Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Extend Temporary Supplementary Material .17 (Temporary Relief To Allow Remote Inspections for Calendar Years 2020 and 2021, and Through December 31 of Calendar Year 2022) Under FINRA Rule 3110 (Supervision), 67969-67972 [2022-24509]
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Federal Register / Vol. 87, No. 217 / Thursday, November 10, 2022 / Notices
POSTAL SERVICE
Product Change—Priority Mail and
First-Class Package Service
Negotiated Service Agreement
Postal ServiceTM.
ACTION: Notice.
AGENCY:
The Postal Service gives
notice of filing a request with the Postal
Regulatory Commission to add a
domestic shipping services contract to
the list of Negotiated Service
Agreements in the Mail Classification
Schedule’s Competitive Products List.
DATES: Date of required notice:
November 10, 2022.
FOR FURTHER INFORMATION CONTACT:
Sean Robinson, 202–268–8405.
SUPPLEMENTARY INFORMATION: The
United States Postal Service® hereby
gives notice that, pursuant to 39 U.S.C.
3642 and 3632(b)(3), on November 1,
2022, it filed with the Postal Regulatory
Commission a USPS Request to Add
Priority Mail & First-Class Package
Service Contract 224 to Competitive
Product List. Documents are available at
www.prc.gov, Docket Nos. MC2023–31,
CP2023–30.
SUMMARY:
Sarah Sullivan,
Attorney, Ethics & Legal Compliance.
[FR Doc. 2022–24491 Filed 11–9–22; 8:45 am]
BILLING CODE 7710–12–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–96241; File No. SR–FINRA–
2022–030]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Extend Temporary
Supplementary Material .17
(Temporary Relief To Allow Remote
Inspections for Calendar Years 2020
and 2021, and Through December 31 of
Calendar Year 2022) Under FINRA Rule
3110 (Supervision)
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November 4, 2022.
Pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934 (‘‘Act’’
or ‘‘Exchange Act’’) 1 and Rule 19b–4
thereunder,2 notice is hereby given that
on October 31, 2022, 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
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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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.
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 Years 2020 and
2021, and Through December 31 of
Calendar Year 2022) under FINRA Rule
3110 (Supervision) to include calendar
year 2023 inspection obligations
through the earlier of the effective date
of the pilot program proposed in File
No. SR–FINRA–2022–021, if approved,
or December 31, 2023 within the scope
of the supplementary material.4 The
proposed extension of Rule 3110.17
would alleviate the ongoing operational
challenges resulting from the COVID–19
pandemic that many member firms may
continue to face in planning for and
timely conducting the on-site inspection
component of Rule 3110(c) (Internal
Inspections) at locations requiring
inspection in calendar year 2023.5
Below is the text of the proposed rule
change. Proposed new language is in
italics; proposed deletions are in
brackets.
*
*
*
*
*
3 17
CFR 240.19b–4(f)(6).
infra note 15, and accompanying text for
further discussion of the pilot program proposed in
File No. SR–FINRA–2022–021. The proposed rule
change will automatically sunset on the earlier of
the effective date of SR–FINRA–2022–021, if
approved, or December 31, 2023. FINRA will
submit a separate rule filing if it seeks to extend the
duration of the temporary proposed rule beyond
December 31, 2023.
5 SEC staff and FINRA have stated in guidance
that inspections must include a physical, on-site
review component. See SEC National Examination
Risk Alert, Volume I, Issue 2 (November 30, 2011)
and Regulatory Notice 11–54 (November 2011)
(joint SEC and FINRA guidance stating, a ‘‘brokerdealer must conduct on-site inspections of each of
its office locations; [OSJs] and non-OSJ branches
that supervise non-branch locations at least
annually, all non-supervising branch offices at least
every three years; and non-branch offices
periodically.’’) (footnote defining an OSJ omitted).
See also SEC Division of Market Regulation, Staff
Legal Bulletin No. 17: Remote Office Supervision
(March 19, 2004) (stating, in part, that brokerdealers that conduct business through
geographically dispersed offices have not
adequately discharged their supervisory obligations
where there are no on-site routine or ‘‘for cause’’
inspections of those offices).
4 See
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3000. SUPERVISION AND
RESPONSIBILITES RELATING TO
ASSOCIATED PERSONS
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] 2021, 2022, and [Through
December 31 of Calendar Year
2022]2023.
(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 the calendar years [2020,
2021 and 2022]specified in this
supplementary material 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] [i]Inspections for
calendar year 2021 must be completed
on or before December 31, 2021 and
inspections for calendar year 2022 must
be completed on or before December 31,
2022. With respect to a member’s
obligation to conduct an inspection of
an office or location in calendar year
[2022]2023, a member has the option to
conduct those inspections remotely
through the earlier of the effective date
of the pilot program proposed in File
No. SR–FINRA–2022–021, if approved,
or December 31, [2022]2023.
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 its 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
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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, onsite 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 the earlier of the effective date
of the pilot program proposed in File
No. SR–FINRA–2022–021, if approved,
or December 31, [2022]2023, 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 2021] the calendar years
specified in this supplementary
material[, and for calendar year 2022
through December 31, 2022] 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
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17:43 Nov 09, 2022
Jkt 259001
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
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
In response to the COVID–19 global
health crisis and the corresponding
need to restrict in-person activities,
FINRA provided temporary relief to
member firms from certain regulatory
requirements, including those set forth
under Rule 3110. To help alleviate the
attendant logistical challenges member
firms were encountering to satisfy the
on-site inspection component of their
Rule 3110(c) requirements, FINRA
adopted Rule 3110.16 (Temporary
Extension of Time to Complete Office
Inspections) to extend the time by
which member firms were required to
complete their calendar year 2020
inspection obligations under Rule
3110(c) to March 31, 2021 with the
expectation that the extension did not
relieve firms from the on-site portion of
the inspections of their offices and
locations.6 However, health and safety
concerns remained unabated and with
many restrictive measures still in place
as calendar year 2020 was ending,
FINRA adopted Rule 3110.17 to provide
member firms the option, subject to
specified requirements under the
supplementary material, to complete
remotely their calendar year inspection
obligations without an on-site visit to
the office or location.7 This relief has
been extended and currently, Rule
6 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).
7 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).
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3110.17 is set to automatically sunset on
December 31, 2022.8
Even though it has been more than
two years since the World Health
Organization declared COVID–19 a
pandemic,9 member firms’ in-person
staff requirements, which were first
developed in response to COVID–19related health concerns, have remained
in flux. This reflects, in part, ongoing
staff health concerns; according to the
CDC, the number of new deaths from
COVID–19 in the United States in
September 2022 ranged from
approximately 2,900 to 3,200 deaths per
week,10 and approximately 20 percent
of counties in the United States have a
medium or high COVID–19 Community
Level based on the CDC’s most recent
calculations.11 While CDC guidance on
managing the risks related to COVID–19
has become more streamlined,12
dissimilar vaccination rates through the
U.S.13 and the uncertainty about
whether there will be a significant
increase in the number of COVID–19
cases in light of the presence of COVID–
19 variants, including Omicron and its
lineages,14 continues to raise staff health
concerns, particularly with regard to
inspections of their home activities.
As year 2022 is in its fourth quarter,
firms need to establish their inspection
8 See Securities Exchange Act Release No. 93002
(September 15, 2021), 86 FR 52508 (September 21,
2021) (Notice of Filing and Immediate Effectiveness
of File No. SR–FINRA–2021–023); and Securities
Exchange Act Release No. 94018 (January 20, 2022),
87 FR 4072 (January 26, 2022) (Notice of Filing and
Immediate Effectiveness of File No. SR–FINRA–
2022–001).
9 See Centers for Disease Control and Prevention
(‘‘CDC’’), International Classification of Diseases,
Tenth Revision, Clinical Modification, https://
www.cdc.gov/nchs/data/icd/Announcement-NewICD-code-for-coronavirus-3-18-2020.pdf. See also
WHO Director-General, Opening Remarks at the
Media Briefing on COVID–19 (March 11, 2020),
https://www.who.int/dg/speeches/detail/whodirector-general-s-opening-remarks-at-the-mediabriefing-on-covid-19---11-march-2020.
10 See CDC, COVID Data Tracker—Trends in
Number of COVID–19 Cases and Deaths in the US
Reported to CDC, by State/Territory, https://
covid.cdc.gov/covid-data-tracker/#trends_
weeklydeaths_select_00 (last visited October 27,
2022).
11 See CDC, COVID Data Tracker—COVID–19
Integrated County View, https://covid.cdc.gov/
covid-data-tracker/#county-view?list_select_
state=all_states&data-type=CommunityLevels (last
visited October 27, 2022).
12 See generally CDC Press Release, CDC
streamlines COVID–19 guidance to help the public
better protect themselves and understand their risk,
https://www.cdc.gov/media/releases/2022/p0811covid-guidance.html (August 11, 2022).
13 A state-by-state comparison of vaccination rates
is available at https://covid.cdc.gov/covid-datatracker/#vaccinations_vacc-people-additionaldosetotalpop.
14 Variants of concern include BA.5, BA.4.6, and
BQ.1.1, among others. See CDC, COVID Data
Tracker—Variant Proportions, https://
covid.cdc.gov/covid-data-tracker/#variantproportions (last visited October 27, 2022).
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schedules for calendar year 2023 and
ensure there is adequate, experienced
staff available to travel and conduct onsite inspections safely within the
context of fluid work locations. This
situation presents complexity for many
firms in terms of planning and
deploying resources. Even with
increased availability of vaccines,
FINRA understands that many firm
personnel are still working at least part
time from alternative work locations
(e.g., private residences), while taking
incremental steps to resume in-person
activities in some fashion amid the
current environment. With these
considerations alone, FINRA believes
there is a continued need for temporary
relief beyond December 31, 2022.
FINRA has also filed with the
Commission File No. SR–FINRA–2022–
021, a proposed rule change to adopt a
voluntary, remote inspections pilot
program that is currently pending
Commission review. The review period
may extend well into 2023.15 Given the
potential length of that review period,
and the pilot program’s significant
planning requirements and varying
limitations applicable to specific firms
and office locations, FINRA believes
that firms that intend to participate in
the pilot program, if approved, will
need a significant number of months to
prepare appropriately for the pilot
program. Moreover, further FINRA
guidance may be needed to guide
implementation in various
circumstances.16 Firms that are not
eligible, or do not intend, to participate
in the pilot program, if approved, will
also need the time to make any
operational adjustments to schedule and
conduct the on-site component of their
upcoming inspections once Rule
3110.17 expires on the effective date of
the pilot program, which could come
before December 31, 2023. For these
reasons, and to avoid overlapping
provisions, under the proposed rule
change herein, temporary Rule 3110.17
15 On July 28, 2022, FINRA filed a proposed rule
change to adopt proposed Supplementary Material
.18 under Rule 3110 that would set forth the terms
of a voluntary, three-year remote inspections pilot
program to allow member firms to elect to fulfill
their obligation under Rule 3110(c) by conducting
inspections of some or all branch offices and
locations remotely without an on-site visit to such
office or location. See Securities Exchange Act
Release No. 95452 (August 9, 2022), 87 FR 50144
(August 15, 2022) (Notice of Filing of File No. SR–
FINRA–2022–021) (‘‘Pilot Proposal’’). The Pilot
Proposal is currently pending Commission review
and under Section 19(b)(2) of the Exchange Act, the
last day for the Commission to issue an order of
approval or disapproval of File No. SR–FINRA–
2022–021 is April 12, 2023. See 15 U.S.C. 78s(b)(2).
16 As part of the implementation of the remote
inspections pilot program, FINRA intends to
publish a Regulatory Notice or other guidance about
the operational aspects of the pilot program.
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would expire on the earlier of the
effective date of the pilot program
proposed in File No. SR–FINRA–2022–
021 or December 31, 2023.17 If the Pilot
Proposal is not approved, member firms
should use the time provided in
proposed Rule 3110.17 to prepare to
fulfill their Rule 3110(c) obligations
through on-site inspections of their
offices and locations.18
In sum, proposed Rule 3110.17 would
avoid a potential lapse in the temporary
relief while challenges from COVID–19
persist, provide firms regulatory
continuity in meeting their inspection
obligations during the remaining
Commission review period of the Pilot
Proposal, and allow firms time to adapt
to the pilot program, if approved, and
prepare for conducting on-site
inspections, as applicable.
FINRA is not proposing to amend the
other conditions of the temporary rule.
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. FINRA continues to
believe this temporary remote
inspection option is a reasonable
alternative to provide to firms to fulfill
their Rule 3110(c) obligations under
current conditions while the
Commission considers the Pilot
Proposal. This extension is designed to
maintain the investor protection
objectives of the inspection
requirements under these
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 inperson inspections would be feasible
and add value to the firms’ supervisory
program.
FINRA has filed the proposed rule
change for immediate effectiveness.
FINRA is proposing to make the
proposed rule change operative on
January 1, 2023.
2. Statutory Basis
FINRA believes that the proposed rule
change is consistent with the provisions
17 Proposed Rule 3110.18 would expressly
provide that if Rule 3110.17 has not already expired
by its own terms, it would automatically sunset on
the effective date of the pilot program. See Pilot
Proposal.
18 See note 5, supra.
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67971
of Section 15A(b)(6) of the Act,19 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
continue providing firms a temporary
regulatory option to conduct inspections
of offices and locations remotely during
calendar year 2023. 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. With the
ongoing staffing challenges resulting
from the lingering COVID–19 pandemic,
FINRA believes that the proposed rule
change provides sensibly tailored relief,
while continuing to serve and promote
the protection of investors and the
public interest. In addition, the
extended time would give firms clarity
around their Rule 3110(c) inspection
obligations pending the Commission’s
review of the Pilot Proposal.
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 that provides firms
with the option to fulfill their
inspection obligations remotely. The
proposed extension would include
calendar year 2023 inspection
obligations through the earlier of the
effective date of the pilot program
proposed in File No. SR–FINRA–2022–
021, if approved, or December 31, 2023
within the scope of the supplementary
material without making substantive
changes to the other aspects of the
provision. In addition, the proposed
temporary extension would avoid a
potential lapse in temporary relief while
the Pilot Proposal is pending
Commission action. Further, the
19 15
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proposed extension would provide
regulatory certainty while firms
continue to manage health and safety
concerns, work absences, and the
transition to new workforce
arrangements. FINRA believes that this
limited extension in temporary relief,
together with the requirements for using
the temporary relief in Rule 3110.17,
would not diminish 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 20 and Rule 19b–
4(f)(6) thereunder.21
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:
Commission, 100 F Street NE,
Washington, DC 20549–1090.
SECURITIES AND EXCHANGE
COMMISSION
All submissions should refer to File
Number SR–FINRA–2022–030. 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 (https://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–2022–030
and should be submitted on or before
December 1, 2022.
[Release No. 34–96242; File No. SR–
NYSEARCA–2022–31]
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.22
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022–24509 Filed 11–9–22; 8:45 am]
BILLING CODE 8011–01–P
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Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
VerDate Sep<11>2014
17:43 Nov 09, 2022
I. Introduction
On May 20, 2022, NYSE Arca, Inc.
(‘‘Exchange’’ or ‘‘NYSE Arca’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to modify NYSE Arca Rule
6.64P–O regarding the automated
process for both opening and reopening
trading in a series on the Exchange’s
Pillar trading platform, as described
below. The proposed rule change was
published for comment in the Federal
Register on May 27, 2012.3 On June 24,
2022, pursuant to Section 19(b)(2) of the
Act,4 the Commission extended the time
period within which to approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether to
approve or disapprove the proposed
change.5 On August 23, 2022, the
Commission instituted proceedings
under Section 19(b)(2)(B) of the Act 6 to
determine whether to approve or
disapprove the proposed rule change.7
On October 25, 2022, the Exchange filed
Amendment No. 1 to the proposed rule
change,8 and on October 27, 2022, the
Exchange filed Amendment No. 2 to the
proposed rule change,9 which replaced
and superseded in their entirety both
the original filing and Amendment No.
1. The Commission has received no
comments on the proposed rule change.
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 94959
(May 23, 2022), 87 FR 32203 (May 27, 2022).
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No. 95150
(Jun. 24, 2022), 87 FR 39141 (Jun. 30, 2022).
6 15 U.S.C. 78s(b)(2)(B).
7 See Securities Exchange Act Release No. 95581
(Aug. 23, 2022), 87 FR 52827 (Aug. 29, 2022).
8 Amendment No. 1 is available at https://
www.nyse.com/publicdocs/nyse/markets/nyse-arca/
rule-filings/filings/2022/SR-NYSEArca-2022-31_
Am._1.pdf.
9 Amendment No. 2 is available at https://
www.nyse.com/publicdocs/nyse/markets/nyse-arca/
rule-filings/filings/2022/SR-NYSEArca-2022-31_
Am._2.pdf.
2 17
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
FINRA–2022–030 on the subject line.
21 17
November 4, 2022.
1 15
Electronic Comments
20 15
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of
Amendment No. 2 and Order Granting
Accelerated Approval of a Proposed
Rule Change, as Modified by
Amendment No. 2, To Amend Rule
6.64P–O
22 17
Jkt 259001
PO 00000
CFR 200.30–3(a)(12).
Frm 00118
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]]>Agencies
[Federal Register Volume 87, Number 217 (Thursday, November 10, 2022)]
[Notices]
[Pages 67969-67972]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-24509]
=======================================================================
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96241; File No. SR-FINRA-2022-030]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Extend Temporary Supplementary Material .17
(Temporary Relief To Allow Remote Inspections for Calendar Years 2020
and 2021, and Through December 31 of Calendar Year 2022) Under FINRA
Rule 3110 (Supervision)
November 4, 2022.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on October 31, 2022, 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 Years 2020
and 2021, and Through December 31 of Calendar Year 2022) under FINRA
Rule 3110 (Supervision) to include calendar year 2023 inspection
obligations through the earlier of the effective date of the pilot
program proposed in File No. SR-FINRA-2022-021, if approved, or
December 31, 2023 within the scope of the supplementary material.\4\
The proposed extension of Rule 3110.17 would alleviate the ongoing
operational challenges resulting from the COVID-19 pandemic that many
member firms may continue to face in planning for and timely conducting
the on-site inspection component of Rule 3110(c) (Internal Inspections)
at locations requiring inspection in calendar year 2023.\5\
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\4\ See infra note 15, and accompanying text for further
discussion of the pilot program proposed in File No. SR-FINRA-2022-
021. The proposed rule change will automatically sunset on the
earlier of the effective date of SR-FINRA-2022-021, if approved, or
December 31, 2023. FINRA will submit a separate rule filing if it
seeks to extend the duration of the temporary proposed rule beyond
December 31, 2023.
\5\ SEC staff and FINRA have stated in guidance that inspections
must include a physical, on-site review component. See SEC National
Examination Risk Alert, Volume I, Issue 2 (November 30, 2011) and
Regulatory Notice 11-54 (November 2011) (joint SEC and FINRA
guidance stating, a ``broker-dealer must conduct on-site inspections
of each of its office locations; [OSJs] and non-OSJ branches that
supervise non-branch locations at least annually, all non-
supervising branch offices at least every three years; and non-
branch offices periodically.'') (footnote defining an OSJ omitted).
See also SEC Division of Market Regulation, Staff Legal Bulletin No.
17: Remote Office Supervision (March 19, 2004) (stating, in part,
that broker-dealers that conduct business through geographically
dispersed offices have not adequately discharged their supervisory
obligations where there are no on-site routine or ``for cause''
inspections of those offices).
---------------------------------------------------------------------------
Below is the text of the proposed rule change. Proposed new
language is in italics; proposed deletions are in brackets.
* * * * *
3000. SUPERVISION AND RESPONSIBILITES RELATING TO ASSOCIATED PERSONS
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] 2021, 2022, and [Through December 31 of Calendar Year
2022]2023.
(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 the calendar years [2020, 2021 and
2022]specified in this supplementary material 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] [i]Inspections for calendar year 2021 must
be completed on or before December 31, 2021 and inspections for
calendar year 2022 must be completed on or before December 31, 2022.
With respect to a member's obligation to conduct an inspection of an
office or location in calendar year [2022]2023, a member has the option
to conduct those inspections remotely through the earlier of the
effective date of the pilot program proposed in File No. SR-FINRA-2022-
021, if approved, or December 31, [2022]2023. 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 its 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
[[Page 67970]]
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 the earlier of the effective date of the
pilot program proposed in File No. SR-FINRA-2022-021, if approved, or
December 31, [2022]2023, 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 2021] the
calendar years specified in this supplementary material[, and for
calendar year 2022 through December 31, 2022] 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 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
In response to the COVID-19 global health crisis and the
corresponding need to restrict in-person activities, FINRA provided
temporary relief to member firms from certain regulatory requirements,
including those set forth under Rule 3110. To help alleviate the
attendant logistical challenges member firms were encountering to
satisfy the on-site inspection component of their Rule 3110(c)
requirements, FINRA adopted Rule 3110.16 (Temporary Extension of Time
to Complete Office Inspections) to extend the time by which member
firms were required to complete their calendar year 2020 inspection
obligations under Rule 3110(c) to March 31, 2021 with the expectation
that the extension did not relieve firms from the on-site portion of
the inspections of their offices and locations.\6\ However, health and
safety concerns remained unabated and with many restrictive measures
still in place as calendar year 2020 was ending, FINRA adopted Rule
3110.17 to provide member firms the option, subject to specified
requirements under the supplementary material, to complete remotely
their calendar year inspection obligations without an on-site visit to
the office or location.\7\ This relief has been extended and currently,
Rule 3110.17 is set to automatically sunset on December 31, 2022.\8\
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\6\ 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).
\7\ 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).
\8\ See Securities Exchange Act Release No. 93002 (September 15,
2021), 86 FR 52508 (September 21, 2021) (Notice of Filing and
Immediate Effectiveness of File No. SR-FINRA-2021-023); and
Securities Exchange Act Release No. 94018 (January 20, 2022), 87 FR
4072 (January 26, 2022) (Notice of Filing and Immediate
Effectiveness of File No. SR-FINRA-2022-001).
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Even though it has been more than two years since the World Health
Organization declared COVID-19 a pandemic,\9\ member firms' in-person
staff requirements, which were first developed in response to COVID-19-
related health concerns, have remained in flux. This reflects, in part,
ongoing staff health concerns; according to the CDC, the number of new
deaths from COVID-19 in the United States in September 2022 ranged from
approximately 2,900 to 3,200 deaths per week,\10\ and approximately 20
percent of counties in the United States have a medium or high COVID-19
Community Level based on the CDC's most recent calculations.\11\ While
CDC guidance on managing the risks related to COVID-19 has become more
streamlined,\12\ dissimilar vaccination rates through the U.S.\13\ and
the uncertainty about whether there will be a significant increase in
the number of COVID-19 cases in light of the presence of COVID-19
variants, including Omicron and its lineages,\14\ continues to raise
staff health concerns, particularly with regard to inspections of their
home activities.
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\9\ See Centers for Disease Control and Prevention (``CDC''),
International Classification of Diseases, Tenth Revision, Clinical
Modification, https://www.cdc.gov/nchs/data/icd/Announcement-New-ICD-code-for-coronavirus-3-18-2020.pdf. See also WHO Director-
General, Opening Remarks at the Media Briefing on COVID-19 (March
11, 2020), https://www.who.int/dg/speeches/detail/who-director-general-s-opening-remarks-at-the-media-briefing-on-covid-19---11-march-2020.
\10\ See CDC, COVID Data Tracker--Trends in Number of COVID-19
Cases and Deaths in the US Reported to CDC, by State/Territory,
https://covid.cdc.gov/covid-data-tracker/#trends_weeklydeaths_select_00 (last visited October 27, 2022).
\11\ See CDC, COVID Data Tracker--COVID-19 Integrated County
View, https://covid.cdc.gov/covid-data-tracker/#county-view?list_select_state=all_states&data-type=CommunityLevels (last
visited October 27, 2022).
\12\ See generally CDC Press Release, CDC streamlines COVID-19
guidance to help the public better protect themselves and understand
their risk, https://www.cdc.gov/media/releases/2022/p0811-covid-guidance.html (August 11, 2022).
\13\ A state-by-state comparison of vaccination rates is
available at https://covid.cdc.gov/covid-data-tracker/#vaccinations_vacc-people-additionaldose-totalpop.
\14\ Variants of concern include BA.5, BA.4.6, and BQ.1.1, among
others. See CDC, COVID Data Tracker--Variant Proportions, https://covid.cdc.gov/covid-data-tracker/#variant-proportions (last visited
October 27, 2022).
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As year 2022 is in its fourth quarter, firms need to establish
their inspection
[[Page 67971]]
schedules for calendar year 2023 and ensure there is adequate,
experienced staff available to travel and conduct on-site inspections
safely within the context of fluid work locations. This situation
presents complexity for many firms in terms of planning and deploying
resources. Even with increased availability of vaccines, FINRA
understands that many firm personnel are still working at least part
time from alternative work locations (e.g., private residences), while
taking incremental steps to resume in-person activities in some fashion
amid the current environment. With these considerations alone, FINRA
believes there is a continued need for temporary relief beyond December
31, 2022.
FINRA has also filed with the Commission File No. SR-FINRA-2022-
021, a proposed rule change to adopt a voluntary, remote inspections
pilot program that is currently pending Commission review. The review
period may extend well into 2023.\15\ Given the potential length of
that review period, and the pilot program's significant planning
requirements and varying limitations applicable to specific firms and
office locations, FINRA believes that firms that intend to participate
in the pilot program, if approved, will need a significant number of
months to prepare appropriately for the pilot program. Moreover,
further FINRA guidance may be needed to guide implementation in various
circumstances.\16\ Firms that are not eligible, or do not intend, to
participate in the pilot program, if approved, will also need the time
to make any operational adjustments to schedule and conduct the on-site
component of their upcoming inspections once Rule 3110.17 expires on
the effective date of the pilot program, which could come before
December 31, 2023. For these reasons, and to avoid overlapping
provisions, under the proposed rule change herein, temporary Rule
3110.17 would expire on the earlier of the effective date of the pilot
program proposed in File No. SR-FINRA-2022-021 or December 31,
2023.\17\ If the Pilot Proposal is not approved, member firms should
use the time provided in proposed Rule 3110.17 to prepare to fulfill
their Rule 3110(c) obligations through on-site inspections of their
offices and locations.\18\
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\15\ On July 28, 2022, FINRA filed a proposed rule change to
adopt proposed Supplementary Material .18 under Rule 3110 that would
set forth the terms of a voluntary, three-year remote inspections
pilot program to allow member firms to elect to fulfill their
obligation under Rule 3110(c) by conducting inspections of some or
all branch offices and locations remotely without an on-site visit
to such office or location. See Securities Exchange Act Release No.
95452 (August 9, 2022), 87 FR 50144 (August 15, 2022) (Notice of
Filing of File No. SR-FINRA-2022-021) (``Pilot Proposal''). The
Pilot Proposal is currently pending Commission review and under
Section 19(b)(2) of the Exchange Act, the last day for the
Commission to issue an order of approval or disapproval of File No.
SR-FINRA-2022-021 is April 12, 2023. See 15 U.S.C. 78s(b)(2).
\16\ As part of the implementation of the remote inspections
pilot program, FINRA intends to publish a Regulatory Notice or other
guidance about the operational aspects of the pilot program.
\17\ Proposed Rule 3110.18 would expressly provide that if Rule
3110.17 has not already expired by its own terms, it would
automatically sunset on the effective date of the pilot program. See
Pilot Proposal.
\18\ See note 5, supra.
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In sum, proposed Rule 3110.17 would avoid a potential lapse in the
temporary relief while challenges from COVID-19 persist, provide firms
regulatory continuity in meeting their inspection obligations during
the remaining Commission review period of the Pilot Proposal, and allow
firms time to adapt to the pilot program, if approved, and prepare for
conducting on-site inspections, as applicable.
FINRA is not proposing to amend the other conditions of the
temporary rule. 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. FINRA continues to believe this temporary remote
inspection option is a reasonable alternative to provide to firms to
fulfill their Rule 3110(c) obligations under current conditions while
the Commission considers the Pilot Proposal. This extension is designed
to maintain the investor protection objectives of the inspection
requirements under these 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 in-person
inspections would be feasible and add value to the firms' supervisory
program.
FINRA has filed the proposed rule change for immediate
effectiveness. FINRA is proposing to make the proposed rule change
operative on January 1, 2023.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\19\ 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 continue providing firms a
temporary regulatory option to conduct inspections of offices and
locations remotely during calendar year 2023. 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.
With the ongoing staffing challenges resulting from the lingering
COVID-19 pandemic, FINRA believes that the proposed rule change
provides sensibly tailored relief, while continuing to serve and
promote the protection of investors and the public interest. In
addition, the extended time would give firms clarity around their Rule
3110(c) inspection obligations pending the Commission's review of the
Pilot Proposal.
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\19\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------
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 that provides firms with
the option to fulfill their inspection obligations remotely. The
proposed extension would include calendar year 2023 inspection
obligations through the earlier of the effective date of the pilot
program proposed in File No. SR-FINRA-2022-021, if approved, or
December 31, 2023 within the scope of the supplementary material
without making substantive changes to the other aspects of the
provision. In addition, the proposed temporary extension would avoid a
potential lapse in temporary relief while the Pilot Proposal is pending
Commission action. Further, the
[[Page 67972]]
proposed extension would provide regulatory certainty while firms
continue to manage health and safety concerns, work absences, and the
transition to new workforce arrangements. FINRA believes that this
limited extension in temporary relief, together with the requirements
for using the temporary relief in Rule 3110.17, would not diminish
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 \20\ and Rule 19b-
4(f)(6) thereunder.\21\
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\20\ 15 U.S.C. 78s(b)(3)(A).
\21\ 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 (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-FINRA-2022-030 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-2022-030. 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 (https://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-2022-030
and should be submitted on or before December 1, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-24509 Filed 11-9-22; 8:45 am]
BILLING CODE 8011-01-P
