FINRA Seeks to Allow Private Homes as Non-Branch Offices
Home offices deemed “residential supervisory locations” would be inspected regularly and face certain limitations.
The Financial Industry Regulatory Authority has filed with the Securities and Exchange Commission proposed changes to FINRA Rule 3110 to allow a home office to be considered a non-branch “residential supervisory location” under certain conditions, Bates Group explains in a recent alert.
“The pandemic moved regulators to issue relief from strict regulatory requirements to firms in order to allow employees to work from home, including the use of new technology and communications to permit remote supervision,” Bates said.
With the proposal, which must be approved by the SEC, “FINRA is adapting to a new, post-pandemic ‘blended workforce’ model, one in which employees work at both conventional offices and in their private residences — and which FINRA acknowledges is likely to endure,” Bates said.
As FINRA explains, Residential Supervisory Location under FINRA Rule 3110 “would align FINRA’s definition of an office of supervisory jurisdiction (OSJ) and the classification of a location that supervises activities at non-branch locations with the existing residential exclusions set forth in the branch office definition to treat a private residence at which an associated person engages in specified supervisory activities as a non-branch location, subject to safeguards and limitations.”
A Residential Supervisory Location would become subject to inspections on a regular periodic schedule, FINRA said, “which is presumed to be at least every three years, rather than an annual inspection requirement required of OSJs and other supervisory branch offices.”
FINRA also notes that “technological advances in surveillance and monitoring capabilities” have enabled such greater “workplace flexibility.”
Under the proposal, “residential supervisory locations” would be subject to limitations, including:
- that only one associated person can conduct business at the location;
- that the location is not held out to the public as an office (and that the associated person cannot meet with clients or prospects there);
- that no customer funds or securities are handled there;
- that the associated person is assigned to a specific branch office;
- that all electronic communications are made through the member’s electronic system; and
- that books and records must be maintained.