[Federal Register Volume 85, Number 130 (Tuesday, July 7, 2020)]
[Notices]
[Pages 40713-40715]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-14487]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89188; File No. SR-FINRA-2020-019]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Temporarily Extend the Time To Complete Office
Inspections Under FINRA Rule 3110 (Supervision)
June 30, 2020.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on June 19, 2020, Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by FINRA. FINRA has designated
the proposed rule change as constituting a ``non-controversial'' rule
change under paragraph (f)(6) of Rule 19b-4 under the Act,\3\ which
renders the proposal effective upon receipt of this filing by the
Commission. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to adopt temporary Supplementary Material .16
(Temporary Extension of Time to Complete Office Inspections) under
FINRA Rule 3110 (Supervision) that, in light of the operational
challenges member firms are facing due to the outbreak of the
coronavirus disease (COVID-19), would extend the time by which member
firms must complete their calendar year 2020 inspection obligations
under Rule 3110(c) (Internal Inspections) to March 31, 2021.\4\
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\4\ The proposed rule change will automatically sunset on March
31, 2021. If FINRA seeks to provide additional temporary relief from
the rule requirement identified in this proposal beyond March 31,
2021, FINRA will submit a separate rule filing to further extend the
temporary extension of time.
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Below is the text of the proposed rule change. Proposed new
language is in italics; proposed deletions are in brackets.
* * * * *
3000. SUPERVISION AND RESPONSIBILITIES RELATING TO ASSOCIATED PERSONS
* * * * *
3100. Supervisory Responsibilities
* * * * *
3110. Supervision
* * * * *
(a) through (f) No Change.
Supplementary Material:------
.01 through .15 No Change.
.16 Temporary Extension of Time to Complete Office Inspections.
Each member obligated to complete an inspection of an office of
supervisory jurisdiction, branch office or non-branch location in
calendar year 2020 pursuant to, as applicable, paragraphs (c)(1)(A),
(B) and (C) under Rule 3110, shall be deemed to have satisfied such
obligation if the applicable inspection is completed on or before March
31, 2021.
* * * * *
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, FINRA included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. FINRA has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
FINRA is closely monitoring the impact of the COVID-19 pandemic on
member firms, investors, and other stakeholders. FINRA recognizes that
firms are experiencing operational challenges with much of their
personnel working from home due to shelter-in-place orders,
restrictions on businesses and social activity imposed in various
states, and adhering to other social distancing guidelines consistent
with the recommendations of public health officials.\5\ FINRA believes
that these ongoing extenuating circumstances warrant sensible and
tailored accommodations for member firms to meet their inspection
obligations under Rule 3110(c) for calendar year 2020.
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\5\ See, e.g., Centers for Disease Control and Prevention, How
to Protect Yourself & Others, https://www.cdc.gov/coronavirus/2019-ncov/prevent-getting-sick/prevention.html (last visited June 17,
2020).
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Rule 3110(c) requires on-site inspections of offices of supervisory
jurisdiction (``OSJs'') and supervisory branch offices at least
annually (on a calendar-year basis), non-supervisory branch offices at
least every three years, and non-branch locations on a regular periodic
schedule, presumed to be every three years.\6\ As a result of the
compelling health and welfare concerns stemming from the COVID-19
pandemic, firms are facing potentially significant disruptions to their
normal business operations that may include staff absenteeism, the
increased use of remote offices or telework arrangements, travel or
transportation limitations, and technology interruptions or slowdowns.
These circumstances make it impracticable for firms in most cases to
reach and conduct an on-site inspection of office locations. To provide
firms an opportunity to better manage these operational challenges and
the resources attendant to fulfilling these supervisory obligations
during these pressing times, FINRA is proposing to adopt Rule 3110.16
that would extend the time by which inspections must be completed in
accordance with Rule 3110(c) for calendar year 2020 to March 31,
2021.\7\ FINRA emphasizes that this extension of time does not relieve
firms from the
[[Page 40714]]
on-site inspection requirement of branch offices and non-branch
locations currently prescribed by the rule. FINRA also notes that this
proposed extension of time would create further efficiencies for firms
by aligning with the Municipal Securities Rulemaking Board's (``MSRB'')
temporary extension for meeting the inspection requirements of offices
set forth under MSRB Rule G-27 (Supervision) to March 31, 2021.\8\
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\6\ See Rule 3110(c)(1)(A), (B), and (C). See also Rule 3110.13
(General Presumption of Three-Year Limit for Periodic Inspection
Schedules).
\7\ See supra note 4.
\8\ See Securities Exchange Act Release No. 88694 (April 20,
2020), 85 FR 23088 (April 24, 2020) (Notice of Filing and Immediate
Effectiveness of File No SR-MSRB-2020-01). See also MSRB Notice
2020-09 (MSRB Amends Certain Rules to Provide Regulatory Relief
During COVID-19 Pandemic) (April 9, 2020).
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FINRA believes that this proposed extension of time is tailored to
address the needs and constraints on a firm's operations during the
COVID-19 pandemic, without significantly compromising critical investor
protection. FINRA believes that potential risks that may arise from
providing firms additional time to comply with their inspection
obligations due in calendar year 2020 are mitigated by firms' ongoing
supervisory obligations, off-site monitoring, and the temporary nature
of the extension. FINRA will continue to monitor the situation and
engage with member firms, other financial regulators, and governmental
authorities to determine whether additional regulatory relief or
guidance related to this rule may be appropriate. In particular, FINRA
will consider whether additional relief may be warranted to address any
backlog of 2020 inspections that may continue to exist in light of
ongoing public health and safety concerns.
FINRA has filed the proposed rule change for immediate
effectiveness and has requested that the SEC waive the requirement that
the proposed rule change not become operative for 30 days after the
date of the filing, so FINRA can implement the proposed rule change
immediately.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\9\ which requires, among
other things, that FINRA rules must be designed to prevent fraudulent
and manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest. The proposed rule change is intended to provide firms
additional time to comply with their Rule 3110(c) inspection
obligations due in calendar year 2020 to March 31, 2021, and does not
relieve firms from completing those obligations or from maintaining,
under the circumstances, a reasonably designed system to supervise the
activities of their associated persons to achieve compliance with
applicable securities laws and regulations, and with applicable FINRA
rules that directly serve investor protection. In a time when faced
with unique challenges resulting from the COVID-19 pandemic, FINRA
believes that the proposed rule change is a sensible accommodation that
will afford firms the ability to observe the recommendations of public
health officials to provide for the health and safety of its personnel,
while continuing to serve and promote the protection of investors and
the public interest in this unique environment.
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\9\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition
FINRA does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. The proposed rule change is
intended solely to provide temporary relief given the impacts of the
COVID-19 pandemic crisis.\10\ As a result of the temporary nature of
the proposed relief, an abbreviated economic impact assessment is
appropriate.
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\10\ See also FINRA Regulatory Notice 20-08.
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Economic Impact Assessment
A. Regulatory Objective
FINRA is proposing Rule 3110.16 to address an issue that has arisen
due to the impacts of the coronavirus outbreak and restrictions related
to health and safety concerns. In addition to social distancing
requirements that have been implemented across the United States to
benefit the health and welfare of the populace, firms are facing
potentially significant business disruptions that may include staff
absenteeism, increased use of remote offices or telework arrangements,
travel or transportation limitations, and technology interruptions or
slowdowns. These limitations pose significant challenges for firms to
satisfy the on-site inspection component of Rule 3110(c), which
requires travel to visit offices and non-branch locations. In
recognition of these circumstances, the proposed rule change would
provide temporary relief by extending the date by which firms must
complete their 2020 inspections.
B. Economic Baseline
The Economic Baseline of the proposed temporary relief is the
obligation under Rule 3110(c), as described above, and the current
number and types of FINRA member locations that require inspections.
C. Economic Impact
Proposed Rule 3110.16 is intended solely to provide an
accommodation from the timing requirements set forth under Rule 3110(c)
(as applicable to year 2020) due to the current pandemic-related
limitations in place across the United States to benefit the health and
welfare of the populace. FINRA believes that the proposed rule change
will not impose any new costs on member firms. Moreover, the proposed
rule change would align with similar temporary relief provided by the
MSRB (as discussed above), and such coordination among regulators will
provide for greater clarity and the efficient use of resources by firms
during this public health crisis.
FINRA notes that even in the current environment, member firms have
an ongoing obligation to supervise the activities of their associated
persons at their branch offices and non-branch locations in a manner
reasonably designed to achieve compliance with applicable securities
laws and regulations, and with applicable FINRA rules. Any risks that
may arise from providing firms additional time to comply with their
Rule 3110(c) inspection obligations due in calendar year 2020 are
mitigated by firms' ongoing supervisory obligations, off-site
monitoring, and the temporary nature of the extension. As noted above,
the proposed rule change would be limited in time, and in place to
March 31, 2021, or until the conclusion of any extension thereof.\11\
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\11\ See supra note 4.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section
[[Page 40715]]
19(b)(3)(A) of the Act \12\ and Rule 19b-4(f)(6) thereunder.\13\
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\12\ 15 U.S.C. 78s(b)(3)(A).
\13\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
FINRA has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) normally does
not become operative for 30 days after the date of filing. However,
pursuant to Rule 19b-4(f)(6)(iii), the Commission may designate a
shorter time if such action is consistent with the protection of
investors and the public interest. FINRA has asked the Commission to
waive the 30-day operative delay so that this proposed rule change may
become operative immediately upon filing. FINRA has stated that the
requested relief in this proposed rule change is in response to the
potentially significant disruptions to normal business operations that
may include staff absenteeism, the increased use of remote offices or
telework arrangements, travel or transportation limitations, and
technology interruptions or slowdowns. FINRA notes also that such
circumstances make it impracticable for firms in most cases to reach
and conduct an on-site inspection of office locations. FINRA states
that the temporary relief provided for in the proposed rule change will
provide firms an opportunity to better manage these operational
challenges and the resources attendant to fulfilling these supervisory
obligations. We note that this proposal provides only temporary relief
from the time required to complete office inspections; as proposed,
these changes would be in place through March 31, 2021. FINRA also
stated that the amended rule will revert back to its original state at
the conclusion of the temporary relief period and, if applicable, any
extension thereof. For these reasons, the Commission believes that
waiver of the 30-day operative delay is consistent with the protection
of investors and the public interest. Accordingly, the Commission
hereby waives the 30-day operative delay and designates the proposal
operative upon filing.\14\
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\14\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule change's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-FINRA-2020-019 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2020-019. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10 a.m. and 3
p.m. Copies of such filing also will be available for inspection and
copying at the principal office of FINRA. All comments received will be
posted without change. Persons submitting comments are cautioned that
we do not redact or edit personal identifying information from comment
submissions. You should submit only information that you wish to make
available publicly.
All submissions should refer to File Number SR-FINRA-2020-019 and
should be submitted on or before July 28, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-14487 Filed 7-6-20; 8:45 am]
BILLING CODE 8011-01-P