Given the ongoing uncertainties related to the pandemic, broker-dealer firms have been monitoring regulatory relief bulletins and notices for guidance related to certain compliance obligations, including onsite office inspection requirements. Recently, FINRA adopted temporary supervision rule amendments, which permit firms to conduct remote inspections to satisfy the onsite office inspection requirements with the extended dates of March 31, 2021 for calendar year 2020 inspections, and December 31, 2021 for calendar year 2021 inspections.

While the extended time frames were a welcome relief for the industry, inspections remain a vital component of supervisory systems that often assist firms in early detection of misconduct and potential elimination of future wrongdoing.

Although a considerable amount of supervision work is already performed offsite, line of sight supervision cannot be replaced. As such, firms must ensure they are modifying their supervision programs to account for their remote supervision and appropriately bridging any oversight gaps until such time as they can return to onsite office inspections.

Best practices for Remote Supervision

  1. Offsite monitoring – Implement technology to assist in monitoring individuals working remotely. This includes systems that have capabilities of generating exception reports, including detecting of the use of personal email addresses and uncovering undisclosed or unapproved outside business activities or social media registrations.
  2. Virtual check-ins – Regularly conduct announced and unannounced video check-in meetings with remote supervisors and representatives.
  3. Remain vigilant – Increase frequency or percentage of reviews of electronic communications, messaging application platforms, social media accounts, and discussion threads. Look to confirm that only firm-approved communication channels are being used to communicate with others, internally and externally.
  4. Documentation – Utilize questionnaires, attestations or return receipts to document policy communications, limitations, and expectations.

Best practices for Office Inspections

  1. Implement a risk-based approach – Create a risk ranking system to identify the locations where activities that pose the greatest risk of potential violations are conducted. Develop procedures to mitigate and properly address identified risks. Be sure to consider activities that may pose a greater risk in a remote environment.
  2. Utilize video conferencing – Participants are less apt to zone out or multitask when they are required to participate via video conferencing instead of a conference call. Video conferencing also allows for screen sharing and virtual review of files, records, reports, or other documentation.
  3. Follow up on any red flags – Require supervisors and branch managers to immediately escalate any potential red flags, issues, or concerns. If, during the course of the inspection, deficiencies are identified, examiners should conduct a more in-depth review.
  4. Documentation – Completing an inspection is not sufficient. Firms must document their examination, findings, and remediation, if any. If it is not documented, it didn’t happen.

There are hefty fines and disciplinary actions for failing to supervise, and while this is not an exhaustive list of best practices, it provides a roadmap that firms can use to bridge the gap in onsite supervision.





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The content contained in this article is for informational use only and is not intended to be and is not a substitute for professional financial, tax or legal advice.