Although FINRA has provided significant relief over the past two years to mitigate the impact of the COVID pandemic, including allowing inspections of branch offices to be conducted remotely, regulators still expect these reviews to be conducted with vigilance. The temporary relief is currently set to expire; however, FINRA has submitted a proposal to allow remote inspections through 2023, pending SEC approval.
While this may appear to signify that electronic monitoring is the future of branch examinations, state regulators are not yet convinced and oppose FINRA’s extended relief through 2023 on the basis that the proposal will adversely impact investor protection.
This leaves broker-dealers with much to consider, given that many firms have not performed onsite branch office examinations over the past two years.
While extended relief may be forthcoming, broker-dealers should review their current branch inspection program and consider the merits of onsite internal inspections and unannounced examinations in 2023 to ensure that their prior remote examinations were comprehensive and effective. It should be noted that, a broker-dealer’s internal branch inspection WSP is a necessary element of its supervisory program and a strong indicator of its culture of compliance. Oyster recommends that these onsite examinations be conducted by senior branch office examiners with the experience and business knowledge to detect deficiencies and enhance your firm’s supervisory program.
When reviewing your firm’s branch exam process, consider the following:
- Does your firm conduct risk-based branch inspections tailored to assess the specific business of the branch being reviewed?
- Does your firm have a formalized method for gathering and reviewing inspection findings to identify trends?
- Does your firm prepare written reports for each inspection conducted, and require written responses from branches to document corrective action?
- Does your firm conduct unannounced inspections?
Oyster Consulting believes that every compliance program should be designed to monitor the activities of the firm’s associates and tailored to assess the risks specific to the firm’s business. Our experts are former industry practitioners with the experience to assist with branch office on-site examinations, the development of branch examination procedures and/or a review of your firm’s existing compliance program.