Industry Experience With Remote Branch Inspections
SIFMA and Protiviti conducted a survey with 28 firms, consisting of a sample of large, medium and small firms, as defined by FINRA, as well as different business models, from warehouses to retail and wealth management to independent firms. The goal of this survey is to resolve concerns about remote inspections during the pandemic.
Introduction
In 2020, the Financial Industry Regulatory Authority (FINRA), the Securities and Exchange Commission (SEC) and several states provided temporary relief from the operational challenges of conducting on-site branch inspections during the pandemic, allowing firms to utilize technology to fulfill their inspection obligations remotely. Now, FINRA has proposed a voluntary, three-year remote inspections pilot program to collect data to assess a potential change to FINRA Rule 3110 that would permit firms to conduct remote inspections of eligible locations on a risk basis.
We support a pilot that provides stakeholders with the information they require to assess the viability of remote inspections. We believe that the events of the past two and a half years demonstrate that remote inspections are a necessary and effective risk-based supervisory tool used on a risk basis, allowing firms to focus their resources toward on-site inspections of higher-risk locations.
It is not yet clear when the SEC will rule on the pilot program and what its potential long-term impact on brokerage supervision would be. However, it is undeniable that throughout the pandemic, broker-dealers demonstrated their ability to maintain regulatory compliance in a remote environment. This survey, conducted by SIFMA and Protiviti on behalf of the securities industry, aims to resolve concerns about remote inspections during the pandemic.
The qualitative and quantitative data that we collected supports modernizing Rule 3110 to permit remote branch inspections on a risk basis. As demonstrated below, the 28 firms that participated in the survey:
- Represented a significant swath of the industry by registered representatives
- Met their inspection obligations seamlessly, conducting thousands of inspections remotely throughout the pandemic with technologies easily and affordably available
- Identified and rectified inspection findings as appropriate, with no increase in significant findings from branch inspections during the pandemic
- Focused in-person inspections on higher-risk locations as pandemic restrictions eased and conditions allowed
- Benefited from the ability to recruit and retain diverse, qualified staff essential to their supervisory programs
Related Resource:
It’s Time to Make Remote Branch Inspections Permanent – Feb 1, 2023