Remote Supervision: Expectations, Requirements and Pitfalls

By Jessica Hamby

Original Taktsang (Tiger's Nest) monastery before it was destroyed by fire in the year of 1998.

At the 2022 FINRA Annual Conference, supervision in the remote work environment was a hot topic of discussion. Concerns range from protection of sensitive data to a lack of in-person interaction that can lead to gaps in supervision. As firms and regulators adjust from the initial pandemic reaction to a long- term remote or hybrid model, FINRA will be addressing these types of arrangements and the risks they pose. Several panelists including Gina Rettagliata, Director, Retail Firm Examinations of FINRA, discussed some effective remote supervision tools as well as updates we can expect from FINRA in this area. Some highlights of the discussion are listed below.

Remote Supervision Programs

Remote Supervision Programs must be risk based and tailored to the individual firm’s business activity. An advantage of remote supervision is that supervisors can be assigned to branches with a business model that is within the supervisor’s area of expertise. Geographical groupings are no longer as necessary in the remote environment which gives firms the freedom to assign supervisors in a way that best mitigates their risks. FINRA recently restructured its staff in this manner and has seen great benefits from the change.

Some tools that can be useful for remote supervision include video meetings, screen sharing, online training and online document sharing and submission platforms. Email review can be a particularly helpful tool to keep in touch with branch activity when remotely supervising.

Cybersecurity should be included in your remote supervision program. This is particularly important when branches are using their own devices and VPN. Being sure that devices are password protected and include anti-virus software are good practices.

Communication between supervisors and investment professionals is key and regularly scheduled check-ins can be helpful to replace the interaction that existed before working remotely. Having a personal relationship with branch staff can help foster compliance with firm policies and make it easier for the supervisor to get responses that they need. Communication between remote supervisors and their team and managers is also very important. Routinely sharing concerns and information about what is happening at the firm can help to identify and trends or new risks that may become problematic and can help to escalate issues to firm management.

Limitations of Remote Supervision

Some heightened supervision situations require in person visits. Conducting a risk assessment can help your firm determine which if any branches will need to be visited in person.

Some investment professionals will not respond well to online activities and will require phone calls and more manual sharing of documents.

Looking Forward

FINRA is considering changing the definitions of branch office locations and OSJ locations in response to the new work from home environment. This will impact branch registration and audits. Home offices may possibly be considered temporary or non-branch locations depending on the frequency of use and the activities conducted there. The burden of potentially registering and inspecting every home office location would be high and more information is to come from FINRA on this subject soon. In addition, FINRA is working on a way to suppress home addresses that appear publicly on Brokercheck to provide more privacy to those who are working from home.

Currently, branch inspections can continue to be conducted remotely until December 31, 2022. FINRA is creating a Pilot Program to collect data on remote inspections. No other information has been released on this program or any extensions of the remote inspection relief at this time; however, FINRA plans to provide more information before the end of this year.

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