Brokerage industry applauds, PIABA criticizes approval of remote inspection proposals

investmentnews.com:

A lawyer who represents investors in disputes with brokerages says online inspections of branch offices will increase his business in a bad way. Trade groups representing brokers say easing the requirement for onsite reviews better aligns supervision rules with the hybrid work environment.

Those divergent opinions arise in the wake of the Securities and Exchange Commission’s approval last week of Finra rule proposals that would establish a three-year pilot program for remote inspections and allow a broker’s home to be designated as a nonbranch office, or residential supervisory location.

The Financial Industry Regulatory Authority Inc. has pursued the rule changes in response to a work-from-home trend in the brokerage industry that started during the coronavirus pandemic and that the regulator says likely will continue.

The pilot program proposal, introduced in 2022, builds on a temporary rule for remote inspection that has been in place since November 2020 and has been extended a couple of times while Finra worked on the proposal.

Some firms and locations will not be able to conduct online reviews based on past disciplinary problems and other factors to minimize risk. Finra amended the proposal on residential supervisory locations to strengthen eligibility criteria.  

But throughout the rulemaking process, Finra has said that technological advances have enabled brokerages to supervise employees effectively through electronic means.

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

One reason it took the regulator a while to get the proposals over the finish line is because of resistance from securities lawyers who represent investors