In July 2024, broker-dealers must begin doing on-site branch inspections again unless they participate in FINRA’s Remote Inspections Pilot Program. Under Rule 3110.18 firms will be allowed to conduct remote inspections provided they opt-in to the program and comply with its requirements. The pilot will cover a three-year period. If a member firm does not participate in the Remote Inspection Pilot, branch and location inspections beginning on July 1, 2024 will need to be conducted onsite pursuant to the requirements under FINRA Rule 3110(c)(1)(A), (B), and (C).
Remote Inspection Pilot Eligibility Requirements
In order for your firm to be able to participate in the Remote Inspection Pilot, it must meet certain eligibility criteria. Additionally, there are certain firm-level conditions that must be met. Once it is determined that your firm is eligible and that firm-level conditions have been met, each branch location considered for a remote inspection will need to meet location-level eligibility criteria and conditions. Firms should document their assessment of both firm-level and location-level eligibility criteria and conditions.
Requirement to Opt-In
Firms that would like to participate in the Remote Inspections Pilot Program for any year will be required to provide FINRA with an opt-in notice at least five calendar days before the beginning of the Pilot Year. By opting in, the firm will agree to participate in the Remote Inspections Pilot Program for the duration of the coming Pilot Year and agree to comply with the requirements of Rule 3110.18. By opting in, a firm will be automatically deemed to have elected and agreed to participate in the Remote Inspections Pilot Program for subsequent Pilot Years until the Remote Inspections Pilot Program expires or until an opt-out notice is provided. An opt-out notice will be required to be provided at least five calendar days before the end of the then current Pilot Year
You’ve Opted In – Now What?
Risk Assessment
To participate in the remote inspection pilot, firms must develop a reasonable risk-based approach to using remote inspections, and conduct and document a risk assessment for each branch office or location it chooses to inspect on a remote basis. If the firm or the location is ineligible for remote inspections, an on-site inspection of that office or location must be conducted when required.
Specific Written Supervisory Procedures
If a firm elects to participate in the Remote Inspections Pilot Program, it must adopt written supervisory procedures specific to conducting remote inspections. Firms will be held to the same standards for their inspections, whether the inspection is done onsite or remotely. If a remote inspection of an office or location identifies any “red flags,” the firm may need to impose additional supervisory procedures for that location, or may need to provide for more frequent monitoring of that office or location, including, potentially, a subsequent on-site visit on an announced or unannounced basis.
Required Documentation
Firms participating in the pilot must keep a centralized record for each of the years in the Remote Inspections Pilot.
Information Requirements
On a Quarterly basis, firms participating in the pilot will be required to collect and provide to FINRA, the number of offices and locations with an inspection completed during each calendar quarter. The counts should be provided separately for OSJs, supervisory branch offices, non-supervisory branch offices, and non-branch locations.
Information Required in Year 1
A firm participating in the Remote Inspection Pilot in Year 1 must collect the following information and provide it to FINRA no later than December 31, 2024. Specifically, the number of offices and locations with an inspection completed between January 1 of Pilot Year 1 and the day before the effective date of the Remote Inspections Pilot Program must be provided. This must include separate counts for OSJs, supervisory branch offices, non-supervisory branch offices, and non-branch locations.
Requirement to provide information about Inspections done in 2019
If a firm opts-in to the Remote Inspection Pilot, it must, using good faith and best efforts, collect the number of offices and locations with an inspection completed during calendar year 2019, which it must provide to FINRA no later than December 31 of Pilot Year 1.
Residential Supervisory Locations
If your broker-dealer has associated persons involved in supervisory activities conducted from a primary residence, that residence would be considered a “supervisory branch location.” As such, the residence would be subject to branch registration and annual inspections, unless that location is deemed to be a Residential Supervisory Location.
A Residential Supervisory Location (RSL) is a type of non-branch location that would not be subject to annual inspections but would be required to be inspected no less frequently than once every three years. In order to be considered a RSL, certain criteria would need to be met. The firm also must meet certain qualifications in order to designate any location as a RSL.
In addition to each location meeting the criteria above, the firm must also conduct and document a risk assessment for the associated person assigned to that office or location.
Finally, a firm that elects to designate any office or location of the member as an RSL will be required to provide FINRA with a current list of all locations designated as RSLs by the 15th day of the month following each calendar quarter. Firms that qualify may start using the RSL designation for qualifying locations on June 1, 2024. The first RSL list is due to FINRA on October 15, 2024, covering all locations firms designate as RSLs during the period June 1, 2024, through September 30, 2024. Note that firms should assess whether adding such locations would require a continuing membership application.
Compliance Reviews and Assessments
Oyster Consulting provides expert compliance support to assist firms in determining whether your firm and specific locations are eligible to participate in the Remote Inspection Pilot and/or can be designated as Residential Supervisory Locations. We also assist in conducting risk assessments and complying with filing requirements. Our detailed and documented analysis of your compliance program and technology will help ensure your firm remains compliant and able to participate in the program.
Oyster Solutions compliance management software includes a tailored risk assessment that identifies, assesses and prioritizes your firm’s unique risks. By defining and quantifying your risk, matching risk to your controls and monitoring process, Oyster Solutions keeps your business and controls balanced while meeting your regulatory requirements.
