[Federal Register Volume 87, Number 17 (Wednesday, January 26, 2022)]
[Notices]
[Pages 4072-4075]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-01467]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94018; File No. SR-FINRA-2022-001]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Extend the Effectiveness of Temporary 
Supplementary Material .17 (Temporary Relief To Allow Remote 
Inspections for Calendar Years 2020 and 2021, and Through June 30 of 
Calendar Year 2022) Under FINRA Rule 3110 (Supervision)

January 20, 2022.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on January 10, 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 June 30 of Calendar Year 2022) under FINRA Rule 
3110 (Supervision) to include calendar year 2022 inspection obligations 
through December 31, 2022 within the scope of the supplementary 
material.\4\ The proposed additional six-month extension of Rule 
3110.17 is necessary to address the operational challenges resulting 
from the COVID-19 pandemic that many member firms continue to face in 
planning for and timely conducting, during the second half of calendar 
year 2022, the on-site

[[Page 4073]]

inspection component of Rule 3110(c) (Internal Inspections) at 
locations requiring inspection in calendar year 2022.\5\
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    \4\ The proposed rule text changes to Rule 3110.17 are applied 
to the version that becomes operative on January 1, 2022 and 
automatically sunsets on June 30, 2022.
    \5\ The proposed rule change will automatically sunset on 
December 31, 2022. FINRA will submit a separate rule filing if it 
seeks to extend the duration of the temporary proposed rule beyond 
December 31, 2022.
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    Below is the text of the proposed rule change. Proposed new 
language is in italics; proposed deletions are in brackets.
* * * * *

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, and Through [June 30]December 31 of Calendar Year 
2022.
    (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 calendar years 2020, 2021 and 2022 
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 inspections for 
calendar year 2021 must be completed on or before December 31, 2021. 
With respect to a member's obligation to conduct an inspection of an 
office or location in calendar year 2022, a member has the option to 
conduct those inspections remotely [only] through [June 30]December 
31, 2022. 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 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 [June 
30]December 31, 2022 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, and for calendar year 2022 through [June 30]December 31, 2022 
[only] 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 the midst of the global COVID-19 pandemic where the United 
States recorded its first case of COVID-19 in early 2020,\6\ and the 
attendant logistical challenges member firms were encountering to 
satisfy the on-site inspection component of their Rule 3110(c) 
requirements, FINRA adopted Rule 3110.17 to provide a tailored 
regulatory alternative for member firms to have the option, subject to 
specified conditions, to complete their inspection obligations 
remotely.\7\ While there were some signs that the pandemic was receding 
for a subsequent period of time, much uncertainty still remained. The 
emergence of the Delta variant, dissimilar vaccination rates throughout 
the U.S., and the significant uptick in transmissions in many locations 
during the summer of 2021 indicated that COVID-19 remained an active 
and real public health concern.\8\ Against this setting, FINRA 
understood the complexity firms were facing in assessing when and how 
to effectively and safely recall their employees back into offices 
alongside fashioning permanent telework arrangements or a hybrid 
workforce model in which some employees may work on-site in a 
commercial office space and other employees may work off-site in an 
alternative location (e.g., personal residence).\9\ Accordingly, in 
September

[[Page 4074]]

2021, FINRA extended Rule 3110.17 through June 30, 2022 to give firms 
clarity on their inspection requirements at least for the first half of 
2022 and to account for the time needed for many firms to carefully 
assess when and how to have their employees safely return to their 
offices in light of vaccination coverage in the U.S. and transmission 
levels of the virus, including any emergent variants throughout the 
country.\10\
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    \6\ See generally Centers for Disease Control and Prevention 
(``CDC''), CDC Museum COVID-19 Timeline, https://www.cdc.gov/museum/timeline/covid19.html (last visited January 10, 2022).
    \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) (citing SEC 
National Examination Risk Alert, Volume I, Issue 2 (November 30, 
2011) and Regulatory Notice 11-54 (November 2011) for the 
expectation that firms must conduct their inspections on-site).
    \8\ See Securities Exchange Act Release No. 93002 (September 15, 
2021), 86 FR 52508, 52509 nn.7 & 8 (September 21, 2021) (Notice of 
Filing and Immediate Effectiveness of File No. SR-FINRA-2021-023) 
(``Extension No. 1'') (becoming operative on January 1, 2022).
    \9\ Since March 2020, FINRA staff, with limited exceptions, have 
continued to work remotely to protect their health and safety. As 
indicated in its previous filings concerning other pandemic-related 
temporary relief from specified FINRA rules and requirements, FINRA 
has established a COVID-19 task force to develop a data-driven, 
staged plan for FINRA staff to safely return to working in FINRA 
office locations and resume other in-person activities. See 
Securities Exchange Act Release No. 93758 (December 13, 2021), 86 FR 
71695, 71696 (December 17, 2021) (Notice of Filing and Immediate 
Effectiveness of File No. SR-FINRA-2021-031). Similarly, the SEC has 
remained in a telework posture since March 2020 and has recently 
indicated that in 2022, it ``will continue to monitor the scientific 
data about COVID-19 and national, state, and local guidance to 
determine the appropriate operating posture for the agency's 
workforce.'' See the SEC's Fiscal Year 2021 Agency Financial Report, 
https://www.sec.gov/files/sec-2021-agency-financial-report.pdf.
    \10\ See Extension No. 1, supra note 8.
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    The emergence of the new Omicron variant in November 2021 and its 
rapid spread in the U.S. since December 1, 2021, the date on which the 
first confirmed case of Omicron in the U.S. was identified,\11\ 
indicate that the active and real public health concerns about COVID-19 
are unabated.\12\
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    \11\ See CDC, Omicron Variant: What You Need to Know, https://www.cdc.gov/coronavirus/2019-ncov/variants/omicron-variant.html 
(updated December 20, 2021).
    \12\ In November 2021, the U.S. Office of Personnel Management 
(``OPM''), which serves as the chief human resources agency and 
personnel policy manager for the Federal Government, released an 
updated guide to telework and remote work, noting, among other 
things, that ``[t]he COVID-19 pandemic forced even more adoption of 
telework and sparked a nationwide focus on telework as an important 
tool for safely and efficiently delivering mission-critical services 
in the public and private sectors during both short- and long-term 
emergencies . . . . As we look to the future, OPM is encouraging 
agencies to strategically leverage workplace flexibilities such as 
telework, remote work, and alternative/flexible work schedules as 
tools to help attract, recruit, and retain the best possible 
workforce.'' See OPM, 2021 Guide to Telework and Remote Work in the 
Federal Government: Leveraging Telework and Remote Work in the 
Federal Government to Better Meet Our Human Capital Needs and 
Improve Mission Delivery (November 2021), https://www.telework.gov/guidance-legislation/telework-guidance/telework-guide/guide-to-telework-in-the-federal-government.pdf. Further, on December 2, 
2021, President Biden announced new actions to protect Americans 
against the Delta and Omicron variants. See https://www.whitehouse.gov/briefing-room/statements-releases/2021/12/02/fact-sheet-president-biden-announces-new-actions-to-protect-americans-against-the-delta-and-omicron-variants-as-we-battle-covid-19-this-winter/. See also Lena H. Sun, Joel Achenbach, Laurie 
McGinley & Tyler Pager, Omicron spreading rapidly in U.S. and could 
bring punishing wave as soon as January, CDC warns, Washington Post 
(December 14, 2021), https://www.washingtonpost.com/health/2021/12/14/omicron-us-spread/.
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    Due to the continued logistical challenges of going on-site to 
branch offices or locations while these public health and safety 
concerns related to COVID-19 persist, and the continued risk from the 
Delta and new Omicron variants, the need for firms to establish 
inspection schedules for the second half of 2022 and ensure there is 
adequate, experienced staff available to travel and conduct on-site 
inspections within the context of fluid work locations continues to 
present a unique 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 from 
alternative work locations, and have not resumed traveling or are 
reluctant to do so at pre-pandemic levels amid persistent significant 
health and safety concerns. As a result of the new Omicron variant, 
many employers have further delayed or modified their return to office 
plans.\13\ For unvaccinated persons in particular, health and safety 
risks in connection with returning to the office with other personnel 
still remain worrisome and travel still poses a risk of contracting and 
spreading COVID-19.\14\ FINRA believes extending Rule 3110.17 through 
December 31, 2022 represents a prudent accommodation.\15\ The proposed 
additional six-month extension would provide further clarity to firms 
on regulatory requirements and account for the time needed for many 
firms to carefully assess when and how to have their employees safely 
return to their offices in light of vaccination coverage in the U.S. 
and transmission levels of the virus, including any emergent variants 
throughout the country.
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    \13\ See Jennifer Surane & Angelica Peebles, `I Was Wrong': 
Omicron Wrecks CEOs' Plans for Office Return (describing how the 
``new wave of Covid uncertainty is upending business plans from Wall 
Street to Silicon Valley.''), Bloomberg (December 16, 2021), https://www.bloomberg.com/news/articles/2021-12-16/-i-was-wrong-omicron-wrecks-ceos-plans-for-u-s-office-return; see also Nne D'Innocenzio, 
Omicron Cases Have Companies Rethinking Return to Work Plans 
(noting, in part, ``how difficult it is for companies to set firm 
plans for their employees' mandatory return as worries about a spike 
in new cases or new variants keep shifting deadlines. This fall, the 
delta variant spurred many big companies to postpone a mandatory 
return to early next year.''), Time (December 10, 2021), https://time.com/6127429/omicron-companies-rethinking-return-to-work/.
    \14\ See generally CDC, Workplaces and Businesses, https://www.cdc.gov/coronavirus/2019-ncov/community/workplaces-businesses/index.html (updated October 18, 2021); CDC, Domestic Travel During 
COVID-19 (stating, among other things, ``You might have been exposed 
to COVID-19 on your travels. You might feel well and not have any 
symptoms, but you can still be infected and spread the virus to 
others. People who are not fully vaccinated are more likely to get 
COVID-19 and spread it to others.''), https://www.cdc.gov/coronavirus/2019-ncov/travelers/travel-during-covid19.html (updated 
January 4, 2022).
    \15\ See supra note 5.
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    By further extending Rule 3110.17 to cover the second half of 
calendar year 2022 inspection obligations through December 31, 2022, 
FINRA is not proposing to amend the other conditions of the temporary 
rule. The proposed amendments to Rule 3110.17 would provide that for 
calendar year 2022, a member has the option to conduct those 
inspections remotely through December 31, 2022. 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. The additional period of time would also 
enable FINRA to further monitor the effectiveness of remote inspections 
and their impacts--positive or negative--on firms' overall supervisory 
systems in the evolving workplace.
    FINRA continues to believe this temporary remote inspection option 
is a reasonable alternative to provide to firms to fulfill their Rule 
3110(c) obligations during the ongoing pandemic, and is designed to 
achieve the investor protection objectives of the inspection 
requirements under these unique 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 form of 
in-person inspections would be feasible and appropriately contribute to 
a supervisory system that is reasonably designed to achieve compliance 
with applicable securities laws and regulations, and with applicable 
FINRA rules.
    FINRA has filed the proposed rule change for immediate 
effectiveness. FINRA is proposing to make the proposed rule change 
operative on July 1, 2022.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\16\ 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, and 
the emergence of the Delta variant and, more recently, the new Omicron 
variant, on performing the on-site inspection

[[Page 4075]]

component of Rule 3110(c), the proposed rule change is intended to 
provide firms a temporary regulatory option to conduct inspections of 
offices and locations remotely during the second half of calendar year 
2022. 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. In a time when faced with ongoing 
challenges resulting from the COVID-19 pandemic and the emergence of 
new variants, FINRA believes that the proposed rule change provides 
sensibly tailored relief that will afford firms the ability to assess 
when and how to implement their work re-entry plans as measured against 
the health and safety of their personnel, while continuing to serve and 
promote the protection of investors and the public interest.
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    \16\ 15 U.S.C. 78o-3(b)(6).
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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 to include calendar year 
2022 inspection obligations through December 31, 2022 within the scope 
of the supplementary material without making substantive changes to the 
other aspects of the provision. FINRA believes that the proposed 
temporary extension would afford firms the time needed to determine 
when and how to effectively and safely implement their work re-entry 
plans, which must take into account multiple factors, including local 
health and safety conditions, without diminishing 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 \17\ and Rule 19b-
4(f)(6) thereunder.\18\
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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-FINRA-2022-001 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-2022-001. 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 (http://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 10:00 a.m. and 
3:00 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-2022-001 and should be submitted 
on or before February 16, 2022.
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    \19\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-01467 Filed 1-25-22; 8:45 am]
BILLING CODE 8011-01-P