Ep. 100: Updates and Insights on Supervisory Procedures – During and After the Pandemic

On episode 100 of the CCO Buzz, Sr. Compliance Consultant Janice Powell discusses supervisory processes in a pandemic and post-pandemic environment, including newly proposed supervisory regulations.


CCO Buzz: Hello and welcome back to the CCO Buzz. As we enter Q4, it’s a bit crazy to think about how time has flown, not just for the year- but also all changes over the past few years as a society and in regards to the market.

When anyone reflects upon the past few years and the catalysts for change – the COVID-19 Pandemic is top of mind. In my opinion, the market’s fluidity and society’s nimble approach to the pandemic should be the definition of transformative.

While we’re still in a pandemic and adjusting to the new normal, so is the industry. Today, we’re joined by Senior Compliance Consultant Janice Powell to discuss a hot topic, “Supervision in a Pandemic and Post Pandemic World,” which also happens to be the title of her latest article and the session she will be presenting at, at the National Society of Compliance Professionals’ (or NSCP’s) annual conference later this month.

So Janice, in your opinion, how has the pandemic transformed the path to the future?

Janice Powell: You know I don’t think anyone can deny that the pandemic has forced society to be more reliant on technology. With more people working from home or leveraging a hybrid model – financial professionals can call any location their “office” as long as they have a cell phone, a laptop, and a solid internet connection.

Firms and financial professionals were forced to adopt technology and new ways to conduct business – out of pure need as there was no end in sight for the pandemic.  As video conferences and virtual meetings became the new norm, supervision processes, technology and platforms had to be implemented, and put to the test.

With such sudden and drastic changes came some relief from regulatory agencies, but it is soon set to expire. Learning and adapting to this environment provided agencies, like FINRA, to focus their efforts on supervisory enhancements in the modern digital era. In fact, there are a couple of proposals in the comment period focused on providing an evergreen solution to keep up with the technology and a modern way of conducting business.  The first proposal seeks to amend the definition of office of supervisory jurisdiction (or “OSJ” as it’s commonly referred to), while the second one introduces a Remote Inspections Pilot Program to take advantage of widespread advancements in and the adoption of technology.

CCO Buzz: I guess I can’t be surprised. Technology evolves so quickly and the more we implement it into our lives and the more information we share, thus, we are vulnerable for risk or fraud.  With the rate at which technology evolves, regulations really haven’t been able to shift, adapt, and develop at the same rate.

But these proposals, do you mind explaining how they’ll impact Broker-Dealers?

Janice Powell: Not at all. At a high level…

SR-2022-019 proposes an enhancement and change to the definition in the Broker -Dealer space, which includes the Office of Supervisory Jurisdiction, the branch office, and non-branch locations.  OSJ’s are designed to supervise financial professionals in their sales activities to ensure these activities are conducted in a manner consistent with rules and regulations, including the firm’s own policies and procedures.  Currently, how FINRA actually defines each of these offices is defined by the work being performed in each location.  The proposed rule change would align FINRA’s definition of an OSJ and the classification of a location that supervises non-branch locations with an existing residential exclusion, that would treat private residences, where an associated person is engaging in specific supervisory activities, as a non-branch location, and that would require periodic inspections no greater than once every three years instead of the annual requirement as required for OSJs.  The proposal contains certain requirements as well as ineligible locations, whereby firms would need to make an assessment to ensure that the location qualifies under the proposed rule.

The proposal SR-2022-021 proposes a voluntary, three-year remote inspection pilot program to allow member firms to elect to fulfill their obligations under Rule 3110(c) by conducting required inspections of some or all branch offices and locations remotely without an on-site visit to each office.  With new and innovative regulatory technologies, firms are taking advantage of the significant advances in technology, thereby allowing them to supervise in a more efficient and effective manner.  In fact, technology enhancements make it easier for real-time supervision as opposed to a pre or post review supervision protocol.

If approved, this could lead the way for future revisions in other rules.

CCO Buzz: Wow, I never considered the impact the evolution of technology had on the industry. Understanding these new rules, or proposals, how would you recommend firms navigate this change?

Janice Powell: Well I discussed a few methods in my article and I’ll be presenting later this month at the NSCP Conference in National Harbor, MD – but I don’t mind sharing a few with our listeners.

One consideration would be to revisit your business continuity plan. When reviewing all the components of your plan, you will want to evaluate the systems and plans your firm was forced to implement at the beginning of the pandemic to not disrupt service. Upon review, you will also want to ensure that these protocols are regularly tested as well.

Also, firms should ensure that all changes are documented, like within the Policies and Procedures – even if they were temporary nuances to mitigate risk. Accurate documentation will also assist regulators in understanding the timeline and better understanding the firms WSPs that were in place during pandemic.

But those are only a few considerations, if listeners would like more insight – I invite them to check out our latest risk management update – or better yet, if you’re in the area, you should attend the NSCP Annual Conference later this month.

CCO Buzz: I don’t think I’ve ever heard a better teaser, Janice. You heard it here first, listeners – to catch Janice and our CEO Michelle Jacko share their insight on the industry – they’ll both be speaking NSCP’s National Conference later this month. Michelle will be discussing Change Management, while Janice will be a featured panelist at the “Supervision in a Pandemic and Post Pandemic World” session.

Janice before we go, is there anything else you’d like to add?

Janice Powell: Yeah, one more important component of supervision is to understand what works, what doesn’t work and maintain the flexibility to change directions when needed.  Being able to pivot is vital to a program.

The team at Core Compliance can assist firms with developing WSPs and supervisory structures. For assistance or more information about our services, please contact us at info@corecls.com, at (619) 278- 0020 or visit us at www.corecls.com for more information.

CCO Buzz: Well that’s it for this week’s episode. If you’d like additional information, please check out our website at www.corecls.com. You can also follow us on Facebook, LinkedIn, or Twitter @CoreCls. Thank you, and we hope you tune-in to next week’s episode of the CCO Buzz.


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