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The U.S. Securities and Exchange Commission (SEC) has approved a proposal from the Financial Industry Regulatory Authority Inc. (FINRA) designed to facilitate oversight of brokerage industry employees working from home.

The U.S. industry self-regulatory organization proposed a rule that would enable firms to designate private residences used for oversight activity as “non-branch locations.” These “residential supervisory locations” would be subject to compliance reviews at least every three years, instead of the annual inspections required of traditional branches.

“To help mitigate the potential risks associated with a less frequent inspection cycle, the proposed rule change also would establish safeguards that limit [residential supervisory location] designation to certain firms and locations based on criteria designed to minimize risk,” the proposal said.

The safeguards include prohibiting certain firms from using this model, setting conditions for designation — including that client meetings can’t take place there and clients’ securities aren’t handled at the location — and requiring firms that use the model to provide certain data to FINRA regularly.

The SRO proposed the change in the wake of the pandemic, which prompted many firms to adopt remote working and saw regulators temporarily suspend certain compliance requirements.

In the SEC’s order, it said that FINRA “believes this model will endure.”

The rule change was introduced to accommodate this shift, and to allow firms to “effectively and more efficiently carry out their supervisory responsibilities to review the activities of each office or location while preserving investor protections,” the regulator’s order said.

At the same time, the SEC also approved FINRA’s proposal for a three-year pilot program to allow remote inspections, enabling firms to meet certain inspection requirements without on-site visits, subject to certain safeguards — including limiting participation to certain firms.

The proposal also mandates data collection from firms that participate in the pilot program to help FINRA consider any permanent rule changes.

In a statement, FINRA said, “The new rules reflect today’s hybrid work environment while still providing critical investor protections.”