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SEC's Gensler Signals Likely OK to Extend FINRA Remote Inspections

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What You Need to Know

  • Gensler noted that there are trade-offs in conducting remote exams.
  • SEC staff is developing a proposal on cybersecurity risk governance.
  • Also on the SEC’s plate: private funds. In particular the conflicts of interest their managers may have.

SEC Chairman Gary Gensler signaled Tuesday that the agency is considering approving the Financial Industry Regulatory Authority’s plan to continue remote branch inspections into 2022.

“Due to public health concerns, in November 2020, FINRA provided member firms the option to complete branch office inspections remotely for calendar years 2020 and 2021,” Sen. Bob Menendez, D-N.J., said Tuesday during a Senate Banking Committee hearing on SEC oversight.

Menendez asked Gensler: “What’s your assessment of the quality of those remote inspections? Do you think regulators sacrifice any oversight by allowing these remote inspections? And because we’re still facing the delta variant pretty high, is the SEC considering extending remote inspections?”

Gensler responded: “Senator, we are.”

Gensler noted that there are “trade-offs” in conducting remote exams.

FINRA CEO Robert Cook relayed on July 22 that FINRA was in talks with the SEC to allow firms to continue with remote inspections in 2022. Late last year, FINRA adopted temporary supplementary material under Rule 3110 to help firms meet their inspection obligations for calendar year 2020 and 2021.

This rule will expire on Dec. 31. FINRA is “actively engaged in discussions with SEC staff to explore extending the duration of this relief into 2022,” Cook said.

Cybersecurity, Private Fund Plans

Gensler also told members of the Senate Banking Committee that SEC staff is developing a proposal “on cybersecurity risk governance, which could address issues such as cyber hygiene and incident reporting.”

Also on the SEC’s plate: private funds, “in particular the conflicts of interest their managers may have and the information they are providing investors about the fees they charge,” Gensler relayed. “I believe we can enhance disclosures in this area, better enabling pensions and others investing in these private funds to get the information they need to make investment decisions. Ultimately, every pension fund investing in these private funds would benefit if there were greater transparency and competition in this space.”

Gensler added that “following the challenges of the spring of 2020, I believe we can build greater resiliency in both money market funds and open-end bond funds,” noting that he’s asked SEC staff for recommendations to address those issues.

“Given the disruptions in the nearly $5 trillion money market fund sector in spring 2020, particularly amongst prime money market funds, I believe it is time to reflect upon the reforms of 2014 and 2010 to see if we can further improve resiliency, particularly in times of stress,” Gensler said.

He noted that he anticipates a commission recommendation by “Q1 on money markets and gates.”

Gensler added: “Given significant growth in open-end funds and some lessons learned last spring, I believe it also is appropriate to take a close look at this $5-plus trillion sector, to enhance resiliency during periods of stress.”


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