By Amy Leisinger, J.D.
In response to the challenges posed by the COVID-19 pandemic, the Financial Industry Regulatory Authority has requested comment on how firms and investors have fared regarding FINRA requirements and the unprecedented changes to business operations while maintaining access to capital markets. FINRA has taken steps to assist member firms, personnel, and investors as they navigate pandemic effects and asked to learn more about stakeholders’ experiences, including the impact on operations and business models and the effectiveness of business continuity planning. The organization also requested comment on whether it should consider further changes to its rules to address anticipated long-term impacts.
The regulatory notice cited FINRA’s to provide guidance and temporary regulatory relief to firms and associated persons and noted that, as matter of course, it continues to periodically review its rules to determine their effectiveness and ability to meet intended objectives.
Business continuity planning. FINRA Rule 4370 requires each member firm to maintain and review a written business continuity plan (BCP) tailored to enable the firm to meet existing customer obligations and to address relationships with broker-dealers and counterparties. In Regulatory Notice 20-08, published at the beginning of the COVID-19 pandemic in the United States, FINRA encouraged each member firm to review its BCP to consider pandemic preparedness.
FINRA requested comment on firms’ experiences with BCPs in recent months and whether there is a need for change to Rule 4370 to address the evolving issues relating to the pandemic.
Business operations. The organization also noted that many member firms have relied on alternative work arrangements and implemented ways to supervise associated persons remotely during the pandemic. To provide additional flexibility to personnel, some firms have indicated an interest in continuing to allow use of remote offices after the pandemic and requested that FINRA reconsider the branch office and OSJ definitions in Rule 3110 due to expected greater use of alternative work arrangements, the notice explained.
FINRA requested further input on the usefulness of current definitions, as well as the execution and effectiveness of remote completion of yearly inspection obligations. The organization specifically asked for thoughts on making such relief permanent and whether FINRA could provide additional assistance or resources going forward.
Processes. Engagement with member firms has been a critical part of FINRA’s assessment of the need for responses during the pandemic, according to the notice. FINRA temporarily changed certain procedural requirements to allow, among other things, service of some documents by email and proposed amendments to Rule 1010 to permit firms to obtain electronic signatures on the Form U4. FINRA asked stakeholders whether the current conditions have highlighted the need for further changes to communication processes.
In addition, due to health and safety concerns, FINRA has also provided relief to persons seeking to take qualification examinations, the organization noted. Since July 2020, FINRA has delivered an online testing service for candidates seeking to take FINRA and North American Securities Administrators Association exams remotely. FINRA requested insight on this testing experience during the pandemic.
FINRA concluded by also asking what effects pandemic-related changes to operations and business models have had on investors, including access to funds and/or communication challenges.
Comments are due by February 16, 2021.
This is Regulatory Notice 20-42.