FINRA Urges Firms to Review Pandemic-Related BCP
Coronavirus seems to be impacting everything, which is why 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 given the current landscape.
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.
Rule 4370 (Business Continuity Plans and Emergency Contact Information) requires a member firm to create, maintain, review at least annually and update upon any material change, a BCP identifying procedures relating to an emergency or significant business disruption. BCPs should be reasonably designed to enable a member firm to meet its existing obligations to customers and address existing relationships with other broker-dealers and counterparties.
Member firms should review the BCPs to consider the following items:
Remote Offices or Telework Arrangements
FINRA understands that the use of remote offices or telework arrangements during a pandemic may necessitate a member firm to implement other ways to supervise its associated persons who change their work locations or arrangements for the duration of the pandemic. In such cases, FINRA would expect 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.
In addition, a member firm may find it helpful to test broad use of remote offices or telework arrangements by associated persons prior to activating its BCP, including regarding the ability to connect to critical firm systems, the adequacy of remote connectivity via residential internet access networks and any potential need to secure premium or dedicated service for connectivity.
Member firms should consider the increased risk of cyber events (e.g., systems being compromised through phishing attacks) as part of pandemic-related preparedness. The risk of cyber events may be increased due to use of remote offices or telework arrangements, heightened anxiety among associated persons and confusion about the virus.
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 after establishing a new temporary office or space-sharing arrangement, to include at a minimum the office address, the names of each member firm involved, the names of registered personnel, a contact telephone number and, if possible, the expected duration.
The notification should also indicate whether the member firm’s personnel will be sharing space with another entity, and if so, the type of business in which it is engaged (e.g., an affiliated investment adviser or an organization in the securities business). 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.
Communicating With FINRA
Rule 4370 also requires each firm to provide (and promptly update upon any material change) to FINRA via electronic process or other means as FINRA may specify, prescribed emergency contact information, including the designation of two emergency contact persons, both of whom must be associated persons. Member firms may register and update their emergency contact persons through the FINRA Contact System (FCS).
This requirement is to ensure that FINRA has a reliable means of contacting each member firm in the event of an emergency. One contact must be a member of senior management and a registered principal of the member firm and the second contact, if not a registered principal, must be a member of senior management who has knowledge of the firm’s business operations.
Regulatory Filings and Responses to FINRA Inquiries, Matters and Investigations
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.
Qualification Examinations and Regulatory Element Continuing Education
Any affected person who has a qualifications examination or continuing education window that is due to expire is encouraged to contact FINRA regarding an extension. Please contact FINRA’s Call Center at (301) 590-6500 with any questions or if you require additional information.