Supported by many industry companies financial industry regulatorshas proposed extending remote inspections to branches, but industry insiders have warned of the limitations of conducting inspections without on-site visits.
In April Finra resubmitted the proposal. Securities and Exchange Commission A three-year pilot program to enable remote inspection of branch offices. As a concession to the coronavirus pandemic, Finra is allowing businesses to conduct remote testing outside of their offices and branches from November 2020. Industry self-regulators submitted similar proposals in July 2022 and amended them in December 2022.
Critics of the proposal in various ways, including state securities regulators and plaintiffs’ attorneys, argue that the extension of remote inspections would allow remotely working advisors to monitor outside business activities and other disputes by employers and regulators. can be more easily avoided.
However, the following companies Cetera Financial, LPL Financial and Raymond James He wrote a commentary in support of Finra’s latest proposal, arguing in part that technology is helping to fill the gap.
“The pandemic has forced the industry into a mostly remote and alternative work environment. Technological advances over the past few decades have made that transition almost seamless. We are now able to do that kind of oversight electronically, allowing us to virtually monitor people in real time, regardless of their physical location.” Dee O’NealIn a letter dated May 23, Raymond James Senior Vice President and Branch Study Director said:
O’Neill pointed to the labor market as an advantage of expanding remote testing. He said the repeal of the temporary relief under Finra Rule 3110.17 would allow companies to order employees back to the office and to “significantly increase” the number of locations requiring on-site inspections, resulting in “significant It would risk losing “talented talent,” he added.
“The tight labor market has made it difficult for companies to return to full-time travel for on-site inspections, and it is almost impossible for companies to add enough staff to reasonably accommodate the significant increase in inspection volume required. No. By increasing the burden on existing staff, businesses are at even greater risk of losing critical talent and failing to meet regulatory inspection requirements,” she said in the letter.
But continuing to allow remote inspections could increase risks for investors, the paper said. Public Investor Advocacy Lawyers Association. The proposal “is a fundamentally flawed idea and goes against Finla’s stated objective of protecting investors,” Piava said. Hugh Barkson said in a letter dated May 24.Mr. Burkson is also the director of a Cleveland-based law firm. McCarthy, Levitt, Crystal, Riffman.
“While it is understood that Finra seeks to capitalize on its growing use of virtual technology, the proposed rule leaves considerable opportunity for advisors to circumvent the rule,” Burkson said in the letter.
In an interview with FA-IQ, Burkson said in-person testing “reveals things that remote testing can’t reveal,” such as someone known to drive a Bentley with a $50,000 salary.
In-person testing is especially important when supervising remote workers, Berkson said.
“When employees are working remotely, it becomes more important to supervise and ensure that they are complying with the appropriate rules and regulations,” he said.
“There is no substitute” for field surveys thunder wrestlerCo-Owner and Managing Director of Essential Edge Compliance Outsourcing ServiceBased in Lamy, New Mexico, we are a provider of compliance services to broker-dealers and registered investment advisors.
“There’s no substitute for seeing what people are doing. You can’t get that remotely,” he said.
Ressler said only “a small percentage of representatives are committing fraud,” and companies are weighing the potential economic impact of employee misconduct against the cost of conducting in-person testing. said there is.
A large company, for example, might want to risk a lawsuit rather than the cost of inspecting a large number of branches, Mr. Ressler said.
“They have to take 1,000, 1,500, 2,000 branch exams a year. It’s going to cost millions of dollars and they want to save that money,” he said.
As an alternative to remote inspections, Rössler said Finra could change the frequency of supervisory jurisdiction inspections of its offices. He noted that the OSJ is required to be inspected annually, while non-OSJ offices require him to be inspected every three years, potentially allowing companies to perform risk assessments. suggests.
“For high risk OSJs, do it annually. Medium risk, every 2 years. For low risk, do it every 3 years. Do the same for non-OSJs. If it’s medium risk, do it every three years.If it’s low risk, do it every five years,” he said.
“There will be less money spent, and high-risk offices will be contacted more often than low-risk offices,” he added.
By the end of 2022, Finra’s membership will include 3,381 companies and 150,495 registered branches, according to the self-regulatory body’s April proposal. Of these branches, only 12% are OSJ branches subject to annual inspections, while the remaining 131,931 branches are non-OSJ branches subject to at least annual or triennial inspections. Finra also estimates that there are approximately 59,830 non-branch locations, of which 41,078 are private residences. Non-branch locations should be inspected regularly, assuming at least every three years.