Working from home and FINRA’s new rules

Most of the top financial firms have made it clear, either publicly or in internal communications, that they do not support the “work from home” culture. They are currently in place in most firms but are temporary, they will be removed gradually.

But there are some outliers, though. The boss of Santander, UK, in a recent interview said that “it is not vital to spend five days a week in the office, and he himself would not have accepted his job had it not for work from home”. This could be music for those who love the hybrid model, but as I said he is just an outlier in the financial industry; most firms want people to work from office all five days for effective collaboration, increasing productivity and reduce operational risk. Many employees do love the hybrid model and it could be one of the features to attract and retain top talent.

And then there are these FINRA rules - FINRA Rule 3110.19 (Residential Supervisory Location) and FINRA Rule 3110.18 (Remote Inspections Pilot Programs).

In general, employees of regulated financial firms (eligible employees only, not all employees) are required to be supervised in a controlled environment. This is to prevent frauds and other risks. During the Covid-19 pandemic, FINRA provided member firms temporary relief from many of these supervisory requirements. The relief was for a period of about 4 years (from 2020 to 2024), which would come to an end on May 30, 2024, a year after the official end of the pandemic.

Considering that many financial firms now have hybrid working models in place, FINRA has brought out new rules which allow “eligible registered persons to work from home”. However, these new rules come with some reporting and inspection requirements.

There are two ways to comply with these rules – [1] get all employees back to office so that there is no need for remote inspections and reporting; or [2] continue the hybrid model, identify eligible employees and comply with the new supervisory and reporting requirements. Some firms might prefer to implement [1] and take this opportunity to end this work from home concept once for all by using the regulatory excuse. FINRA is aware of this and knows that it could be portrayed as the villain. Therefore, it released a press note yesterday and stated the following.

FINRA has seen recent statements from firms stating that new, stringent rules from FINRA will require them to bring their workforce back to the office full time. This is incorrect. FINRA notes that a location from which an associated person regularly conducts securities business on behalf of a member firm, including a home office, has always been subject to possible disclosure, registration and inspection under FINRA rules and applicable rules of other regulators. The COVID-19 pandemic prompted FINRA to provide member firms with temporary relief from many of these requirements. After a three year plus rulemaking process on our new rules, during which FINRA engaged in substantial outreach to member firms, FINRA informed member firms in January that the temporary relief would come to an end on May 30, 2024, a year after the official end of the pandemic.  

FINRA had extensive conversations with various stakeholders — including member firms — and factored in comments received by those stakeholders in producing the final rules that were approved by the Securities and Exchange Commission. Member firms largely expressed strong support for these new rules.