FINRA Issues Notice Regarding Business Continuity Planning During COVID-19 Outbreak

On March 9, 2020, FINRA released Regulatory Notice 20-08 (the "Regulatory Notice") providing guidance and limited relief to its member broker-dealers during the COVID-19 pandemic. In particular, the Regulatory Notice requests that broker-dealers evaluate their compliance with FINRA Rule 4370, which requires broker-dealers to create, maintain, and update upon any material change, BCPs (Business Continuity Plans) identifying procedures relating to emergency or significant business disruption.

Business Continuity Plans

• FINRA is encouraging broker-dealers to review their BCPs for pandemic preparedness, including whether the BCPs are sufficiently flexible to address a wide range of possible effects of a pandemic.
• Broker-dealers are encouraged to contact their assigned FINRA Risk Monitoring Analyst to discuss the activation and implementation of their BCPs.
• Broker-dealers must ensure that they designate two emergency contact persons, both of whom must be associated persons, and at least one contact must be a member of senior management and a registered principal.

Remote Offices and Telework Arrangements

• Broker-dealers may utilize remote offices and telework arrangements. If utilized, the broker-dealer must establish and maintain a system to supervise the activities of each associated person.
• On-site inspections of branch offices may need to be temporarily postponed during the pandemic.

Cybersecurity

• Ensuring that virtual private networks and other remote access systems are properly patched with available security updates;
• Checking that system entitlements are current;
• Employing the use of multi-factor authentication for associated persons who access systems remotely; and
• Reminding associated persons of cyber risks through education, training, and other exercises that promote heightened vigilance.

Form U4/Form BR

• FINRA is temporarily suspending the requirement to maintain updated Form U4 information regarding any temporary office because of COVID-19.
• Broker-dealers will not be required to submit branch office applications on Form BR for any new temporary offices.

Emergency Office Relocations

• If a broker-dealer relocates personnel to a temporary location that is not currently registered as a branch office or identified as a regular non-branch location, the broker-dealer should notify its FINRA Risk Monitoring Analyst in writing as soon as possible. The notice should include relevant information such as:
  • The office address and telephone number;
  • The names of the FINRA members and registered representatives involved; and
  • The expected duration and whether the broker-dealer is sharing the space with another enterprise.
• If a broker-dealer is utilizing a non-branch location, it should still ensure that it is validating the identity of customers and supervising customer accounts.

Communicating with Customers

• Broker-dealers should review their BCPs to ensure that customers can access funds and securities during a significant business disruption.
• If registered representatives cannot service their customers, broker-dealers should consider notifying customers through their websites.

Regulatory Filings and Responses to FINRA Inquiries, Matters, and Investigations

• FINRA is encouraging a broker-dealer to contact their Risk Monitoring Analysts or the relevant FINRA department if the broker-dealer requires an extension to respond to open inquiries, investigations, or upcoming filings.
• If any data communications are disrupted, member firms should retain the relevant data until it can be submitted to FINRA.

Qualification Examinations and Regulatory Element Continuing Education

Conclusion