FINRA May Modify Rulebook, Supervision in Light of Virus

The Financial Industry Regulatory Authority will consider modifying its rulebook to adjust to broker-dealers that will continue remote work after the pandemic, according to the regulator's CEO, Robert Cook.

FINRA "wants to hear from firms on what they expect their future to look like even after a [COVID-19] vaccine clears up the essentially mandatory work from home policies that firms have been going through," Cook said during a virtual panel.

While Cook says he's been hearing from BDs that firms have been working well with high productivity in home-based environments, "while they may eventually return to the office, they don't expect everybody to go back to the office the way they were."

That fact, Cook said, "has implications for our work, our supervision of the firms; that's a dialogue that we'd like to have with firms: Where do they see the future of their workplace going so that we can adjust our rulebook, our supervisory oversight."

Bob Colby, FINRA's chief legal officer, added during the virtual panel that FINRA recently filed a rule proposal with the Securities and Exchange Commission to give broker-dealers until March 31, 2021, to complete their office inspections. The proposed temporary change to Rule 3110 would be effective immediately.

"As a result of the compelling health and welfare concerns stemming from the COVID-19 pandemic, firms are facing potentially significant disruptions to their normal business operations that may include staff absenteeism, the increased use of remote offices or telework arrangements, travel or transportation limitations, and technology interruptions or slowdowns," the proposal states.

Colby stated on the virtual panel that "A lot of firms have said that's not enough. If you think that's too short — we flagged in our filing that we thought it was too short — you could respond to that and share your views with the SEC."

FINRA also hopes to file soon with the SEC for approval a rule that would discontinue onsite inspections for the "smallest [broker-dealer] offices with very limited range of securities activities taking place," Colby said.

FINRA employees are also still working remotely, Cook said. "We're doing exams but doing them primarily digitally," he said, and "we're continuing to get our work done while finding new ways to do it."

The broker-dealer self regulator has set up a task force that will initiate a phased return-to-work schedule for FINRA employees, Cook said, based on office locations. The task force is "not initiating the phased return yet," he said, "but is looking at plans and developing thresholds."

The Securities and Exchange Commission said it will allow most of its employees to continue working from home at least until October.

Reg BI, Form CRS Compliance

As to the SEC's Regulation Best Interest, Cook reminded BDs that FINRA has to rely on the SEC "for its guidance and its interpretations of the rule." He said FINRA passes questions it receives about the rule to the SEC.

FINRA's exam division, headed by Bari Havlik, has worked with the SEC's exam group "to make sure our [FINRA's] overall approach to supervision is consistent — like common training manuals and modules," Cook said.

Havlik explained on the virtual panel that "to the extent we can, [Reg BI exams] will be built into our regular exam cycle."

FINRA, she said, doesn't have the 2021 exam plan completed yet, "but to the extent possible it will be built into the exam. That may mean some firms get a more targeted exam. Then we'll look at Form CRS for specific population of firms, about 150, maybe more, [and] look at compliance and see what we can learn, and then publish guidance based on what we find."

FINRA's exam division "will work closely" with the enforcement division regarding Reg BI, Havlik added, "like compliance with other rules."

"Similar to suitability, if we find any significant issues [with Reg BI compliance], we would refer the matter over to enforcement."

Consistent with the SEC's approach, during the first six months of Reg BI, "the exams will look at how firms have prepared — what policies, procedures, controls do they have in place to comply, very much a good faith effort," Havlik said. "Glaring issues" with compliance will be referred to enforcement.

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