5 Things to Know about Remote Branch Inspections
In a much-anticipated notice, FINRA announced the implementation of the temporary guidance allowing firms the ability to conduct branch office inspections on a remote basis. While this is a big relief for compliance officers wondering how they were going to complete branch inspections in a period of safety concerns and social distancing, it is important to make sure that you read the fine print and that take the steps necessary to successfully take advantage of this temporary relief.
- Background. FINRA amended its supervisory rule to include temporary relief allowing firms to be able to conduct branch office inspections on a remote basis for the calendar years 2020 and 2021. Some wonder why this relief is necessary as FINRA’s supervision rule does not specifically require onsite branch inspections. Well, it is clear based on this relief as well as interpretive guidance provided in the past, that both FINRA and the SEC expect that branch inspections, notwithstanding this relief, be conducted on-site. According to the guidance, on-site or remote inspections must be completed on or before March 31, 2021 for calendar year 2020 and on or before December 31, 2021 for calendar year 2021.
- Updating Procedures. FINRA expects that firms taking advantage of this relief will amend or supplement their procedures to provide for remote inspections and that those procedures ensure that remote inspections are as effective as onsite inspections. FINRA also expects these procedures to include a description of the methodology used to conduct remote inspections, including the tools and technologies used. The procedures should outline the use of any other risk-based systems used to identify and prioritize the areas for review based on areas of greatest risk. Most firms have used such risk-based systems and surveillance for assessing branch locations for a long-time. It is important, however, to ensure that the firm’s procedures for remote inspections capture how these systems are used.
- Standards. As always, FINRA expects that firms continue the practice of ongoing reviews of the activities at all locations. You can anticipate that FINRA examiners will be assessing firm’s remote inspections to ensure that they meet the same standards for review required prior to the temporary relief. Examiners will be assessing how firms reviewed for and identified any red flags and the steps taken to address those red flags. The regulator will expect to see that firms took additional steps and supervisory reviews where necessary, and that on-site inspections, on an announced or unannounced basis, are performed when the circumstances are appropriate.
- Documentation. According to the temporary relief, firms must maintain separate records evidencing all locations where inspections were conducted remotely and any locations where additional supervisory procedures or more frequent monitoring were imposed. Additionally, FINRA expects that firms document in the results of remote inspections any additional supervisory procedures or more frequent monitoring imposed as a result of the remote inspection.
- We Can Help. Oyster Consulting has been conducting remote testing for a long time. We have effectively utilized methods and tools to allow us to be able to share and review records, interview key personnel and stakeholders, observe locations and operations, and test supervisory systems. Our team can help you develop your remote inspection plans, draft the necessary procedures and, where needed, conduct remote inspections of your branch locations.
For more information about how we can help you run, grow and protect your firm, click here or call (804) 965-5400.
About the Author: Ed Wegener is an innovative compliance, risk management and supervisory controls expert with deep understanding of Federal Securities Laws and the rules of self-regulatory organizations, as well as technology optimization and risk mitigation. Prior to joining Oyster, Ed held several posts in FINRA, most recently as Senior VP and Midwest Regional Director. While there, he was responsible for the Region’s risk assessment, examination and investigation programs. Ed was a member of the team that developed FINRA’s risk-based examination program and he developed and managed FINRA’s first Digital Asset and Cybersecurity examination programs.