FINRA asks SEC to approve permanent remote inspections

The Financial Industry Regulatory Authority asked the Securities and Exchange Commission to adopt a permanent rule allowing broker-dealers to perform required inspections of remote offices at a distance. FINRA’s Board of Governors approved a proposal this week to end a pilot program and forwarded the rule package to the SEC for final approval.

FINRA launched the pilot in June 2024 to test whether internal examiners could detect regulatory problems without visiting sites in person. About 970 firms participated, roughly 30% of the industry’s estimated 3,200 broker-dealers. Participation skewed toward larger firms defined by FINRA as those with 500 or more registered representatives. FINRA estimates the pilot covered about 90% of branches and 86% of the industry’s more than 630,000 registered representatives.

The pilot focused mainly on nonbranch locations, primarily residential offices. FINRA economists found remote inspections produced a finding in a bit more than 20% of reviews, while in-person inspections produced findings in more than 40% of cases. When an inspection produced a finding, both remote and in-person reviews typically identified two to three issues per inspection, according to Patricia Ledesma Liebana, FINRA’s senior economist. “The rates are comparable — between two and three findings per inspection, when there was a finding, for both types of inspections,” she said.

The Board’s proposal also would change the inspection cycle for some home-based supervisory offices. Residential supervisory locations that previously required annual inspections would move to a presumptive three-year cycle under the proposal. FINRA would also simplify how different types of residences are treated and adjust the rules that determine when a home office is ineligible to serve as a supervisory location. FINRA presented the package as part of its FINRA Forward agenda, which updates rules after seeking industry feedback.

Paxton Dunn, FINRA’s senior director for operations, procedures and standards, told attendees and participating firms reacted positively to the pilot. “Firms don’t have to send armies of people out to go do on-site inspections,” he said, noting occasional awkward moments when remote inspectors asked employees to reposition cameras to show workspaces.

If the SEC approves the proposal, broker-dealers would be required to register remote locations used for business and to follow the updated inspection cycles and supervisory rules. The pilot had been scheduled to run through June 30, 2027; FINRA’s Board moved to replace the temporary test with a standing rule pending SEC approval.