The Financial Industry Regulatory Authority is seeking feedback on how to update its rules to keep pace with the evolving technology needs of hybrid work as it looks to amend its office categories.
"As developments in technology have enhanced firms’ overall and ongoing supervision and monitoring of the activities occurring at offices, there has been an increased interest in reevaluating the prevailing office categories and their associated regulatory requirements," FINRA states in Regulatory Notice 25-07.
Some firms, FINRA states, "have sought to provide broader flexibility to permit staff to work remotely at times."
As FINRA continues a broad review of its regulatory requirements applicable to broker-dealers, FINRA states that it "has identified the modern workplace as an initial area of focus for this review."
FINRA's new rules treating home offices as "residential supervisory locations" and establishing the remote inspections pilot program were approved by the Securities and Exchange Commission in November, and FINRA adopted the new rules last Jan. 24.
The rules affecting residential supervisory locations, or RSLs, took effect June 1 of last year.
FINRA has heard from broker-dealers "the need to reconceptualize the use of specific types of offices in defining supervisory requirements to better reflect members’ workplaces," the notice states.
The notice, which requests comments by June 13, asks for "specific comments on how [FINRA's] office supervision rules could be more effectively streamlined, especially in light of recent technological developments that have created a more remote and hybrid workforce," Ben Marzouk, partner at Eversheds Sutherland in Washington, told ThinkAdvisor Tuesday.
"FINRA’s reevaluation of their office categories, and so soon after their launch of the remote inspection pilot and residential supervisory location rules, reflects FINRA’s continued reevaluation of their branch office rules with a goal of modernizing the entire FINRA rulebook," Marzouk said.
The days of operating in a paper-based environment and conducting business, including the supervision of associated persons, in conventional office settings are becoming passe as "technologies and resulting business practices have since significantly evolved," FINRA states.
"Investors now routinely use a variety of digital platforms and communication channels and many expect to engage with members in similar ways," FINRA said, with broker-dealers adjusting their business processes and engagement practices to incorporate digital innovations.
Members are also leveraging modern technologies to work and supervise associated persons in a decentralized environment.
"Further change is inevitable, driven in large part by technology," such as cloud-based processing and storage, mobile phones and artificial intelligence, FINRA's notice states.
FINRA's new review focuses on the evolving modern workplace — including branch offices, hybrid work, registration, qualifications, customer information delivery, recordkeeping, digital communications, compensation, fraud protection and utilizing FINRA systems for compliance support.
For instance, FINRA seeks feedback on "the impacts of modern technologies and compliance tools on the effective supervision of decentralized workplaces and evolving hybrid work arrangements."
The broker-dealer regulator asks: "Should the Supervision Rule’s branch office and OSJ definitions, inspection requirements, and designation and registration of offices be modernized to eliminate unnecessary burdens or ambiguities while maintaining investor protection and market integrity?"
And, "Should the branch office definition be amended in light of the technological advances that have changed how and where individuals work? Is the OSJ definition still relevant in today’s environment?"
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