FINRA Announces Effective Dates for Rules 3110.18 and 3110.19 and End of Regulatory Relief on Forms U4 and BR

Regulatory Notice 24-02

Published Date:

January 23, 2024

Effective Date of Rule 3110.19 (Residential Supervisory Location): June 1, 2024; Effective Date of Rule 3110.18 (Remote Inspections Pilot Program): July 1, 2024; End of Regulatory Relief Described in Regulatory Notice 20-08: May 31, 2024

Summary

FINRA is issuing this Notice to announce the effective dates of two new supplementary materials under FINRA Rule 3110 (Supervision) as follows:

• Rule 3110.19 (Residential Supervisory Location) becomes effective on June 1, 2024; and
• Rule 3110.18 (Remote Inspections Pilot Program) becomes effective on July 1, 2024.

FINRA expects to publish additional guidance outlining in greater detail operational processes for compliance with the data and information requirements of Rules 3110.18 and 3110.19.

The rule text for Rules 3110.18 and 3110.19 is available in Attachment A.

In addition, FINRA is announcing May 31, 2024, as the end date of the regulatory relief set forth in Regulatory Notice 20-08 (March 2020) (Notice 20-08 Relief) with respect to the obligation of firms to maintain current information for employment addresses and branch offices on specified uniform registration forms. In light of these changes, firms are encouraged to consult with FINRA’s Membership Application Program (MAP) Group as they consider the materiality of any potential increase in the number of offices or locations.

Questions concerning this Notice should be directed to:

• Kosha Dalal, Vice President and Associate General Counsel, Office of General Counsel (OGC), at (202) 728-6903 or [email](javascript:email(1550,'Kosha Dalal'););
• Sarah Kwak, Associate General Counsel, OGC, at (202) 728-8471 or [email](javascript:email(1781,'Sarah Kwak');); or
• Patricia Ledesma Liebana, Senior Economist, Office of the Chief Economist, at (202) 728-8461 or [email](javascript:email(2355,'Patricia Ledesma Liebana');).

Background & Discussion

Residential Supervisory Location Designation (Rule 3110.19) Becomes Effective on June 1, 2024

FINRA recently adopted new Rule 3110.19,1 which will treat a private residence at which an associated person engages in specified supervisory activities, subject to certain safeguards and limitations, as a non-branch location. As a non-branch location, this newly defined residential supervisory location (or RSL) will be subject to inspections on a regular periodic schedule (presumed to be at least every three years)2 instead of the annual inspections currently required for an office of supervisory jurisdiction (OSJ) and “supervisory branch office.”3 To use this RSL designation under Rule 3110.19, a firm and the associated person at each location must meet specified conditions and eligibility requirements. Among other requirements, a firm must conduct and document a risk assessment,4 and provide a list of RSLs to FINRA on a periodic basis. Rule 3110.19(d) requires a member firm that elects to designate any of its offices or locations as RSLs to provide FINRA with a current list of them by the 15th day of the month following each calendar quarter in the manner and format (e.g., through an electronic process or such other process) as FINRA may prescribe.

On June 1, 2024, firms may start using the RSL designation in accordance with Rule 3110.19.5 The first RSL list is due to FINRA on October 15, 2024, covering all locations firms designate as RSLs during the period June 1, 2024, through September 30, 2024.6

FINRA is currently developing a technological process in FINRA Gateway through which firms will be able to identify their RSLs and meet the obligation to provide their quarterly RSL lists to FINRA in an efficient manner. FINRA expects such technological process to be ready no later than May 31, 2024. As noted above, FINRA expects to publish additional guidance detailing the operational process for the submission of the quarterly RSL list to FINRA.7

MAP Rules

As firms prepare for the end of the temporary relief provided through Notice 20-08 and the effective date of Rule 3110.19, FINRA reminds firms that they should consider whether any potential increase in the number of offices or locations may implicate Rule 1017 (Application for Approval of Change in Ownership, Control, or Business Operations), which requires a firm to seek FINRA’s approval for a “material change in business operations,”8 or IM-1011-1 (Safe Harbor for Business Expansions). IM-1011-1 specifies the thresholds and conditions for increases in the number of offices (registered or unregistered) that, if met, are presumed not to be material for purposes of Rule 1017. Consistent with guidance provided in Notice to Members 00-73 (October 2000), if a change in a member’s business falls outside of the non-exhaustive list included in the definition of a “material change in business operations” or the terms of the safe harbor provision because, for example, the contemplated expansion exceeds the safe harbor thresholds or the member has a defined “disciplinary history,”9 the member must determine whether, based upon all facts and circumstances, the change is material. An assessment of all relevant facts and circumstances may include, among others:

• the nature of the proposed expansion;
• the qualifications and experience of the firm’s personnel; and
• the degree to which the firm’s existing financial, operational, supervisory and compliance systems can accommodate the change.10

The member firm is responsible for compliance with Rule 1017. If a member firm is uncertain whether an increase in its number of offices or locations is a material change in business operations, it is encouraged to seek guidance from FINRA’s MAP Group through the materiality consultation process.11

Remote Inspections Pilot Program (Rule 3110.18) Becomes Effective on July 1, 2024

In addition to Rule 3110.19, FINRA also adopted new Rule 3110.18.12 Rule 3110.18 establishes a voluntary, three-year remote inspections pilot program (Pilot Program) to allow eligible member firms to fulfill their Rule 3110(c)(1) inspection obligation of qualified branch offices, including OSJs and non-branch locations remotely, without an on-site visit to such offices or locations, subject to specified terms.

Under Rule 3110.18(i), a firm must affirmatively elect to participate in the Pilot Program by providing FINRA with an “opt-in notice” and once enrolled, must affirmatively elect to withdraw from the Pilot Program by providing FINRA with an “opt-out notice,” in the form and manner prescribed by FINRA. FINRA is currently developing a technological process in FINRA Gateway through which firms will be able to provide FINRA the requisite notices electronically, in an efficient manner. FINRA will provide further details about the manner and format of these notices in subsequent guidance. Notwithstanding the development of this process, the timeframes for firms to opt in or opt out of the Pilot Program are below.13

Open Enrollment Periods for Eligible Firms to Opt in to the Pilot Program

An eligible firm that elects to join the Pilot Program in any Pilot Year14 agrees to participate for the entire duration of that Pilot Year and will be automatically deemed to have elected and agreed to participate in the Pilot Program for each subsequent Pilot Year unless such firm affirmatively notifies FINRA of the firm’s withdrawal from the Pilot Program in such subsequent Pilot Year in accordance with Rule 3110.18(i) and the timeframes outlined below.15

For Pilot Year 1, which starts on July 1, 2024, and ends on December 31, 2024, the timeframe in which an eligible firm may elect to opt in to the Pilot Program is June 1, 2024, through June 26, 2024.16

An eligible firm that does not elect to join Pilot Year 1 between June 1, 2024, through June 26, 2024, may choose to join the Pilot Program in accordance with the requirements of Rule 3110.18(i) for a subsequent Pilot Year on or before these dates:

• December 27, 2024, to join Pilot Year 2 (January 1, 2025, to December 31, 2025);
• December 27, 2025, to join Pilot Year 3 (January 1, 2026, to December 31, 2026); and
• December 27, 2026, to join Pilot Year 4 (January 1, 2027, to June 30, 2027).

Opt-Out Notification Periods for Firm Participants to Withdraw From the Pilot Program

An eligible firm participant that joined in Pilot Year 1 but elects to withdraw or opt out of a subsequent Pilot Year must affirmatively notify FINRA at least five calendar days before that subsequent Pilot Year. Accordingly, FINRA must receive any such notification on or before these dates:

• December 27, 2024, to withdraw from participating in Pilot Year 2;
• December 27, 2025, to withdraw from participating in Pilot Year 3; and
• December 27, 2026, to withdraw from participating in Pilot Year 4.

A firm participant that does not provide such timely notice to FINRA will be deemed to have elected and agreed to participate for the duration of the subsequent Pilot Year.

Data and Information Requirement

In addition to conducting and documenting a risk assessment for using remote inspections,17 the terms of the Pilot Program include, among others, providing FINRA with specified data and information.

A firm that elects to participate in the Pilot Program for any amount of time will be required to provide the following data and information to FINRA in the form and manner determined by FINRA:

• quarterly data for each Pilot Year as specified in Rule 3110.18(h)(1)(A) – (F);
• supplemental written supervisory procedures for conducting remote inspections in compliance with Rule 3110.18(h)(1)(G), and if applicable, any subsequently amended procedures;18
• for a firm participating in Pilot Year 1, additional data and information covering January 1, 2024, through June 30, 2024, the period preceding the effective date of Rule 3110.18, as set forth under Rule 3110.18(h)(2); and
• acting in good faith using best efforts, calendar year 2019 inspection data and information as specified under Rule 3110.18(h)(3).

FINRA is currently developing a technological process in FINRA Gateway through which firm participants will be able to provide the aggregated data and information to FINRA in an efficient manner. FINRA will provide further details about the process in subsequent guidance.

Firm participants may conduct remote inspections under the Pilot Program starting on July 1, 2024, subject to compliance with the requirements of Rule 3110.18. As of July 1, 2024, firms will no longer be able to rely on Rule 3110.17 to fulfill their Rule 3110(c)(1) obligations, and firms that are ineligible under Rule 3110.18 or that do not elect to participate in the Pilot Program in any given Pilot Year will not be able to conduct any remote inspections during such Pilot Year.19

Notice 20-08 Relief Ends on May 31, 2024

At the onset of the COVID-19 pandemic, FINRA issued Regulatory Notice 20-08, which, among other things, temporarily suspended the requirements that member firms: (1) maintain updated Form U4 (Uniform Application for Securities Industry Registration or Transfer) information regarding the office of employment address for registered persons who temporarily relocated due to the pandemic; and (2) submit branch office applications on Form BR (Uniform Branch Office Registration Form) to report any newly opened temporary office locations or space-sharing arrangements established as a result of the pandemic. FINRA also conveyed in Regulatory Notice 20-08 and subsequent guidance that as coronavirus-related risks decreased member firms should expect to return to meeting any regulatory obligations for which relief has been provided and that FINRA would announce the end date for the Notice 20-08 Relief.20

As the public health emergency due to COVID-19 has officially ended,21 FINRA is announcing May 31, 2024, as the date on which the Notice 20-08 Relief related to the uniform registration forms will end. Starting on June 1, 2024, a member firm that has been relying on the Notice 20-08 Relief must resume its continuing obligation to: (1) maintain updated Form U4 information regarding the office of employment address for registered persons who relocated due to COVID-19 within the specified timeframe by filing an appropriate amendment as prescribed in Article V, Section 2 of the FINRA By-Laws22; and (2) submit or update branch office applications on Form BR for any office locations or space-sharing arrangements established as a result of COVID-19 that have not otherwise been registered or updated with FINRA through Form BR as prescribed in Article IV, Section 8 of the FINRA By-Laws.23 FINRA reminds member firms and registered persons of the obligation to keep information disclosed on such forms current at all times and that amended forms must be filed with FINRA and other applicable regulators not later than 30 days after learning of the facts or circumstances giving rise to the change.24

For firms that relied on the Notice 20-08 Relief, as of July 1, 2024, Forms U4 and BR must reflect current registration and address information for each office or location.

Key Dates at a Glance

Notice 20-08Relief and RSL
May 31, 2024	End of Notice 20-08 Relief
May 31, 2024	Release of FINRA Gateway functionality for firms to identify their RSLs and meet the obligation to provide their quarterly RSL lists to FINRA in accordance with Rule 3110.19(d)
June 1, 2024	Rule 3110.19 effective date The first day a firm may use the RSL designation.
June 1, 2024	Date on which firms previously relying on the Notice 20-08 Relief must comply with the timeframes specified in Article V, Section 2 or Article IV, Section 8 of the FINRA By-Laws
July 1, 2024	Date by which firms previously relying on the Notice 20-08 Relief must file supplementary amendments to Form U4 and BR with FINRA in accordance with Article V, Section 2 or Article IV, Section 8 of the FINRA By-Laws
October 15, 2024	Date by which firms must submit the first RSL list to FINRA The first list will reflect all locations a firm designates as RSLs during the period June 1, 2024, through September 30, 2024.

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Remote Inspections Pilot Program for Pilot Year 1
June 1, 2024 through June 26, 202425	Period in which a firm may elect to participate in the Pilot Program for Pilot Year 1 (beginning on July 1, 2024, and ending on December 31, 2024) by providing FINRA with an “opt-in notice” in the manner and format prescribed by FINRA26
June 30, 2024	Sunset of Rule 3110.1727 Firms can no longer rely on Rule 3110.17 to conduct remote inspections to satisfy Rule 3110(c)(1).
July 1, 2024	Rule 3110.18 effective date The first day a firm participant may conduct a remote inspection of eligible offices and locations under the specified terms and conditions.
October 15, 2024	Date by which a firm participant’s first set of Pilot Year 1 data and information must be provided to FINRA: - Pilot Year 1’s third quarter 2024 data28 and - written supervisory procedures related to remote inspections29
December 27, 2024	Notification Deadline to Affirmatively Withdraw from Automatic Participation in Pilot Year 2 Date by which a firm participant must affirmatively withdraw from the Pilot Program for Pilot Year 2 by providing FINRA with an “opt-out notice” in the manner and format prescribed by FINRA; otherwise, such firm will be automatically deemed to have elected and agreed to participate in the Pilot Program for Pilot Year 230
December 31, 2024	Deadline by which a firm participant in Pilot Year 1 must provide FINRA: - Data covering January 1, 2024, through June 30, 2024;31 and - Data for 2019, if available (acting in good faith using best efforts)32

Remote Inspections Pilot Program for Subsequent Pilot Years
Open enrollment deadlines for an eligible firm to opt in to the Pilot Program after Pilot Year 1 are as follows: - December 27, 2024, to join Pilot Year 2 - December 27, 2025, to join Pilot Year 3 - December 27, 2026, to join Pilot Year 4
Opt-out notification deadlines for an eligible firm to withdraw from the Pilot Program after completing Pilot Year 1 are as follows: - December 27, 2024, to withdraw from participating in Pilot Year 2 - December 27, 2025, to withdraw from participating in Pilot Year 3 - December 27, 2026, to withdraw from participating in Pilot Year 4

Endnotes

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1 See Exchange Act Release No. 98980 (November 17, 2023), 88 FR 82447 (November 24, 2023) (Notice of Filing of Amendment No. 2 and Order Granting Accelerated Approval of File No. SR-FINRA-2023-006).

2 See Rules 3110(c)(1)(C) and 3110.13.

3 See Rule 3110(c)(1)(A).

4 See Rule 3110.19(e).

5 Forms U4 and BR must reflect current registration and address information for each office or location. See discussion regarding the end of the Notice 20-08 Relief.

6 The first RSL list due to FINRA will cover a four-month period because of the June 1, 2024, effective date of Rule 3110.19. Subsequent RSL lists due in accordance with Rule 3110.19(d) will cover the usual calendar quarter timeframe. For example, the remaining RSL list for calendar year 2024 will cover the period October 1, 2024, through December 31, 2024, and the RSL list would be due on January 15, 2025.

7 The Central Registration Depository (CRD) currently provides regulators with information regarding the offices and locations (registered and unregistered) to which associated persons required to be registered are assigned. As part of FINRA’s development of a technological process using FINRA Gateway for the collection and submission of the quarterly RSL list, FINRA is also exploring ways to provide this information to state regulators in a practical format. See note 1, supra, 88 FR 82447.

8 See Rules 1017(a)(5) and 1011(m).

9 See IM-1011-1, defining “disciplinary history” to mean “a finding of a violation by the member or a principal of the member in the past five years by the SEC, a self-regulatory organization, or a foreign financial regulatory authority of one or more of the following provisions (or a comparable foreign provision) or rules or regulations thereunder: violations of the types enumerated in Section 15(b)(4)(E) and Section 15(c) of the Exchange Act; Section 17(a) of the Securities Act; SEA Rules 10b-5 and 15g-1 through 15g-9; FINRA Rules 2010 (only if the finding of a violation is for unauthorized trading, churning, conversion, material misrepresentations or omissions to a customer, frontrunning, trading ahead of research reports or excessive markups), 2020, 2111, 2121, 2150, 4330, 3110 (failure to supervise only), 5210, and 5230; and MSRB Rules G-19, G-30, and G-37(b) and (c), and all predecessor NASD rules to such FINRA rules.”

10 See generally Notice to Members 00-73 (October 2000); see also FINRA’s guidance on the Materiality Consultation process.

11 See note 10, supra.

12 See Exchange Act Release No. 98982 (November 17, 2023), 88 FR 82464 (November 24, 2023) (Ordering Approval of File No. SR-FINRA-2023-007).

13 FINRA may, in exceptional cases and where good cause is shown, waive the applicable timeframes for the required opt-in or opt-out notices. See Rule 3110.18(i). As part of any such determination, FINRA may condition granting such waiver to a firm on the provision of specified data and information to FINRA consistent with the Pilot Program.

14 See Rule 3110.18(l) (defining “Pilot Year”).

15 Any such firm must otherwise remain eligible to participate in the Pilot Program in each subsequent Pilot Year subject to the terms of Rule 3110.18(f).

16 As referenced above, FINRA is currently developing the process through which firms will be able to provide FINRA the requisite notices in an efficient manner. If the process becomes available before June 1, 2024, FINRA may adjust this timeframe.

17 See Rule 3110.18(b).

18 See also Rule 3110.18(c).

19 Consistent with Rule 3110.18(m), Rule 3110.17 will automatically sunset on June 30, 2024.

20 See Key Topics, COVID-19/Coronavirus, Frequency Asked Questions Related to Regulatory Relief Due to the Coronavirus Pandemic.

21 In May 2023, the World Health Organization (WHO) declared an end to the COVID-19 pandemic, and the U.S. Department of Health and Human Services declared the same for the United States. See WHO, Statement on the fifteenth meeting of the IHR (2005) Emergency Committee on the COVID-19 pandemic (May 5, 2023); and U.S. Health and Human Services (HHS), HHS Secretary Xavier Becerra Statement on End of the COVID-19 Public Health Emergency (May 11, 2023).

22 Article V, Section 2 of the FINRA By-Laws provides, among other things, that “[e]very application for registration filed with [FINRA] shall be kept current at all times by supplementary amendments . . . Such amendment to the application shall be filed with [FINRA] not later than 30 days after learning of the facts or circumstances giving rise to the amendment.”

23 Article IV, Section 8 of the FINRA By-Laws provides, among other things, that a member firm “shall promptly advise [FINRA] . . . of the opening, closing, relocation, change in designated supervisor, or change in designated activities of any branch office of such member not later than 30 days after the effective date of such change.”

24 See notes 22 and 23, supra.

25 See note 16, supra.

26 See Rule 3110.18(i).

27 See note 19, supra.

28 See Rule 3110.19(h)(1)(A) – (F).

29 See Rule 3110.18(h)(1)(G); see also Rule 3110.18(c).

30 See note 26, supra.

31 See Rule 3110.18(h)(2).

32 See Rule 3110.18(h)(3).

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Attachment A
New and Amended Rule Text
New language is underlined; deletions are in brackets.

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FINRA Rules

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3100. SUPERVISORY RESPONSIBILITIES
3110. Supervision
(a) through (f) No Change.

• • • Supplementary Material: --------------
  .01 through .17 No Change.
  .18 Remote Inspections Pilot Program
  (a) Scope. This Supplementary Material establishes a Remote Inspections Pilot Program with respect to the required inspection of OSJs, branch offices and non-branch locations pursuant to, as applicable, paragraphs (c)(1)(A), (B) and (C) under Rule 3110. The Remote Inspections Pilot Program shall cover required inspections of such offices or locations for a period of three years starting on July 1, 2024 ("pilot period"), and such pilot period shall expire on June 30, 2027. If the pilot period is not extended or Rule 3110.18, as may be amended, is not approved as permanent by the Commission, this Supplementary Material will automatically sunset on June 30, 2027. Members will not be able to participate in the Remote Inspections Pilot Program after such date. (b) Risk Assessment

(1) Standards for Reasonable Review. Subject to paragraphs (c), (f) and (g) of this Supplementary Material, each member obligated to conduct an inspection of an office or location pursuant to, as applicable, paragraphs (c)(1)(A), (B) and (C) under Rule 3110 may, subject to the requirements of this Rule 3110.18, elect to conduct the applicable inspection remotely, without necessarily an on-site visit for an office or location, when the member reasonably determines that the purposes of this Supplementary Material can be accomplished by conducting such required inspection remotely. Prior to electing a remote inspection for an office or location, rather than an on-site inspection, the firm must develop a reasonable risk-based approach to using remote inspections, and conduct and document a risk assessment for that office or location. The assessment must document the factors considered, including the factors set forth in Rule 3110.12 and must take into account any higher risk activities that take place at, or higher risk associated persons that are assigned to, that office or location. A member or its office or location that is ineligible for remote inspections because of either paragraphs (f) or (g) of this Supplementary Material must conduct an on-site inspection of that office or location on the applicable mandatory schedule under Rule 3110(c)(1). Notwithstanding Rule 3110.18, a member shall remain subject to the other requirements of Rule 3110(c). (2) Other Factors to Consider for Risk Assessment. In addition to the requirements under paragraph (b)(1) of this Supplementary Material, a member shall consider, among other things, the following factors with respect to an office or location in making its risk assessment for remotely inspecting an office or

location: (A) the volume and nature of customer complaints; (B) the volume and nature of outside business activities, particularly investment-related; (C) the volume and complexity of products offered; (D) the nature of the customer base, including vulnerable adult investors; (E) whether associated persons are subject to heightened supervision; (F) failures by associated persons to comply with the member's written supervisory procedures; and (G) any recordkeeping violations. In addition, consistent with Rule 3110.12, members should conduct on-site inspections or make more frequent use of unannounced, on-site inspections for high-risk offices or locations or where there are indicators of irregularities or misconduct (i.e., "red flags"). Moreover, consistent with Rule 3110(a), the member's supervisory system must take into consideration any red flags when determining whether to conduct a remote inspection of an office or location. (c) Written Supervisory Procedures for Remote Inspections. Consistent with a member's obligation under Rule 3110(b), a member that elects to participate in the Remote Inspections Pilot Program must establish, maintain, and enforce written supervisory procedures regarding remote inspections that are reasonably designed to detect and prevent violations of and achieve compliance with applicable securities laws and regulations, and with applicable FINRA rules. Reasonably designed procedures for conducting remote inspections of offices or locations must address, among other things:
(1) the methodology, including technology, that may be used to conduct remote inspections; (2) the factors considered in the risk assessment made for each applicable office or location pursuant to paragraph (b) of this Supplementary Material; (3) the procedures specified in paragraph (h)(1)(G) and (h)(4) of this Supplementary Material;

and (4) the use of other risk-based systems employed generally by the member 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. (d) 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 maintain 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 "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 on-site visit on an announced or unannounced basis. (e) Documentation Requirement. A member must maintain and preserve a centralized record for each of the Pilot Years specified in this Remote Inspections Pilot Program that separately identifies: (1) all offices or locations that were inspected remotely; and (2) any offices or locations for which the member determined to impose additional supervisory procedures or more frequent monitoring, as provided in paragraph (d) of this Supplementary Material. 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, including whether an on-site inspection was conducted at such office or location.

(f) Firm Level Requirements
(1) Firm Level Ineligibility Criteria
A member shall not be eligible to conduct remote inspections of any of its offices or locations in accordance with this Supplementary Material if any time during the pilot period the member:
(A) is or becomes designated as Restricted Firm under Rule 4111; (B) is or becomes designated as a Taping Firm under Rule 3170; (C) receives a notice from FINRA pursuant to Rule 9557 regarding compliance with Rule 4110 (Capital Compliance), Rule 4120 (Regulatory Notification and Business Curtailment) or Rule 4130 (Regulation of Activities of Section 15C Members Experiencing Financial and/or Operational Difficulties); (D) is or becomes suspended from membership by FINRA; (E) based on the date in the Central Registration Depository (CRD), had its FINRA membership become effective within the prior 12 months; or (F) is or has been found within the past three years by the SEC or FINRA to have violated Rule 3110(c) (Internal Inspections). (2) Firm Level Conditions As part of the requirements in paragraph (b) to develop a reasonably designed risk-based approach to using remote inspections and to conduct and document a risk assessment for each office or location, the member must satisfy the following conditions:

(A) Recordkeeping System
The member must have a recordkeeping system:
(i) to make and keep current, and preserve records required to be made and kept current, and preserved under applicable securities laws and regulations, FINRA rules, and the member's own written supervisory procedures under Rule 3110; (ii) such records are not physically or electronically maintained and preserved at the office or location subject to the remote inspection; and (iii) the member has prompt access to such records; and (B) Surveillance and Technology Tools The member must determine that its surveillance and technology tools are appropriate to supervise the types of risks presented by each such remotely supervised office or location. These tools may include but are not limited to:
(i) firm-wide tools such as electronic recordkeeping systems; electronic surveillance of e-mail and correspondence; electronic trade blotters; regular activity-based sampling reviews; and tools for visual inspections; (ii) tools specifically applied to such office or location based on the activities of associated persons, products offered, restrictions on the activity of the office or location (including

holding out to customers and handling of customer funds or securities); and (iii) system security tools such as secure network connections and effective cybersecurity protocols. (g) Location Level Requirements (1) Location Level Ineligibility Criteria Subject to paragraph (f) of this Supplementary Material, a member's office or location shall not be eligible for a remote inspection in accordance with this Supplementary Material if at any time during the pilot period:
(A) one or more associated persons at such office or location is or becomes subject to a mandatory heightened supervisory plan under the rules of the SEC, FINRA or a state regulatory agency; (B) one or more associated persons at such office or location is or becomes statutorily disqualified, unless such disqualified person has been approved (or is otherwise permitted pursuant to FINRA rules and the federal securities laws) to associate with a member and is not subject to a mandatory heightened supervisory plan under paragraph (g)(1)(A) of this Supplementary Material or otherwise as a condition to approval or permission for such association; (C) the firm is or becomes subject to Rule 1017(a)(7) as a result of one or more associated persons at such office or location; (D) one or more associated persons at such office or location has an event in the prior three years that required a "yes" response to any item

in Questions 14A(1)(a) and 2(a), 14B(1)(a) and 2(a), 14C, 14D and 14E on Form U4; (E) one or more associated persons at such office or location is or becomes subject to a disciplinary action taken by the member that is or was reportable under Rule 4530(a)(2); (F) one or more associated persons at such office or location is engaged in proprietary trading, including the incidental crossing of customer orders, or the direct supervision of such activities; or (G) the office or location handles customer funds or securities. (2) Location Level Conditions As part of the requirement to develop a reasonably designed risk-based approach to using remote inspections, and the requirement to conduct and document a risk assessment for each office or location in accordance with paragraph (b) of this Supplementary Material, a specific office or location of the member must also satisfy the following conditions:
(A) electronic communications (e.g., e-mail) are made through the member's electronic system; (B) the associated person's correspondence and communications with the public are subject to the firm's supervision in accordance with Rule 3110; and (C) no books or records of the member required to be made and kept current, and preserved under applicable securities laws and regulations, FINRA rules and the member's own written supervisory

procedures under Rule 3110 are physically or electronically maintained and preserved at such office or location. (h) Data and Information Collection Requirement (1) Data and Information. A member that elects to participate in the Remote Inspections Pilot Program shall collect the following data and information and provide such data and information to FINRA, on a quarterly basis, and in the manner and format determined by FINRA. For the items referenced in paragraphs (h)(1)(A) through (F) of this Supplementary Material, a member shall provide separate counts for OSJs, supervisory branch offices, non-supervisory branch offices, and non-branch locations consistent with paragraphs (c)(1)(A), (B) and (C) under Rule 3110. For purposes of this paragraph, the term "finding" means a discovery made during an inspection that led to a remedial action or was listed on the member's inspection report:
(A) number of offices and locations with an inspection completed during each calendar quarter; (B) number of offices and locations in paragraph (h)(1)(A) that were inspected remotely; (C) number of offices and locations in paragraph (h)(1)(A) that were inspected on-site; (D) number of offices and locations in paragraph (h)(1)(C) that were inspected on-site because of a finding;

(E) number of offices and locations in paragraph (h)(1)(B) where findings were identified, the number of those findings and a list of the significant findings; (F) number of offices and locations in paragraph (h)(1)(C) where findings were identified, the number of those findings and a list of the significant findings; and (G) requirements of the written supervisory procedures for Remote Inspections in each of the four areas below. This information should be provided with the first delivery of data made pursuant to this paragraph, and thereafter with the first delivery of such data made after any amendments to the written supervisory procedures for Remote Inspections:
(i) procedures for escalating significant findings; (ii) procedures for new hires; (iii) procedures for supervising brokers with a significant history of misconduct; and (iv) procedures related to outside business activities (OBAs) and doing business as (DBA) designations. (2) Additional Data and Information for Pilot Year 1, if Less Than Full Calendar Year. In addition to the information set forth in paragraph (h)(1) of this Supplementary Material, if Pilot Year 1 covers a period that is less than a full calendar year, a member that elects to participate in the Remote Inspections Pilot Program shall collect the following data and information and provide such

data and information to FINRA no later than December 31 of such first Pilot Year in the manner and format determined by FINRA. For the items referenced in paragraphs (h)(2)(A) through (E) of this Supplementary Material, a member shall provide separate counts for OSJs, supervisory branch offices, non-supervisory branch offices, and non-branch locations consistent with paragraphs (c)(1)(A), (B) and (C) under Rule 3110:
(A) the number of offices and locations with an inspection completed between January 1 of Pilot Year 1 and the day before the effective date of the Remote Inspections Pilot Program; (B) the number of offices and locations in paragraph (h)(2)(A) that were inspected remotely between January 1 of Pilot Year 1 and the day before the effective date of the Remote Inspections Pilot Program; (C) the number of offices and locations in paragraph (h)(2)(A) that were inspected on-site between January 1 of Pilot Year 1 and the day before the effective date of the Remote Inspections Pilot Program; (D) the number of offices and locations in paragraph (h)(2)(B) where findings were identified, the number of those findings and a list of the significant findings; and (E) the number of offices and locations in paragraph (h)(2)(C) where findings were identified, the number of those findings and a list of the significant findings. (3) Additional Data and Information for Calendar Year 2019. In addition to the information set forth in paragraphs (h)(1) and (h)(2) of this

Supplementary Material, for calendar year 2019, a member that elects to participate in the Remote Inspections Pilot Program shall act in good faith using best efforts to collect the following data and information and provide such data and information to FINRA no later than December 31 of Pilot Year 1 in the manner and format determined by FINRA. For the items referenced in paragraphs (h)(3)(A) and (B) of this Supplementary Material, a member shall provide separate counts for OSJs, supervisory branch offices, non-supervisory branch offices, and non-branch locations consistent with paragraphs (c)(1)(A), (B) and (C) under Rule 3110:
(A) the number of offices and locations with an inspection completed during calendar year 2019; and (B) the number of offices and locations referenced in paragraph (h)(3)(A) where findings were identified, the number of those findings and a list of the significant findings. (4) Written Policies and Procedures. A member shall establish, maintain and enforce written policies and procedures that are reasonably designed to comply with the data and information collection, and transmission requirements of paragraph (h) of this Supplementary Material. (i) Election to Participate in Remote Inspections Pilot Program. A member that elects to participate in the Remote Inspections Pilot Program for any Pilot Year shall, at least five calendar days before the beginning of such Pilot Year, provide FINRA an "opt-in notice" in the manner and format determined by FINRA. By providing such opt￾in notice to FINRA, the member agrees to participate in the Remote Inspections Pilot

Program for the duration of such Pilot Year and to comply with the requirements of Rule
3110.18. A member that provides an opt-in notice for a Pilot Year shall be automatically
deemed to have elected and agreed to participate in the Remote Inspections Pilot Program for subsequent Pilot Years until the Remote Inspections Pilot Program expires. A member that elects to withdraw from subsequent Pilot Years (i.e., Pilot Year 2, Pilot Year 3, and Pilot Year 4, if applicable) shall, at least five calendar days before the end of the then current Pilot Year, provide FINRA with a "opt-out notice" in the manner and format determined by FINRA. FINRA may, in exceptional cases and where good cause is shown, waive the applicable timeframes for the required opt-in or opt-out notices. (j) Failure to Satisfy Conditions. A member that fails to satisfy the conditions of Rule 3110.18, including the requirement to timely collect and submit the data and information to FINRA as set forth in paragraph (h) of this Supplementary Material, shall be ineligible to participate in the Remote Inspections Pilot Program and must conduct on￾site inspections of each office and location on the required cycle in accordance with Rule 3110(c). (k) Determination of Ineligibility. FINRA may make a determination in the public interest and for the protection of investors that a member is no longer eligible to participate in the Pilot Program if the member fails to comply with the requirements of Rule 3110.18. In such instances, FINRA will provide written notice to the member of such determination and the member would no longer be eligible to participate in the Pilot Program and must conduct on-site inspections of required offices and locations in accordance with Rule 3110(c).

(l) Definitions. For purposes of this Supplementary Material, the term "Pilot Year" shall mean the following:
(1) Pilot Year 1 is the period beginning on July 1, 2024 and ending on December 31 of the same year; (2) Pilot Year 2 means the calendar year period following Pilot Year 1, beginning on January 1 and ending on December 31; (3) Pilot Year 3 means the calendar year period following Pilot Year 2, beginning on January 1 and ending on December 31; and (4) If applicable, where Pilot Year 1 covers a period that is less than a full calendar year, then Pilot Year 4 means the period following Pilot Year 3, beginning on January 1 and ending on June 30, 2027. (m) Sunset of Rule 3110.17. If Rule 3110.17 has not already expired by its own terms, Rule 3110.17 will automatically sunset on June 30, 2024. .19 Residential Supervisory Location (a) Conditions for Designation as a Residential Supervisory Location (RSL). Notwithstanding any other provisions of Rule 3110(f) and subject to paragraphs (b), (c) and (d) of this Supplementary Material, a location that is the associated person’s private residence where supervisory activities are conducted, including those described in Rule 3110(f)(1)(D) through (G) or in Rule 3110(f)(2)(B), shall be considered for those activities a non-branch location, provided that:
(1) only one associated person, or multiple associated persons who reside at that location and are members of the same immediate family, conduct business at the location;

(2) the location is not held out to the public as an office; (3) the associated person does not meet with customers or prospective customers at the location; (4) any sales activity that takes place at the location complies with the conditions set forth under Rule 3110(f)(2)(A)(ii) or (iii); (5) neither customer funds nor securities are handled at that location; (6) the associated person is assigned to a designated branch office, and such designated branch office is reflected on all business cards, stationery, retail communications and other communications to the public by such associated person; (7) the associated person’s correspondence and communications with the public are subject to the firm’s supervision in accordance with this Rule; (8) the associated person’s electronic communications (e.g., e-mail) are made through the member’s electronic system; (9)(A) the member must have a recordkeeping system to make and keep current, and preserve records required to be made and kept current, and preserved under applicable securities laws and regulations, FINRA rules, and the member’s own written supervisory procedures under Rule 3110; (B) such records are not physically or electronically maintained and preserved at the office or location; and (C) the member has prompt access to such records; and (10) the member must determine that its surveillance and technology tools are appropriate to supervise the types of risks presented by each Residential Supervisory Location, and these tools may include but are not limited to: (A)

firm-wide tools such as, electronic recordkeeping system; electronic surveillance of e-mail and correspondence; electronic trade blotters; regular activity-based sampling reviews; and tools for visual inspections; (B) tools specific to the RSL based on the activities of associated person assigned to the location, products offered, restrictions on the activity of the RSL; and (C) system tools such as secure network connections and effective cybersecurity protocols. (b) Member Firm Ineligibility Criteria. A member shall not be eligible to designate an office or location as an RSL in accordance with Rule 3110.19 if the member:
(1) is currently designated as a Restricted Firm under Rule 4111; (2) is currently designated as a Taping Firm under Rule 3170; (3) is currently undergoing, or is required to undergo, a review under Rule 1017(a)(7) as a result of one or more associated persons at such location; (4) receives a notice from FINRA pursuant to Rule 9557 (Procedures for Regulating Activities under Rule 4110 (Capital Compliance), Rule 4120 (Regulatory Notification and Business Curtailment) or Rule 4130 (Regulation of Activities of Section 15C Members Experiencing Financial and/or Operational Difficulties)), unless FINRA has otherwise permitted activities in writing pursuant to such rule; (5) is or becomes suspended by FINRA; (6) based on the date in the Central Registration Depository (CRD), had its FINRA membership become effective within the prior 12 months; or

(7) is or has been found within the past three years by the SEC or FINRA to have violated Rule 3110(c).
(c) Location Ineligibility Criteria. An office or location shall not be eligible for designation as an RSL in accordance with Rule 3110.19 if one or more associated persons at such office or location:
(1) is a designated supervisor who has less than one year of direct supervisory experience with the member, or an affiliate or subsidiary of the member that is registered as a broker-dealer or investment adviser; (2) is functioning as a principal for a limited period in accordance with Rule 1210.04; (3) is subject to a mandatory heightened supervisory plan under the rules of the SEC, FINRA or state regulatory agency; (4) is statutorily disqualified, unless such disqualified person has been approved (or is otherwise permitted pursuant to FINRA rules and the federal securities laws) to associate with a member and is not subject to a mandatory heightened supervisory plan under paragraph (c)(3) of this Supplementary Material or otherwise as a condition to approval or permission for such association; (5) has an event in the prior three years that required a “yes” response to any item in Questions 14A(1)(a) and 2(a), 14B(1)(a) and 2(a), 14C, 14D and 14E on Form U4; or (6) has been notified in writing that such associated person is now subject to, any Investigation or Proceeding, as such terms are defined in the Explanation

of Terms for the Form U4 (Uniform Application for Securities Industry Registration or Transfer), by the SEC, a self-regulatory organization, including FINRA, or state securities commission (or agency or office performing like functions) (each, a “Regulator”) expressly alleging they have failed reasonably to supervise another person subject to their supervision, with a view to preventing the violation of any provision of the Securities Act, the Exchange Act, the Investment Advisers Act, the Investment Company Act, the Commodity Exchange Act, any state law pertaining to the regulation of securities or any rule or regulation under any of such Acts or laws, or any of the rules of the MSRB or other self-regulatory organization, including FINRA; provided, however, such office or location may be designated or redesignated as an RSL subject to the requirements of this Supplementary Material upon the earlier of: (i) the member’s receipt of written notification from the applicable Regulator that such Investigation has concluded without further action; or (ii) one year from the date of the last communication from such Regulator relating to such Investigation. (d) Obligation to Provide List of RSLs to FINRA. A member that elects to designate any office or location of the member as an RSL pursuant to this Supplementary Material shall provide FINRA with a current list of all locations designated as RSLs by the 15th day of the month following each calendar quarter in the manner and format (e.g., through an electronic process or such other process) as FINRA may prescribe. (e) Risk Assessment. Subject to the requirements of this Supplementary Material, prior to designating an office or location as an RSL, the member must develop a reasonable risk-based approach to designating such office or location as an RSL, and

conduct and document a risk assessment for the associated person assigned to that office or location. The assessment must document the factors considered, including among others, whether the associated person at such office or location is now subject to: (1) customer complaints, taking into account the volume and nature of the complaints; (2) heightened supervision other than where such office or location is ineligible for RSL designation under paragraph (c)(3) of this Supplementary Material; (3) any failure to comply with the member’s written supervisory procedures; (4) any recordkeeping violation; and (5) any regulatory communications from a Regulator, indicating that the associated person at such office or location failed reasonably to supervise another person subject to their supervision, including but not limited to, subpoenas, preliminary or routine regulatory inquiries or requests for information, deficiency letters, “blue sheet” requests or other trading questionnaires, or examinations. The member must take into account any higher risk activities that take place or a higher risk associated person that is assigned to that office or location. Consistent with its obligation under Rule 3110(a), the member’s supervisory system must take into consideration any indicators of irregularities or misconduct (i.e., “red flags”) when designating an office or location as an RSL. Red flags should also be reviewed in determining whether it is reasonable to maintain the RSL designation of such office or location in accordance with the requirements of this Supplementary Material and the member should consider evidencing steps taken to address those red flags where appropriate.

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