Month: March 2020

FINRA has hosted a teleconference for small firms, answering questions sent to them by industry members. Among the panelists were Chip Jones, Bob Colby, and Robert Cook, Below is a list of the questions and answers as I understood them to be. A recording of the call will be available on the FINRA website

Q. Will the SEC grant extension of RegBI due to the outbreak?

A. FINRA has made the SEC aware of requests by dealers to delay, and has been told that the SEC is “considering” the option.

Q. Should firms be afraid to contact their Risk Analyst to ask questions, in light of possibly throwing up a red flag?

A. Firms should have no fear of contacting FINRA, there will be no penalties. FINRA needs to know what’s going on.

Q. Cities and states are locking down. Can FINRA advocate that Dealers are essential businesses?

A. FINRA believes Dealers are essential and will make that point to authorities.

Q. How should Dealers handle offices that might become quarantined due to the virus, and issues such as checks, mail, etc. ?

A. No real answer to this other than that firms should devise supervisory procedures to handle these items in a best efforts way. Firms will be on a case-by-case basis.

Q. Are firms required to contact FINRA in the event of an office closure?

A. No, but best practice should be that firms contact their FINRA contact person know of such events.

Q. Are persons working remotely required to be registered at a new “branch office”?

A. No, refer to Notice 20-08, and this question will be answered as part of an FAQ that will be placed on FINRA’s web site in order to make the requirements clearer.

Q. Will extensions be made for persons currently needing to be fingerprinted?

A. FINRA hopes that the SEC will allow for extensions.

Q. Will there be extensions for form filing, such as Focus reports?

A. Approach the firm’s FINRA coordinator and discuss. FINRA expects to have a blanket extension for certain classes of firms, dependent upon size and risk.

Q. Will there be an extension of routine firm exams?

A. Routine exams most likely will be delayed until after the outbreak is controlled; however, firms exhibiting risk/obvious potential harm will be examined.

Q. Will there be relief from late fees?

A. Late fees will most likely be waived if properly documented and explained. Fees may be reversed if paid; there will be no time limit on the ability to reverse fees.

Q. What about pending tests and qualification tests?

A. With Prometric closed, enrollments will be open longer.

Q. Will original signatures on U-4 forms be allowed electronically?

A. Signatures will eventually need to be made but may be electronic during the outbreak.

Q. CAT Reporting- will this be extended?

A. Currently extended to 5.20.20, and hoping to have equity trades extended to 6.22.20 and options to 7.20.20, with changes possible. Letters regarding these changes are on FINRA web site.

Q. Will FINRA grant extensions regarding Rule 8210 (information provided during investigations)?

A. FINRA will be reasonable in the expectation of such information. Reach out to FINRA, there will be no repercussions.

Q. Will new arbitration claims be served?

A. Yes, but hearings are pushed out to later dates.

Q. What is the status of Member Application Program (MAP)?

A. Open for business, by telephone or teleconference; extensions will be granted.

Q. How should Dealers handle the inspection of their branch offices?

A. Firms should keep notes of what procedures are put in place to reasonably handle supervision during these times, the factors involved and actions taken.

Q. Will the 2020 National Conference be held?

A. Decision will be made next week.

FINRA is reminding firms to review their Business Continuity Plans (BCPs) to consider whether those BCPs are sufficiently flexible enough to address the wide-ranging effects of a pandemic. The Notice does not create new rules or obligations but is instead intended to provide (within current FINRA rules) pandemic-related guidance and regulatory relief from some requirements

Notice 20-08 centers on FINRA Rule 4370 (Business Continuity Plans and Emergency Contact Information), which requires member firms to create, maintain, review, and update at least annually a BCP to be used in an emergency or significant business disruption. A firm’s BCP is to be designed based on the firm’s business model, taking into consideration such factors as the firm’s size and business needs.

FINRA is encouraging firms to examine their BCPs in light of the recent COVID-19 outbreak, and to consider whether their plans will be sufficient to handle issues that might arise, such as staff absenteeism, the use of remote offices or telework arrangements, travel or transportation limitations, and technology interruptions.

The following is a partial list of the areas of business that should be considered, and FINRA’s granting of relief from requirements. Readers should refer to the Notice for a more complete description (a link to the Notice is found below).

            Remote Offices or Telework Arrangements: Because firms may need to employ methods such as social distancing, travel restrictions, extended sick leave, revised sick leave policies, and alleviation of dense employee seating, firms may require the use of additional temporary office space or teleworking arrangements.

            FINRA understands the possible necessity of such arrangements. While it expects that firms will develop procedures to supervise the persons working in such arrangements, it also understands that some oversight obligations (such as on-site branch inspections) may be temporarily postponed.

            Cybersecurity: Due to the possibility that bad actors will attempt to take advantage of the situation of those employees who are working remotely, FINRA makes the following four recommendations; 1) Ensure that virtual private networks are properly patched with current security updates; 2) Ensure that system entitlements are current; 3) Use multi-factor authentication; 4) Continue to educate  employees in the subject of cyber-risk.

            Form U-4/Form BR: FINRA will temporarily suspend the requirement to maintain updated U-4 information for persons who are relocated due to COVID-19, and firms will not be required to submit branch office applications on Form BR for any newly opened temporary office locations.

            In the event that a firm relocates personnel to a temporary location, the firm should use its best efforts to provide written notification to its FINRA Risk Monitoring Analyst as soon as possible. Information provided should include, at a minimum, the office address, the name of the member firm, the names of associated persons at that location, and telephone numbers or other contact information.

            Communication with Customers: FINRA understands that firms may encounter higher than normal phone and online traffic during an emergency. FINRA recommends that firms ensure that customer identity validation remains robust, and that firms use websites and other means of communication to advise customers how they might best contact the firm or engage in trading.

            Communication with FINRA: FINRA reminds firms that they should already have designated, and provided to FINRA, two associated members of the firm who will act as emergency contacts. The Notice provides a phone number to be used in the event that a firm is unable to contact FINRA through normal methods: 301-590-6500.

            Regulatory Filings and Regulatory Responses: FINRA recommends that any firm that will be delayed in providing a regulatory filing or response due to the COVID-19 outbreak should contact the firm’s Risk Monitoring Analyst in order to seek extensions. FINRA notes that late fees associated with such filings may be waived.

            Qualification Exams and Regulatory Continuing Education: FINRA recommends that firms contact the Call Center at 301-590-6500 with questions about extensions.

            Military Personnel and National Guard: FINRA reminds firms that Rule 1210 (Registration Requirements) provides specific relief to those persons called to active duty.