Document ID: SEC-2021-1287-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2021-09-21T04:00Z

[Federal Register Volume 86, Number 180 (Tuesday, September 21, 2021)]
[Notices]
[Pages 52508-52511]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-20333]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93002; File No. SR-FINRA-2021-023]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Extend the Effectiveness of Temporary 
Supplementary Material .17 (Temporary Relief To Allow Remote 
Inspections for Calendar Year 2020 and Calendar Year 2021) Under FINRA 
Rule 3110 (Supervision)

September 15, 2021.
    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 September 14, 2021, the 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, II, and III 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 extend temporary Supplementary Material .17 
(Temporary Relief to Allow Remote Inspections for Calendar Year 2020 
and Calendar Year 2021) under FINRA Rule 3110 (Supervision) to include 
calendar year 2022 inspection obligations through June 30, 2022 within 
the scope of the supplementary material.\4\ The proposed extension of 
Rule 3110.17 is necessary to address the continuing operational 
challenges resulting from the COVID-19 pandemic many member firms face 
in planning for and timely conducting, during the first half of 
calendar year 2022, the on-site inspection component of Rule 3110(c) 
(Internal Inspections) at locations requiring inspection in calendar 
year 2022.
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    \4\ The proposed rule change will automatically sunset on June 
30, 2022. FINRA will submit a separate rule filing if it seeks to 
extend the duration of the temporary proposed rule beyond June 30, 
2022.
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    Below is the text of the proposed rule change. Proposed new 
language is in italics; proposed deletions are in brackets.
* * * * *

3100. SUPERVISORY RESPONSIBILITIES

3110. Supervision

    (a) through (f) No Change.

* * * Supplementary Material: ----------
.01 through .16 No Change.
.17 Temporary Relief to Allow Remote Inspections for Calendar Years 
2020 and [Calendar Year] 2021, and Through June 30 of Calendar Year 
2022.
    (a) Use of Remote Inspections. Each member obligated to conduct 
an inspection of an office of supervisory jurisdiction, branch 
office or non-branch location in calendar years 2020, [and calendar 
year] 2021 and 2022 pursuant to, as applicable, paragraphs 
(c)(1)(A), (B) and (C) under Rule 3110 may, subject to the 
requirements of this Rule 3110.17, satisfy such obligation by 
conducting the applicable inspection remotely, without an on-site 
visit to the office or location. In accordance with Rule 3110.16, 
inspections for calendar year 2020 must be completed on or before 
March 31, 2021 and inspections for calendar year 2021 must be 
completed on or before December 31, 2021. With respect to a member's 
obligation to conduct an inspection of an office or location in 
calendar year 2022, a member has the option to conduct those 
inspections remotely only through June 30, 2022. Notwithstanding 
Rule 3110.17, a member shall remain subject to the other 
requirements of Rule 3110(c).
    (b) Written Supervisory Procedures for Remote Inspections. 
Consistent with a member's obligation under Rule 3110(b)(1), a 
member that elects to conduct [each of] its [calendar year 2020 or 
calendar year 2021] inspections remotely for any of the calendar 
years specified in this supplementary material must amend or 
supplement its written supervisory procedures to provide for remote 
inspections that are reasonably designed to assist in detecting and 
preventing violations of and achieving compliance with applicable 
securities laws and regulations, and with applicable FINRA rules. 
Reasonably designed procedures for conducting remote inspections of 
offices or locations should include, among other things: (1) A 
description of the methodology, including technologies permitted by 
the member, that may be used to conduct remote inspections; and (2) 
the use of other risk-based systems employed generally by the member 
firm to identify and prioritize for review those areas that pose the 
greatest risk of potential violations of applicable securities laws 
and regulations, and of applicable FINRA rules.
    (c) Effective Supervisory System. The requirement to conduct 
inspections of offices and locations is one part of the member's 
overall obligation to have an effective supervisory system and 
therefore, the member must continue with its ongoing review of the 
activities and functions occurring at all offices and locations, 
whether or not the member conducts inspections remotely. A member's 
use of a remote inspection of an office or location will be held to 
the same standards for review as set forth under Rule 3110.12. Where 
a member's remote inspection of an office or location identifies any 
indicators of irregularities or misconduct (i.e., ``red flags''), 
the member may need to impose additional supervisory procedures for 
that office or location or may need to provide for more frequent 
monitoring of that office or location, including potentially a 
subsequent physical, on-site visit on an announced or unannounced 
basis when the member's operational difficulties associated with 
COVID-19 abate, nationally or locally as relevant, and the 
challenges a member is facing in light of the public health and 
safety concerns make such on-site visits feasible using reasonable 
best efforts. The temporary relief provided by this Rule 3110.17 
does not extend to a member's inspection requirements beyond 
[calendar year 2021] June 30, 2022 and such inspections must be 
conducted in compliance with Rule 3110(c).
    (d) Documentation Requirement. A member must maintain and 
preserve a centralized record for each of calendar years 2020 and 
[calendar year] 2021, and for calendar year 2022 through June 30, 
2022 only that separately identifies: (1) All offices or locations 
that had inspections that were conducted remotely; and (2) any 
offices or locations for which the member determined to impose 
additional supervisory procedures or more frequent monitoring, as 
provided in Rule 3110.17(c). A member's documentation of the results 
of a remote inspection for an office or location must identify any 
additional supervisory procedures or more frequent monitoring for 
that office or location that were imposed as a result of the remote 
inspection.
* * * * *

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

[[Page 52509]]

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
    The COVID-19 pandemic has caused a host of operational disruptions 
to the securities industry and impacted member firms, regulators, 
investors and other stakeholders. In response to the pandemic, FINRA 
began providing temporary relief to member firms from specified FINRA 
rules and requirements, including Rule 3110. In June 2020, FINRA 
adopted Rule 3110.16 (Temporary Extension of Time to Complete Office 
Inspections), which has expired by its terms, that extended the time by 
which member firms must complete their calendar year 2020 inspection 
obligations under Rule 3110(c) to March 31, 2021, but with the 
expectation that firms would conduct their inspections on-site.\5\ 
FINRA subsequently adopted Rule 3110.17, which automatically sunsets on 
December 31, 2021, to provide firms the option of satisfying their 
inspection obligations under Rule 3110(c) remotely for calendar years 
2020 and 2021, subject to specified conditions,\6\ due to the 
logistical challenges of going on-site while public health and safety 
concerns related to COVID-19 persisted. While there are signs of 
improvement, much uncertainty remains. The emergence of the Delta 
variant,\7\ dissimilar vaccination rates throughout the United States, 
and the uptick in transmissions in many locations indicate that COVID-
19 remains an active and real public health concern.\8\
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    \5\ See Securities Exchange Act Release No. 89188 (June 30, 
2020), 85 FR 40713 (July 7, 2020) (Notice of Filing and Immediate 
Effectiveness of File No. SR-FINRA-2020-019).
    \6\ See Securities Exchange Act Release No. 90454 (November 18, 
2020), 85 FR 75097 (November 24, 2020) (Notice of Filing and 
Immediate Effectiveness of File No. SR-FINRA-2020-040).
    \7\ See The Centers for Disease Control and Prevention 
(``CDC''), What You Need to Know about Variants (stating, in part, 
that ``the Delta variant causes more infections and spreads faster 
than earlier forms of the virus that causes COVID-19.''), https://www.cdc.gov/coronavirus/2019-ncov/variants/variant.html (updated 
September 3, 2021). See also CDC, The Possibility of COVID-19 
Illness after Vaccination: Breakthrough Infections (stating, in 
part, that ``COVID-19 vaccines are effective at preventing 
infection, serious illness, and death. Most people who get COVID-19 
are unvaccinated. However, since vaccines are not 100% effective at 
preventing infection, some people who are fully vaccinated will 
still get COVID-19 . . . People who get vaccine breakthrough 
infections can be contagious.''), https://www.cdc.gov/coronavirus/2019-ncov/vaccines/effectiveness/why-measure-effectiveness/breakthrough-cases.html (updated August 23, 2021).
    \8\ For example, President Joe Biden on July 29, 2021, announced 
several measures to increase the number of people vaccinated against 
COVID-19 and to slow the spread of the Delta variant, including 
strengthening safety protocols for federal government employees and 
contractors. See https://www.whitehouse.gov/briefing-room/statements-releases/2021/07/29/fact-sheet-president-biden-to-announce-new-actions-to-get-more-americans-vaccinated-and-slow-the-spread-of-the-delta-variant/. More recently, President Joe Biden on 
August 31, 2021, briefed the press on, among other things, the 
government's response to the COVID-19 surge, noting the government's 
continuing efforts to help states with Delta variant outbreaks. See 
https://www.whitehouse.gov/briefing-room/press-briefings/2021/08/31/press-briefing-by-white-house-covid-19-response-team-and-public-health-officials-53/.
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    Through recent discussions with FINRA's advisory committees and 
other industry representatives, FINRA understands that while some firms 
have taken affirmative steps to develop and implement phased-in office 
re-entry plans based on local conditions, there are many other member 
firms that have not. Those firms continue to assess the complexity of 
when and how to effectively and safely recall their employees back into 
offices alongside fashioning permanent telework arrangements or a 
hybrid workforce model in which some employees may work on-site in a 
commercial office space and other employees may work off-site in an 
alternative location (e.g., personal residence).\9\ Many member firms, 
like other employers across the U.S., still maintain telework 
arrangements with their employees and have not resumed travel schedules 
at pre-pandemic levels as travel remains a risk, particularly for the 
segment of the U.S. population that is not fully vaccinated and for 
their families.\10\ Continuing health and safety protocols and policies 
regarding the opening of mass transit systems and schools in many areas 
also are key factors being considered by firms in developing their 
plans.
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    \9\ Even FINRA staff, with limited exceptions, continue to work 
remotely to protect their health and safety. As indicated in its 
previous filings concerning other pandemic-related temporary relief 
from specified FINRA rules and requirements, FINRA has established a 
COVID-19 task force to develop a data-driven, staged plan for FINRA 
staff to safely return to working in FINRA office locations and 
resume other in-person activities. See Securities Exchange Act 
Release No. 92685 (August 17, 2021), 86 FR 47169, 47170 (August 23, 
2021) (Notice of Filing and Immediate Effectiveness of File No. SR-
FINRA-2021-019).
    \10\ The CDC counts people as being ``fully vaccinated'' if they 
received two doses on different days (regardless of time interval) 
of a two-dose vaccine or received one dose of a single-dose vaccine. 
See CDC, COVID-19 Vaccinations in the United States, https://covid.cdc.gov/covid-data-tracker/#vaccinations (last visited 
September 13, 2021).
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    Against this setting, firms are trying to plan for calendar year 
2022 inspections of their offices of supervisory jurisdiction, branch 
offices, and non-branch locations to comply with Rule 3110(c). The need 
for firms to establish inspection schedules for the coming year and 
ensure there is adequate, experienced staff available to travel and 
conduct on-site inspections within the context of fluid work locations 
presents a unique complexity for many firms in terms of planning and 
deploying resources. Even with increased availability of vaccines and 
other promising signs that the pandemic is receding in the U.S., FINRA 
understands that many firm personnel are still working from alternative 
work locations, and have not resumed traveling or are reluctant to do 
so at pre-pandemic levels amid persistent significant health and safety 
concerns.\11\ For unvaccinated persons in particular, health and safety 
risks in connection with returning to the office with other personnel 
still remain worrisome and travel still poses a risk of contracting and 
spreading COVID-19.\12\
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    \11\ See Emily Cadman, Stephan Kahl, et al., Surging Delta Cases 
Reverse the World's March Back to the Office (stating, in part, 
``The spread of the delta variant has forced many U.S. employers 
that had been hoping to get staff back to their desks after Labor 
Day to delay those plans until at least October--or even next 
year.''), Bloomberg (August 20, 2021), https://www.bloomberg.com/graphics/2021-return-to-office/; see also Rob Stein & Selena 
Simmons-Duffin, The Delta Variant Will Drive A Steep Rise In U.S. 
COVID Deaths, A New Model Shows, NPR (July 22, 2021), https://www.npr.org/sections/health-shots/2021/07/22/1019475669/delta-variant-will-drive-a-steep-rise-in-covid-deaths-model-shows.
    \12\ See CDC, Workplaces and Businesses, https://www.cdc.gov/coronavirus/2019-ncov/community/workplaces-businesses/index.html 
(updated September 8, 2021); CDC, Domestic Travel During COVID-19, 
https://www.cdc.gov/coronavirus/2019-ncov/travelers/travel-during-covid19.html (updated August 25, 2021); and CDC, When NOT to Travel: 
Avoid Spreading COVID-19, https://www.cdc.gov/coronavirus/2019-ncov/travelers/when-to-delay-travel.html (updated August 20, 2021).
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    As we are now late into the third quarter of calendar year 2021, 
FINRA believes extending Rule 3110.17 through June 30, 2022 represents 
a prudent accommodation.\13\ The proposed extension would provide 
clarity to firms on regulatory requirements and account for the time 
needed for many firms to carefully assess when and how to have their 
employees safely return to their offices in light of vaccination 
coverage in the U.S. and transmission levels of the virus, including 
any emergent variants throughout the country.
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    \13\ See supra note 4.
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    By extending Rule 3110.17 to cover part of calendar year 2022 
inspection obligations through June 30, 2022 only, FINRA is not 
proposing to amend the other conditions of the temporary rule.

[[Page 52510]]

The proposed amendments to Rule 3110.17 would simply provide that for 
calendar year 2022, a member has the option to conduct those 
inspections remotely through June 30, 2022. The current conditions of 
the supplementary material for firms that elect to conduct remote 
inspections would remain unchanged: Such firms must amend or supplement 
their written supervisory procedures for remote inspections, use remote 
inspections as part of an effective supervisory system, and maintain 
the required documentation. The additional period of time would also 
enable FINRA to further monitor the effectiveness of remote inspections 
and their impacts--positive or negative--on firms' overall supervisory 
systems in the evolving workplace.
    FINRA continues to believe this temporary remote inspection option 
is a reasonable alternative to provide to firms to fulfill their Rule 
3110(c) obligations during the pandemic, and is designed to achieve the 
investor protection objectives of the inspection requirements under 
these unique circumstances. Firms should consider whether, under their 
particular operating conditions, reliance on remote inspections would 
be reasonable under the circumstances. For example, firms with offices 
that are open to the public or that are otherwise doing business as 
usual should consider whether some form of in-person inspections would 
be feasible and appropriately contribute to a supervisory system that 
is reasonably designed to achieve compliance with applicable securities 
laws and regulations, and with applicable FINRA rules.
    FINRA has filed the proposed rule change for immediate 
effectiveness. FINRA is proposing to make the proposed rule change 
operative on January 1, 2022.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\14\ 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. In recognition of the ongoing impact of COVID-19 on 
performing the on-site inspection component of Rule 3110(c), the 
proposed rule change is intended to provide firms a temporary 
regulatory option to conduct inspections of offices and locations 
remotely during the first half of calendar year 2022. This temporary 
proposed supplementary material does not relieve firms from meeting the 
core regulatory obligation to establish and maintain a system to 
supervise the activities of each associated person that is reasonably 
designed 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 ongoing challenges 
resulting from the COVID-19 pandemic, FINRA believes that the proposed 
rule change provides sensibly tailored relief that will afford firms 
the ability to assess when and how to implement their work re-entry 
plans as measured against the health and safety of their personnel, 
while continuing to serve and promote the protection of investors and 
the public interest.
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    \14\ 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 potential economic impacts 
of Rule 3110.17 as described in File No. SR-FINRA-2020-040 continue to 
have applicability to the proposed rule change herein. The proposed 
rule change would extend the temporary relief to include calendar year 
2022 inspection obligations through June 30, 2022 within the scope of 
the supplementary material without making substantive changes to the 
other aspects of the provision. FINRA believes that the proposed 
temporary extension would afford firms the time needed to determine 
when and how to effectively and safely implement their work re-entry 
plans, which must take into account multiple factors, including local 
health and safety conditions, without diminishing investor protection.

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 19(b)(3)(A) of the Act \15\ and Rule 19b-
4(f)(6) thereunder.\16\
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6).
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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 rule-comments@sec.gov. Please include 
File Number SR-FINRA-2021-023 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-2021-023. 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

[[Page 52511]]

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-2021-023 and 
should be submitted on or before October 12, 2021.
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    \17\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-20333 Filed 9-20-21; 8:45 am]
BILLING CODE 8011-01-P