FINRA recently released a modified version of Form U4, which now includes a method for broker-dealers (BDs) to indicate if their associates’ Offices of Employment that are located in private residences are designated as Residential Supervisory Locations (RSL). (Please note that the Revision Date of Form U4 still reflects May 2009.)
RSLs are private residences from which an associated person engages in supervisory activities. FINRA considers RSLs non-branch locations. As such, they do not need to be inspected annually. Instead, they must be inspected on a regular periodic schedule presumed to be at least every three (3) years.
In addition, FINRA has amended FINRA Rule 3110.19(d) to remove the quarterly reporting requirement to provide a list of all locations designated as RSLs (RSL List). Instead, RSLs will be reported to FINRA via the new RSL Question on Form U4. This modified version of FINRA Rule 3110 becomes effective November 26, 2024.
Prior to the December 26th, 2024, year-end CRD/IARD Renewal Shutdown, BDs must amend the Forms U4 for the registered associated persons working in Offices of Employment that are located in private residences. When the firm selects ‘yes’ to the Private Residence Check Box, the RSL question will activate allowing the BD to indicate whether the private residence is designated as an RLS.
After this initial transition and in accordance with FINRA By-Laws, BDs will need to keep Forms U4 updated by filing any necessary amendments within 30 days of RSL designation or when a previously eligible location becomes no longer eligible to be designated as an RSL.
Important Reminder: Don’t forget about other jurisdictional statutes and regulations! Some jurisdictions have not yet adopted RSL. In addition to the Form U4 amendments described above, BDs may also need to file Form BR amendments to deselect FINRA and register or notice file RSLs as branch offices in applicable jurisdictions. Keep in mind that because supervisory activities are conducted from these RSL locations, they will be considered OSJ offices in certain jurisdictions, thus requiring annual inspections. Fortunately, the New York Stock Exchange (NYSE) recently proposed harmonizing NYSE Rule 3110 with FINRA Rule 3110 permitting eligible BDs registered with the NYSE to designate eligible locations as RSLs.
Key Takeaways for Firms
The changes to Form U4 represent a significant regulatory shift, particularly as more employees continue to work from their private residences. Firms need to be proactive in reviewing the work locations of all associates, update Forms U4 and BD where necessary, and ensuring ongoing compliance with applicable FINRA and state jurisdictional regulations as well as NYSE regulations, if applicable to your firm.
Firms should be particularly mindful of FINRA’s December 26, 2024 renewal system shutdown as applicable filings must be done by that date in order to avoid compliance violations and potential penalties.
Looking Ahead
As the December 26, 2024, deadline approaches, firms should ensure they have the resources and systems in place to manage this increased compliance burden. Also, don’t forget to plan ahead on how you will operationally monitor for instances where previously eligible locations become no longer eligible to be designated as RSLs. In addition, you have impacts to your written policies and procedures (WSPs) to consider.
With the right planning, firms can meet their obligations while minimizing disruptions to their operations. If your firm needs assistance navigating these changes, please contact sales@reged.com.
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