Remote Inspections Pilot Program (Rule 3110.18)
In addition to its adoption of the new RSL designation, FINRA also announced Rule 3110.18, which establishes a voluntary, three-year remote inspection pilot program to fulfill the inspection obligations of qualified branch offices without an on-site visit to these offices.
To participate, a firm must affirmatively elect to take part in the pilot program by providing FINRA with an “opt-in notice.” Eligible firms that elect to participate in the pilot program in any pilot year are agreeing to participate for the entire year and will be automatically reenrolled in the pilot program for subsequent years unless they affirmatively opt out by notifying FINRA of their decision.
Open Enrollment Periods
For pilot year 1, which runs from July 1, 2024, to December 31, 2024, the time frame in which an eligible firm may elect to opt in to the pilot program is June 1 through June 26, 2024.
An eligible firm that does not elect to join the pilot program for pilot year 1 may choose to join the program for a subsequent pilot year on or before the following dates:
- December 27, 2024, to join pilot year 2 (running from January 1, 2025, to December 31, 2025);
- December 27, 2025, to join pilot year 3 (running from January 1, 2026, to December 31, 2026); and
- December 27, 2026, to join pilot year 4 (running from January 1, 2027, to June 30, 2027).
Opt-Out Notification Periods for Firm Participants to Withdraw from the Pilot Program
Firms that elect to withdraw or opt out of a subsequent pilot year must affirmatively notify FINRA at least five calendar days before the start of that pilot year. Thus, in order for an opt-out notification to be effective, FINRA must receive it on or before the following dates:
- December 27, 2024, to withdraw from participating in pilot year 2;
- December 27, 2025, to withdraw from participating in pilot year 3; and
- December 27, 2026, to withdraw from participating in pilot year 4.
Qualifying firm participants may conduct remote inspections under the pilot program starting on July 1, 2024.
As with the RSL rule, in-house and outside counsel for FINRA-regulated firms should take steps now to assess their current supervisory systems and to determine where enhancements are necessary to properly supervise the coming increase in remote work locations. Policies and procedures should be updated to include specific guidance for RSLs and, if participating, the remote inspection pilot program.
Key Takeaway
Both the RSL designation and remote inspection pilot program represent a welcome modernization of FINRA’s supervisory and inspection regulations and provide member firms with much needed flexibility to adapt to the modern remote workforce demands of the day. Firms, however, should begin the work of adapting and revising their policies and procedures, along with their internal supervisory and inspection frameworks, to be compliant with these new rules when they take effect in the summer of 2024.