Document ID: SEC-2022-1431-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2022-11-04T04:00Z

[Federal Register Volume 87, Number 213 (Friday, November 4, 2022)]
[Notices]
[Pages 66767-66769]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-24007]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96191; File No. SR-FINRA-2022-019]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Instituting Proceedings To Determine Whether To 
Approve or Disapprove a Proposed Rule Change To Adopt Supplementary 
Material .19 (Residential Supervisory Location) Under FINRA Rule 3110

October 31, 2022.

I. Introduction

    On July 15, 2022, the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission'') the proposed rule change SR-FINRA-2022-019 pursuant 
to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Exchange 
Act'') \1\ and Rule 19b-4 \2\ thereunder to adopt new Supplementary 
Material .19 (Residential Supervisory Location) under FINRA Rule 3110 
(Supervision) that would treat a private residence at which an 
associated person engages in specified supervisory activities as a non-
branch location, subject to safeguards and limitations.\3\ The proposed 
rule change was published for public comment in the Federal Register on 
August 2, 2022.\4\ On September 14, 2022, FINRA consented to an 
extension of the time period in which the Commission must approve the 
proposed rule change, disapprove the proposed rule change, or institute 
proceedings to determine whether to approve or disapprove the proposed 
rule change to October 31, 2022.\5\ On October 31, 2022, FINRA 
responded to the comment

[[Page 66768]]

letters received in response to the Notice.\6\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See infra note 4.
    \4\ Exchange Act Release No. 95379 (July 27, 2022), 87 FR 47248 
(August 2, 2022) (File No. SR-FINRA-2022-019 (``Notice'').
    \5\ See letter from Sarah Kwak, Associate General Counsel, 
FINRA, to Daniel Fisher, Branch Chief, Division of Trading and 
Markets, Commission, dated September 14, 2022.
    \6\ See letter from Kosha Dalal, Vice President, FINRA, to 
Vanessa Countryman, Secretary, Commission, dated October 31, 2022 
(``FINRA Response'').
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    The Commission is publishing this order pursuant to Section 
19(b)(2)(B) of the Exchange Act \7\ to solicit comments on the proposed 
rule change and to institute proceedings to determine whether to 
approve or disapprove the proposed rule change.
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    \7\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposed Rule Change

A. Background

    The COVID-19 pandemic prompted FINRA to provide temporary relief to 
member firms from certain regulatory requirements.\8\ For example, 
FINRA temporarily suspended the requirement for member firms to submit 
branch office applications on Form BR (Uniform Branch Office 
Registration Form) for any newly opened temporary office locations or 
space-sharing arrangements established as a result of the pandemic (the 
``Form BR Temporary Suspension'').\9\
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    \8\ See Notice at 47249.
    \9\ See FINRA Regulatory Notice 20-08 (March 2020) (``Regulaotry 
Notice 20-08''); see also Notice at note 5.
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    In the Notice, FINRA stated that as jurisdictions scale back 
pandemic-related restrictions, many member firms are moving towards a 
``blended workforce model'' where employees work both on-site and in 
alternative locations, such as a private residence.\10\ Currently, a 
private residence at which certain supervisory functions occur would 
need to be registered and designated as a branch office or office of 
supervisory jurisdiction (``OSJ'') under Rule 3110(a)(3), and inspected 
at least annually under Rule 3110(c)(1)(A). Consequently, FINRA stated 
that absent futher regulatory action, once the Form BR Temporary 
Suspension is lifted, FINRA rules would require member firms to 
``either curtail activities at residential locations or register large 
numbers of residential locations as OSJs or supervisory branch 
offices.'' \11\ Under the proposed rule change, a new location 
designation, Residential Supervisory Location, would be treated as a 
non-branch location, subject to inspections on a regular periodic 
schedule under Rule 3110(c)(1)(C), presumed to be every three 
years.\12\
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    \10\ See Notice at 47249.
    \11\ Notice at 47256.
    \12\ See FINRA Rules 3110(c)(1)(C) and 3110.13.
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B. Proposed Rule Change

    FINRA is proposing to adopt new Supplementary Material .19 under 
Rule 3110 to establish a Residential Supervisory Location designation 
that would be treated as a non-branch location (i.e., an unregistered 
office), subject to specified limitations. Specifically, under proposed 
Rule 3110.19(a), a Residential Supervisory Location would be considered 
a non-branch location (and thus excluded from branch office 
registration), provided that: (1) only one associated person, or 
multiple associated persons who reside at that location and are members 
of the same immediate family, conduct business at the location; (2) the 
location is not held out to the public as an office; (3) the associated 
person does not meet with customers or prospective customers at the 
location; (4) any sales activity that takes place at the location 
complies with the conditions set forth under Rule 3110(f)(2)(A)(ii) or 
(iii); (5) neither customer funds nor securities are handled at that 
location; (6) the associated person is assigned to a designated branch 
office, and such designated branch office is reflected on all business 
cards, stationery, retail communications and other communications to 
the public by such associated person; (7) the associated person's 
correspondence and communications with the public are subject to the 
firm's supervision in accordance with Rule 3110; (8) all electronic 
communications by the associated person at that location are made 
through the member's electronic system; (9) a list of the residence 
locations is maintained by the member; and (10) all books or records 
required to be made and preserved by the member under the federal 
securities laws or FINRA rules are maintained by the member other than 
at the location.
    Furthermore, under proposed Rule 3110.19(b), some members would be 
ineligible to designate any location as a Residential Supervisory 
Location, and some locations of otherwise eligible members would be 
ineligible to be designated as a Residential Supervisory Location. 
Specifically, all of a member's locations would be ineligible if: (1) 
the member is designated as a ``Restricted Firm'' under Rule 4111 
(Restricted Firm Obligations); (2) the member is designated as a 
``Taping Firm'' under Rule 3170 (Tape Recording of Registered Persons 
by Certain Firms); or (3) the member is currently undergoing, or is 
required to undergo, a review under Rule 1017(a)(7) as a result of one 
or more associated persons at such location. A specific location of an 
otherwise eligible member would be ineligible if: (1) one or more 
associated persons at such location is a designated supervisor who has 
less than one year of direct supervisory experience with the member; 
(2) one or more associated persons at such location is functioning as a 
principal for a limited period in accordance with Rule 1210.04; (3) one 
or more associated persons at such location is subject to a mandatory 
heightened supervisory plan under the rules of the Commission, FINRA or 
state regulatory agency; (4) one or more associated persons at such 
location is statutorily disqualified, unless such disqualified person 
has been approved (or is otherwise permitted pursuant to FINRA rules 
and the federal securities laws) to associate with a member and is not 
subject to a mandatory heightened supervisory plan under paragraph 
(b)(6) of this Supplementary Material or otherwise as a condition to 
approval or permission for such association; (5) one or more associated 
persons at such location has an event in the prior three years that 
required a ``yes'' response to any item in Questions 14A(1)(a) and 
2(a), 14B(1)(a) and 2(a), 14C, 14D and 14E on Form U4; \13\ or (6) one 
or more associated persons at a location is currently subject to, or 
has been notified in writing that it will be subject to, any 
investigation, proceeding, complaint or other action by the member, the 
Commission, a self-regulatory organization, including FINRA, or state 
securities commission (or agency or office performing like functions) 
alleging they have failed to reasonably supervise another person 
subject to their supervision, with a view to preventing the violation 
of any provision of the Securities Act of 1933, the Exchange Act, the 
Investment Advisers Act of 1940, the Investment Company Act of 1940, 
the Commodity Exchange Act, or any rule or regulation under any of such 
acts, or any of the rules of the Municipal Securities Rulemaking Board.
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    \13\ Form U4's Questions 14A(1)(a) and 2(a), 14B(1)(a) and 2(a) 
elicit reporting of criminal convictions, and Questions 14C, 14D, 
and 14E pertain to regulatory action disclosures. See Notice at note 
79.
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III. Proceedings To Determine Whether To Approve or Disapprove File No. 
SR-FINRA-2022-019 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Exchange Act to determine whether the proposed rule 
change should be approved or disapproved.\14\ Institution of 
proceedings is appropriate at this time

[[Page 66769]]

in view of the legal and policy issues raised by the proposed rule 
change. Institution of proceedings does not indicate that the 
Commission has reached any conclusions with respect to the proposed 
rule change.
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    \14\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Exchange Act,\15\ the 
Commission is providing notice of the grounds for disapproval under 
consideration. The Commission is instituting proceedings to allow for 
additional analysis and input concerning whether the proposed rule 
change is consistent with the Exchange Act and the rules thereunder.
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    \15\ Id.
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IV. Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposed rule change. In particular, the Commission invites 
the written views of interested persons concerning whether the proposed 
rule change is consistent with the Exchange Act and the rules 
thereunder.
    Although there do not appear to be any issues relevant to approval 
or disapproval that would be facilitated by an oral presentation of 
views, data, and arguments, the Commission will consider, pursuant to 
Rule 19b-4, any request for an opportunity to make an oral 
presentation.\16\
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    \16\ Section 19(b)(2) of the Exchange Act, as amended by the 
Securities Acts Amendments of 1975, Public Law 94-29, 89 Stat. 97 
(1975), grants the Commission flexibility to determine what type of 
proceeding--either oral or notice and opportunity for written 
comments--is appropriate for consideration of a particular proposal 
by a self-regulatory organization. See Securities Acts Amendments of 
1975, Report of the Senate Committee on Banking, Housing and Urban 
Affairs to Accompany S. 249, S. Rep. No. 75, 94th Cong., 1st Sess. 
30 (1975).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposed rule change should be approved 
or disapproved by November 25, 2022. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
December 9, 2022.
    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 No. SR-FINRA-2022-019 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 No. SR-FINRA-2022-019. 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 10:00 a.m. and 
3:00 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 No. SR-FINRA-2022-019 and should be submitted on 
or before November 25, 2022. If comments are received, any rebuttal 
comments should be submitted on or before December 9, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12); 17 CFR 200.30-3(a)(57).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 2022-24007 Filed 11-3-22; 8:45 am]
BILLING CODE 8011-01-P