SR-FINRA-006) to adopt new Supplementary Material .19 (Residential Supervisory Location) under FINRA Rule 3110, which will permit certain broker-dealers to treat an eligible private residence in which an associated person engages in specified supervisory activities as a non-branch location (subject to various conditions and limitations).
Who: FINRA member broker-dealers who allow supervisors to work from a private residence.
When: The SEC order approving the rule change was issued on November 17, 2023. FINRA will announce the effective date of the rule change in a Regulatory Notice.
Why: During the recent pandemic many FINRA member firms developed hybrid workforce models, and many of the supervisors who began working from home during the pandemic continue to do so, at least on a part-time basis. Under the pre-RSL regulatory framework, those supervisors likely conduct activities that would require the registration and designation of their private residence as supervisory branch offices or OSJ.
How: Generally, a private residence at which supervisory functions described in Rule 3110(f)(1) or (2)(B) occur must be registered and designated as a branch office or OSJ and inspected at least annually. The rule change will permit eligible FINRA members to treat such locations as non-branch locations (subject to terms and conditions under the rule), which would permit inspections to be conducted on a regular periodic schedule rather than annually.
Why it matters: Sooner or later the temporary pandemic regulatory relief related to Form BR reporting of new temporary office locations created due to Covid will end. Broker-dealers with hybrid/remote supervisory operations would be well-served to begin evaluating the eligibility criteria and associated requirements that will be necessary to utilize the RSL designation once it becomes effective. Likewise, broker-dealers who will be ineligible at the firm-level and those with one or more ineligible locations should begin evaluating what adjustments will need to be made to maintain compliance with Rule 3110 after the discontinuation of the Covid relief.
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
