On March 9, the Financial Industry Regulatory Authority (FINRA) issued Regulatory Notice 20-08 to provide guidance and regulatory relief related to pandemic-related business continuity planning.
FINRA Rule 4370 requires firms to create and maintain a written Business Continuity Plan (BCP) with procedures that are reasonably designed to enable firms to meet their obligations to customers, counterparties, and other broker-dealers during an emergency or significant business disruption. The rule also requires firms to review and update their BCPs, if necessary, in light of changes to firms’ operations, structure, business, or location. Further, although most introducing firms rely, to some extent, on their clearing firms to allow customers to access their accounts and enter transactions, firms remain responsible for compliance with the BCP rule even if they use a clearing firm.
Due to the recent outbreak of coronavirus disease (COVID-19), FINRA provides the following guidance and regulatory relief to member firms under Rule 4370:
Member Firms are Encouraged to Review their BCPs to Consider Pandemic Preparedness
Member firms are encouraged to review whether the BCPs are sufficiently flexible to address a wide range of possible effects in the event of a pandemic in the United States, and to contact their assigned FINRA Risk Monitoring Analyst to discuss the activation and implementation of their BCPs, as well as to discuss any issues they may be facing, including the disruption of business operations, and whether disruptions are solved or ongoing.
Remote Offices or Telework Arrangements
A member firm may consider employing methods such as social distancing, travel restrictions, revised sick leave policies, special pandemic leave time, or specialized seating plans for densely populated floors or buildings. These methods may also involve remote offices or telework arrangements (e.g., working from home or a backup or recovery location) for a broad range of employees.
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.
Communicating with Customers
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 indicating to affected customers who they may contact concerning the execution of trades, their accounts, and access to funds or securities.
Communicating With FINRA
Member firms are required to provide FINRA with emergency contact information pursuant to Rule 4370. Member firms are encouraged to review their emergency contacts to ensure that FINRA has a reliable means of contacting each member.
Regulatory Filings and Responses to FINRA Inquiries, Matters, and Investigations
Member firms are reminded of the requirements in Rule 15c3-3 under the Securities Exchange Act of 1934 regarding reserve formula computations and required deposits that are intended to protect customer funds and securities.
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. FINRA may waive any late fees incurred by a member firm based on the member firm’s particular circumstance. In addition, if any data communications are disrupted, member firms should retain the relevant data until it can be transmitted to FINRA.
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.
Military Personnel and National Guard
FINRA Rule 1210 (Registration Requirements) provides specific relief to persons registered with FINRA who volunteer or are called into active military duty.
Copyright © 2020 by Ballard Spahr LLP.
(No claim to original U.S. government material.)
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, including electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of the author and publisher.
This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.