Coronavirus seems to be impacting everything, which is why broker-dealer industry self-regulator FINRA is encouraging member firms to consider pandemic-related business continuity planning, including whether their business continuity plans (BCPs) are sufficiently flexible to address a wide range of possible effects in the event of a pandemic in the United States.
FINRA Regulatory Notice 20-08 also provides pandemic-related guidance and regulatory relief to member firms from some requirements. As coronavirus-related risks decrease, the notice says member firms should expect to return to meeting any regulatory obligations for which relief has been provided.
While a pandemic may vary in severity and duration, FINRA notes it may present significant financial or operational risks for a member firm for its duration and beyond. A member firm may conduct its own analysis to determine whether a pandemic or any other event constitutes an emergency or significant business disruption for the firm and, thereby, causes the firm to activate its BCP.
The disruptive effects may include staff absenteeism, use of remote offices or telework arrangements, travel or transportation limitations and technology interruptions or slowdowns.
FINRA previously provided guidance on pandemic preparedness in Regulatory Notice 09-59, and has had recent discussions with member firms regarding the present challenges related to COVID-19.
FINRA issued the new notice recognizing that health and safety is of paramount importance and that updated guidance and regulatory relief may be appropriate given the potential effects of coronavirus in the U.S.
The new notice does not create new rules or obligations on member firms, nor does the regulatory relief provided extend beyond the identified FINRA rules and requirements. Depending on the nature and impact of the COVID-19 outbreak, FINRA said it may provide additional, specific regulatory relief and guidance.
When appropriate, FINRA will publish a Regulatory Notice announcing a termination date for the regulatory relief that will provide member firms with time to make necessary operational adjustments.
What follows are brief summaries of the new FINRA guidance in some key subject areas. The complete guidance can be found in the latest regulatory notice.
Working from home
In an effort to mitigate the impacts of a pandemic, FINRA says a member firm may consider social distancing, travel restrictions, revised sick leave policies, special pandemic leave time, specialized seating plans for densely populated floors or telework arrangements.
In such cases, FINRA says it expects a member firm to establish and maintain a supervisory system that is reasonably designed to supervise the activities of each associated person while working from an alternative or remote location during the pandemic.
With respect to oversight obligations, a member firm’s scheduled on-site inspections of branch offices may need to be temporarily postponed during the pandemic, with FINRA understanding that the ability to complete this annual regulatory obligation in 2020 may need to be re-evaluated depending on the duration and severity of the pandemic.
Cybersecurity
FINRA says member firms should consider the increased risk of cyber events as part of pandemic-related preparedness.
Even in a pandemic, FINRA said member firms must remain vigilant in their surveillance against cyber threats and take steps to reduce the risk of cyber events. Steps may include: (1) ensuring that virtual private networks (VPN) and other remote access systems are properly patched with available security updates; (2) checking that system entitlements are current; (3) employing the use of multi-factor authentication for associated persons who access systems remotely; and (4) reminding associated persons of cyber risks through education and other exercises that promote heightened vigilance.
Form U4/Form BR
FINRA is temporarily suspending the requirement to maintain updated Form U4 information regarding office of employment address for registered persons who temporarily relocate due to COVID-19. In addition, member firms are not required to submit branch office applications on Form BR for any newly opened temporary office locations or space-sharing arrangements established as a result of recent events.
Emergency office relocations
If a member firm relocates personnel to a temporary location that is not currently registered as a branch office or identified as a regular non-branch location, the firm should use its best efforts to provide written notification to its FINRA Risk Monitoring Analyst as soon as possible.
FINRA reminds member firms that while a pandemic may create exigent circumstances that result in emergency relocations, firms should take into account the risks associated with sharing office space with another entity (e.g., customer privacy, information security or recordkeeping considerations) and take steps to mitigate the risks during the emergency relocation.
Communicating with customers
FINRA understands that member firms may experience significantly increased customer call volumes or online account usage during a pandemic (e.g., due to significant market movements), which may cause temporary operational challenges. Member firms are encouraged to review their BCPs regarding communicating with customers and ensuring customer access to funds and securities during a significant business disruption.
If registered representatives are unavailable to service their customers, member firms are encouraged to promptly place a notice on their websites indicating to affected customers who they may contact concerning the execution of trades, their accounts, and access to funds or securities.
Communicating with FINRA
Member firms are required to provide FINRA with emergency contact information pursuant to Rule 4370. Member firms are encouraged to review their emergency contacts to ensure that FINRA has a reliable means of contacting each member.
If a member firm or another person is unable to contact FINRA through its usual contact due to a pandemic or other significant business disruption, please call FINRA’s Call Center at (301) 590-6500. This number will be rerouted in the event of a business disruption at FINRA’s primary call center, so that the member firm or associated person will be able to reach an operator or receive recorded instructions.
Regulatory filings, FINRA inquiries
In the event of a pandemic, member firms may have difficulty making timely regulatory filings and responding to regulatory inquiries or investigations. Member firms that require extra time to respond to open inquiries, investigations or upcoming filings should contact their Risk Monitoring Analysts or the relevant FINRA department to seek extensions.
FINRA may waive any late fees incurred by a member firm based on the particular circumstance.
In considering regulatory filing requirements, member firms are reminded of the requirements in Rule 15c3-3 under the Securities Exchange Act of 1934 regarding reserve formula computations and required deposits that are intended to protect customer funds and securities.
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Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
