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FINRA Shares Best Practices by Firms to Supervise in a Remote Work Environment

FINRA, through its most recent Regulatory Notice 20-16, shares certain common practices they have seen taken by member firms to enhance supervision in the remote work environment due to the COVID-19 pandemic.  In doing so, FINRA reminds firms of their obligation to have reasonably designed supervisory procedures in writing, including changes for the COVID-19 pandemic.  FINRA suggests that “certain firms that relied on web-based tools, electronic document management systems and cloud-based services, and regularly tested their remote connectivity, capacity, work processes and trading capabilities believed they faced fewer difficulties transitioning to a remote work and supervisory environment”.  Additionally, FINRA noticed additional efforts by firms to ease the transition: 

  • Assisting customers by establishing back-up branch office partner programs.
  • Implementing remote work protocols to facilitate the transition, including location monitoring and the use of contact list
  • Providing additional support and communication, including enhanced virtual trainings and guidance.
  • Focusing on confidentiality and cybersecurity, through increased training of staff and monitoring of critical information technology vendors. 

FINRA noted that some firms addressed concerns relating to remote supervision by:

  • Conducting additional testing of remote supervision capaibilities.
  • Providing additional guidance and resources to supervisors by, among other things:
    • underscoring the increased importance of supervision in a remote work environment;
    • coaching supervisors and to “over-escalate” potential issues and concerns;
    • and scheduling daily or weekly meetings for all senior leadership and supervisors to provide regular updates, which included emerging issues relating to remote work.
  • Implementing screening processes and additional supervisory requirements before permitting, including establishing a process for senior management to approve each trader to work remotely; testing the trader’s remote trading capabilities with an assigned in-office partner; and requiring special supervisory checklist for supervisors of remote traders.
  • Increasing the volume and frequency of supervisory review of email communications.
  • Implementing additional key word search functionalities for their communication surveillance to identify potential communication outside of approved firm systems and tools.
  • Disabling certain features and functionalities of video conferencing platforms, such as chat, that would be subject to recordkeeping obligations that the firms could not fulfill in the remote work environment.

With branch inspections, some firms adjusted their branch inspection programs to accommodate remote work requirements and travel restrictions.  Some firms created and implemented a temporary, fully remote inspection plan using video conferencing, electronic document review and other technological tools.

FINRA reminds all member firms and associated persons that they will continue to provide guidance, updates and other information to help firms and stakeholders stay informed about the latest regulatory developments relating to COVID-19 and beyond.  FINRA also reminds firms and their associated persons that Regulatory Notice 20-16 is not a “comprehensive inventory of all possible approaches taken by firms, nor does it include exam findings or effective practices because we have not yet evaluated these practices in our examination program[.]”

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Authors

Pete S. Michaels

Member / Co-Chair, Financial Services Practice

Pete S. Michaels is a Mintz attorney who focuses his practice on securities litigation, regulatory proceedings involving financial service companies and products, and compliance matters. He represents financial services firms and insurance companies and their employees, directors, and officers.
David L. Ward is a Mintz attorney whose practice includes financial services regulatory matters, internal investigations, and securities-related litigation in state and federal courts. He represents financial services clients before the US Department of Justice, SEC, FINRA, and other regulators.
Michael E. Pastore is a Mintz attorney who represents banks, financial services, and other companies in litigation and government proceedings involving consumer protection and other laws. He also handles arbitrations and guides clients through government and internal investigations.