In Notice to Members 17-38, FINRA has put out for comment a change to Rule 3110 that would allow the remote inspection of certain “qualifying offices” as that term is defined by FINRA. In its Notice to Members, FINRA highlighted the point that technology and a changing industry mandate reconsideration of requiring mandatory, in-person inspections.
A “qualified office” is an office that meets the following conditions:
- A location where there are no more than three associated persons that conduct business for the firm.
- A location that is not held out to the public as an office of the firm.
- The associated person at that location conducts business for the firm solely through the firm’s authorized electronic systems.
- All required books and records are maintained by the firm other than at the location.
- No customer funds or securities are handled at the location.
- The location is either (i) not required to be annually inspected; (ii) designated as an OSJ solely because of supervisory activities described in Rule 3110(f)(1)(D) through (G); or (iii) designated as a branch office solely because of supervisory activities described in Rule 3110(f)(2)(B).
- No registered person at the location has a disciplinary history and no associated person at the location is subject to statutory disqualification.
Although there are a number of conditions to satisfy the exception to in-person branch office inspections, this proposed change is a start in the right direction. Compliance and supervision take substantial overhead, and the proposed change is just an acknowledgement of reality that inspections can be performed without the need of boots on the ground. Time will tell if this rule change happens.