FINRA hopes to extend exams at remote branch offices into the next year


    Robert Cook, President and CEO of the Financial Industry Regulatory Authority, said he wants corporate branch audits to stay off until next year, speaking at the Securities Industry and Financial Markets Association’s (SIFMA’s virtual Legal & Compliance Forum) this week ). FINRA is currently in talks with the Securities and Exchange Commission on the extension of the remote inspection option.

    “I would like it to happen here, at least where I think now, that we extend it into next year and also step back and take a holistic view of this rule and think about whether it could be used.” to consider risk-based approach when face-to-face exams are required, “Cook said.

    Speaking to Ira Hammerman, Executive Vice President and General Counsel of SIFMA, Cook stressed that he believes the agency has a lot of work to do with other stakeholders and needs SEC approval. Cook did not provide a timeline for completing this decision, but said the agency is moving quickly and acknowledged that companies need time to plan ahead in order to prepare for their firms’ reviews.

    Originally, distance exams were allowed for 2020 and 2021, with Instructions published in the federal register last November, stating that firms required to conduct inspections of regulatory agencies, branches, or locations outside of branches could remotely fulfill that mandate (the regulation cited the “imperative health and safety concerns and operational challenges “.” Companies facing the pandemic and resulting lockdowns). In May, FINRA has Executive Vice President and Chief Legal Officer Bob Colby said that such an extension Businesses and regulators “buy some time” to consider how inspections should be carried out in the future.

    Noting that companies had learned a lot about conducting remote audits amid the COVID-19 pandemic, Cook suggested that a “risk-based approach” could enable companies to ensure that their OSJs and branches are complying with compliance standards, while they don’t necessarily go locally in any case.

    Hammerman also asked if the agency would reconsider the definitions for branches and OSJs, which some financial services companies have requested. Changing the definitions could affect when, how and whether these offices are inspected. Cook said these questions are “part of a larger exercise” and that the agency is reviewing its rulebook to see if requirements no longer make sense and if there are areas where further guidance would be helpful.

    “We didn’t talk about this very far into the pandemic. We knew this was going to be something that would bring the pandemic to the fore. It really accelerated some trends that have been emerging for a while, ”he said. “And these trends really challenge the long-term effectiveness of rules that have a basic, stationary underpinning.”

    Like much of the industry, regulators like FINRA are navigating their return to work. Cook said the agency had already opened a few offices and expected to open more in the coming weeks, but acknowledged the agency will have “a lot of remote work” for some time.

    Lisa Hopkins, president of the North American Securities Administrators Association (NASAA) and senior deputy securities commissioner of West Virginia, said state securities regulators had responded in different ways. According to Hopkins, state regulators had told her that from now on they would only perform their duties remotely and would have to justify any reason for holding face-to-face meetings. Other states try hybrid solutions from two to three days in the office, while other state regulators are completely back on the job.

    “States have not fully figured this out at this point,” she said during a separate panel during the SIFMA forum.

    Cook also discussed the agency’s response to recent market structure developments sparked by the GameStop saga earlier this year. Cook noted that the SEC was the federal decision maker to respond to the issues, with FINRA creating rules that align with the direction of the Commission.

    Cook noted that the agency had an ongoing zero-commission sweep that focused on whether the model affects companies’ ability to meet best execution commitments. He also said FINRA is considering compliance with guidelines for opening option accounts, SPAC disputes, and “fin influencers” to examine how companies conduct activities related to paid social media influencers monitor.

    “So innovation is great again, but following the rules is not optional and cannot be sacrificed for innovation,” he said. “And I think you will continue to see us there.”


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