FINRA’s Remote Inspections Pilot Program Begins

By Greg Ruppert, Executive Vice President, Member Supervision and Jonathan Sokobin, Executive Vice President, Chief Economist and Head of the Office of Regulatory Economics and Market Analysis

FINRA proposed in 2023 to create a voluntary, three-year Remote Inspections Pilot Program to evaluate the impact and efficacy of the remote inspection of branches and offices by member firms. The idea for the pilot arose from trends FINRA saw in the use of technology and evolving business practices in compliance. The SEC approved the plan for the pilot program, and the period for firms to opt-in to participate in the initial phase of the pilot ended recently. We plan to provide updates on the pilot over time, with the focus this time on the scope of firms participating in the first year. 

The opt-in period ended on June 26 for firms to participate in the initial phase of the pilot from July 1 through Dec. 31, 2024. The pilot is now underway with 741 participant firms. The initial participants represent 22% of all FINRA member firms. As expected, opt-ins are highest among large firms (500 registered representatives or more), with a participation rate of 60% in this category. Participation rates for mid-size and small firms are 47% and 18%, respectively. Participant firms collectively cover 67% of all registered representatives and 53% of registered branches. In terms of type of firm, all major business models are represented in the pilot. The highest coverage as measured by the number of firms, number of registered representatives and branches is among diversified firms, where opt-in is 48% of the firms in this group, covering 90% of registered representatives and 93% of branches in the category.

The pilot will allow FINRA to collect evidence of the effectiveness of remote inspections. As discussed in the rule proposal, FINRA will use the pilot data to assess whether remote inspections may be part of a modernized supervisory system that reflects the hybrid work environment and the availability of technologies that did not exist when the on-site inspection was conceived. The first submission of data from the participants is due in mid-October.

FINRA’s ability to craft and refine effective rules to protect investors through tools such as a pilot program depends critically on our engagement with member firms. Without their participation, we would not be able to collect vital data, develop insight into their practices, and generate regulatory solutions that keep pace with the evolution of business in ways that align with the investor protection core of FINRA’s mission.

We believe that the strong response to the remote inspection pilot is an example of how a self-regulatory organization like FINRA and our membership can work together successfully to promote learning to support effective and practical change. We look forward to sharing more on the pilot as it evolves. 

The deadline to opt-in to participate for Year 2 of the pilot is Dec. 27, 2024. Year 2 of the pilot will start on Jan. 1, 2025, and end on Dec. 31, 2025.

For further information:

Remote Inspections Pilot Program (FINRA Key Topics Page) 

Proposed Rule Change to Adopt Supplementary Material .18 (Remote Inspections Pilot Program) under FINRA Rule 3110 (Supervision) (FINRA Rule Filing)