Securities Litigation

On July 27, 2022, FINRA filed a proposed rule change with the SEC that would “modernize” its supervision rule to make permanent pandemic-related temporary exemptions that allowed limited-scope work-from-home (“WFH”) for brokers.

The filing proposes “to adopt new Supplementary Material .19 (Residential Supervisory Location) under FINRA Rule 3110 (Supervision) that would align FINRA’s definition of an office of supervisory jurisdiction (“OSJ”) and the classification of a location that supervises activities at non-branch locations with the existing residential exclusions set forth in the branch office definition to treat a private residence at which an associated person engages in specified supervisory activities as a non-branch location,” subject to certain exceptions.

Restrictions under the proposed Supplemental Material include:

• Only one associated person per residential location;
• No in-person meetings there with customers or prospects;
• No on-premise handling of customer funds or securities;
• The location may not be held out as an office or branch (and all cards, correspondence, and communications show the assigned branch or OSJ location);
• All work must flow through firm systems;
• Must comply with existing books and records rules; and
• The WFH location must be inspected at least every three years.

The WFH provisions would not be available to Restricted Firms, Taping Firms, or associated persons under heightened supervision or under investigation for failure to supervise.

The change was driven by FINRA’s “belie[f] this [hybrid WFH/office] model will endure, irrespective of the state of the pandemic. The pandemic accelerated reliance on technological advances in surveillance and monitoring capabilities and prompted significant changes in lifestyles and work habits, including the growing expectation for workplace flexibility.”

The Proposal is Release No. 34-95379; File No. SR-FINRA-2022-019, here.