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NEWSLETTERS & ALERTS
Gotcha - Untimely Branch Inspections
by Howard Haykin
A Green Bay, WI-based broker-dealer agreed to pay a $10K fine to settle FINRA charges that it had failed to timely inspect registered branch offices (non-supervisory branches), and non-registered branch office locations – even though, in 2015, FINRA put the firm on notice that it was required to inspect branch offices and and non-branch locations consistent with FINRA Rule 3110 and the firm’s WSPs.
That said, between July 2011 and April 2017:
- Oak Brook, IL branch, was registered on 11/20/12 but not inspected during the relevant period.
- Broomfield, CO branch, was inspected in March 2012, but not inspected again until March 2017.
- West Palm Beach, FL branch was inspected in September 2011, but not inspected again until May 2017.
- San Jose, CA branch was inspected in October 2011, but not inspected again until December 2016.
- Minnetonka, MN branch was inspected in July 2012, but not inspected again until December 2016.
- Anaheim Hills, CA branch was inspected in July 2011, but not inspected again until December 2016.
During that same period:
- Stryker, OH non-branch office was to be inspected every 5 years, but after an inspection in February 2011, it was not inspected again until September 2017.
- Rogers, MN non-branch office was to be inspected every 3 years, but after the July 2012 inspection, it was not inspected again until December 2016.
FINANCIALISH TAKE AWAYS. FINRA rules for firm inspections of OSJs (Offices of Supervisory Jurisdiction), Branch Offices, and Non-Branch Locations are cut-and-dried, so a firm's failure to conduct timely visits/inspections and remote inspections are LOW HANGING FRUIT for FINRA examiners. Yes, inspections require effort and time-consuming travel, but they’re a necessary cost of doing business. Therefore, fines like the one imposed on the above broker-dealer can be readily avoided.
FINRA PROPOSAL TO ALLOW REMOTE INSPECTIONS. FINRA proposes to adopt new Supplementary Material .15 (Remote Inspections), which would give firms the option to fulfill their obligations under Rule 3110(c) by conducting a remote inspection of a "qualifying office," in lieu of a physical, on-site inspection of such office. In 2017, FINRA requested comment on the proposal - click on FINRA Regulatory Notice 17-38.
This case was reported in FINRA Disciplinary Actions for September 2018.
For details on this case, go to ... FINRA Disciplinary Actions Online, and refer to Case #2017052418701.