Residential Supervisory Locations (RSLs) and Remote Branch Office Exams: Leveraging StarCompliance to Comply with New FINRA Rule
FINRA’s Residential Supervisory Location (RSL) rule allows firms to designate an associated person’s private residence as a non-branch location where certain supervisory activities are conducted. This rule aims to provide flexibility for firms with remote workforces while maintaining appropriate supervisory oversight.
In addition, FINRA’s “Remote Branch Office Exam Program” allows eligible firms to conduct inspections of their branch offices, including RSLs, remotely without an on-site visit, subject to specific conditions and data reporting requirements and enables firms to manage remote work supervision and inspections more flexibly.
According to a recent article in Forbes Magazine, there are significant trends in workplace dynamics. Among U.S.-based employees, 27% now work in a fully hybrid model, holding steady from 26% in 2023. Meanwhile, the percentage of fully remote employees has risen to 11%, marking a 57% increase from 7% the previous year. This shift reflects a dramatic change, as remote work gains ground at the expense of fully in-office arrangements.
Key Aspects of The Rule:
- Eligibility: To qualify as an RSL, the private residence must meet specific conditions and eligibility requirements.
- Remote Branch Office Exam Pilot Program: This pilot program allows eligible firms to conduct inspections of their branch offices, including RSLs, remotely using electronic means instead of physical on-site visits.
- Inspection Frequency: While regular branch offices might require annual inspections, RSLs are generally subject to inspections every 3 years.
- Supervision Requirements: Firms must maintain robust supervisory controls at RSLs, including regular inspections and adherence to FINRA’s supervisory standards.
- Reporting Requirements: Firms are required to report their RSLs to FINRA on a quarterly basis.
The RSL rule is intended to strike a balance between accommodating remote work arrangements and ensuring compliance with FINRA’s supervisory requirements.
FINRA Rule 3110 (Supervision) includes provisions regarding Residential Supervisory Locations that address how broker-dealers must supervise their registered representatives who work remotely or from home offices.
Key Components of the Residential Supervisory Location Rule:
- Definition: A residential supervisory location is a non-branch office location where a supervisor works from home.
- Risk Assessment: Prior to designating an office or location as an RSL, a firm must develop a reasonable risk-based approach to designating such office or location as an RSL and conduct and document a risk assessment for the associated person assigned to that office or location. Firms may leverage StarCompliance’s (Star) Certification tools to assess and document RSL Risk Assessments.
- Registration Requirements: Must be formally registered with the firm and requires written notification to FINRA. Through Star’s Licensing & Registration Solution, firms will be able to update and maintain RSL statuses on Form U4 for registered associate persons working in Offices of Employment that are in private residences.
- Supervision Obligations: Firms must ensure the same level of supervision as traditional office locations and requires comprehensive review of activities including offices of employment that are located in private residences. Firms may leverage Star’s Employee Conflict of Interest, Attestation/Certification, MNPI and case management solutions to supplement the firm’s RSL risk assessment and supervisory obligations.
- Record Keeping: Maintain all required books and records and ensure records are easily accessible for potential FINRA examination. With Firm’s maintaining registration and supervisory records in Star it makes it much easier to comply with record keeping obligations.
- Technology and Infrastructure: Must have secure communication channels and implement robust electronic supervision tools. Given Star’s data privacy and security controls, firms immediately take advantage of built-in controls and processes to meet regulatory expectations.
- Compliance Responsibilities: Supervisor must actively monitor representative activities and conduct regular compliance reviews. Star’s ready-to-use supervisory and control solutions provides firms with the tools they need to execute compliance obligations.
The rule fundamentally aims to ensure that remote work environments maintain the same rigorous compliance and oversight standards as traditional office settings.
Adapting to Remote Branch Examinations: What Financial Firms Are Really Doing
A recent Star industry survey has revealed fascinating insights into how financial firms are adapting their branch examination processes for the remote work era. The findings paint an interesting picture of an industry balancing regulatory requirements with practical implementation.
The Adoption Gap
While an overwhelming 83% of firms have embraced FINRA’s remote branch office exam program, there’s a notable resource contradiction: none plan to add staff for these examinations. Even more intriguingly, 75% aren’t utilizing vendor solutions, suggesting firms are adapting existing resources to meet new demands. This is where Star can help compliance teams.
Split Approaches to Pre-Exam Documentation
The industry is perfectly divided on pre-examination procedures. Half of the firms employ questionnaires or certifications before branch exams, while the other half proceed without preliminary documentation. One firm notably highlighted their preference for unannounced inspections, capturing settings and details during the actual examination process. Regardless of ones approach, leveraging Star’s certification tool to record and analyze data is a great way to comply with FINRA’s RSL and Remote Branch Office rules.
Visual Verification: A Limited Trend
Only a small segment of firms (13%) are requiring visual documentation of home offices. The same percentage will conduct recorded video calls during remote exams, with one innovative firm planning to implement virtual office tours using employees’ personal devices. Whatever approach firms are taking, attaching supporting documents to Star certifications is simple and easy to use for analysis and books & records purposes.
Low-Risk Location Strategy
For non-branch locations deemed low-risk, three-quarters of firms are taking a hybrid approach: combining live remote inspections with questionnaires. The remaining quarter opt for a lighter touch, relying on questionnaires, attestations, and office photos alone.
This data suggests firms are developing pragmatic, risk-based approaches to remote supervision, balancing thoroughness with efficiency. As remote work continues to evolve, these strategies will likely refine further based on effectiveness and regulatory guidance. Star gives firms the opportunity to maintain documentation in one place that takes advantage of connecting employee related activities to RSL and Remote Branch Office reviews and FINRA filing, making the overall compliance process more efficient and seamless from an employee perspective.
