A GUIDE TO FINRA RULES 3110.19 AND 3110.18 SURROUNDING RESIDENTIAL SUPERVISORY LOCATIONS AND REMOTE INSPECTIONS
OVERVIEW
- SUMMARY
The source provides an in-depth analysis of two new Financial Industry Regulatory Authority (FINRA) rules that significantly alter how firms supervise remote personnel and locations. FINRA Rule 3110.19 establishes criteria for designating a private residence as a Residential Supervisory Location (RSL), allowing supervisory activities to occur there under specific conditions designed to maintain investor protection. Simultaneously, FINRA Rule 3110.18 initiates a three-year Remote Inspections Pilot Program, offering an alternative to traditional, in-person inspections for certain office locations based on risk assessments. The article outlines the opportunities and challenges these rules present, such as cost efficiency versus the need for technological investments, and offers a roadmap for firms to achieve compliance, including updating written supervisory procedures and conducting risk assessments.
CRITICAL QUESTIONS POWERED BY RED OAK
What are the key conditions for designating a Residential Supervisory Location (RSL)?
To qualify, the residence must:
Be used exclusively by one associated person (or immediate family).
Not be held out as a public office, with no client meetings allowed.
Avoid handling customer funds or securities.
Be tied to a designated branch office listed on all business communications.
Use firm-approved systems for electronic communications and recordkeeping.
Employ surveillance/technology to mitigate supervisory risks.
These conditions ensure flexibility for firms while maintaining investor protection.
How does the Remote Inspections Pilot Program under Rule 3110.18 work?
Effective July 1, 2024, the three-year program allows firms to conduct remote inspections of certain branch and non-branch offices. Firms must:
Use a risk-based approach to decide which locations qualify.
Maintain written supervisory plans explaining methodologies.
Provide regulatory reporting data to FINRA for oversight.
It modernizes compliance by aligning inspections with remote work practices while keeping supervisory rigor intact.
What should firms do to prepare for these new rules?
Firms should:
Conduct risk assessments to evaluate eligibility for RSL designation or remote inspection.
Update supervisory procedures to reflect new compliance requirements.
Train staff on responsibilities under the rules.
Review MAP filing obligations to determine if more remote offices require FINRA approval.
Engage with FINRA to clarify compliance questions and demonstrate proactive adaptation.
Preparation ensures firms can embrace flexibility without exposing themselves to regulatory risk.
TRANSCRIPT (FOR THE ROBOTS)
Speaker 1 Welcome back to the Deep Dive. So have you been watching the financial services industry? I mean, wow.
Speaker 1 Welcome back to the Deep Dive. So have you been watching the financial services industry? I mean, wow.
The last few years, the physical footprint of work, it’s just fundamentally changed, collapsed almost.
Speaker 2
Yeah, it really has.
Speaker 1
But the need for regulatory certainty, for investor protection, that hasn’t gone anywhere. So now regulation is scrambling, playing serious catch up.
Speaker 2
Definitely.
Speaker 1
Today we are tearing into the source material that’s defining this massive shift. Our mission, a really deep dive into the new FINRA rules. We’re focusing specifically on two big ones. Rule 3110.19, which legitimizes the Residential Supervisory Location (RSL), and Rule 3110.18, which kicks off this major remote inspections pilot program.
Speaker 2
And what’s really fascinating here, I think, is the context. These updates have major effective dates rolling out through 2024. It’s FINRA’s big effort to modernize their frameworks.
Speaker 1
Modernize. Right.
Speaker 2
But modernization isn’t the end goal itself. The goal is always preserving that rigorous standard of investor protection, even if supervision is happening from a kitchen table.
Speaker 1
Yeah.
Speaker 2
So the core question for you listening is really this: How do firms get the operational flexibility that the modern workforce demands without compromising that essential oversight FINRA mandates?
Speaker 1
Absolutely. Because that traditional branch office—
Speaker 2
Yeah.
Speaker 1
It’s just not the central compliance pillar it used to be. Okay, so let’s unpack this. Let’s start with Rule 3110.19. What exactly is an RSL, a Residential Supervisory Location? And why did FINRA feel they needed this whole new category?
Speaker 2
Well, we’re talking about a rule that became effective June 1, 2024. Before this, home offices often operated under temporary permissions. It was all very vague.
Speaker 1
Right. Sort of pandemic workarounds.
Speaker 2
Exactly. Rule 3110.19 changes that. It lets a firm formally designate an associated person’s private residence, their home, as a non-branch location where supervisory activities actually happen. It’s basically a formal nod to the fact that the supervisor of tomorrow works from home.
Speaker 1
And it’s really critical to get that distinction. We’re not talking about an OSJ, an Office of Supervisory Jurisdiction. Those carry heavy operational burdens.
Speaker 2
No, definitely not.
Speaker 1
The RSL is explicitly non-branch.
Speaker 2
Precisely. And FINRA knows that if they tried to categorize every single supervisory home office as an OSJ, the administrative burden and inspection load would be impossible.
Speaker 1
Yeah, unworkable.
Speaker 2
Right. So by creating this RSL classification, they acknowledge supervision is happening at home, but they keep it under incredibly tight control. They impose restrictive conditions that define its non-branch status. And those conditions are the core of investor protection in this model.
Speaker 1
Okay, this is where it gets really interesting because the boundaries FINRA set are precise. Let’s run through those four main restrictions, starting with who can actually work there.
Speaker 2
Yeah, that’s the first one: Exclusive use. To qualify as an RSL, only one associated person can conduct business from that residence.
Speaker 1
Just one.
Speaker 2
Well, or multiple people if they’re from the same immediate family. Think spouses working for the same firm. This prevents the RSL from becoming a regional hub or shared workspace, which would trigger heavier requirements.
Speaker 1
Gotcha. Then there’s the non-public requirement. The location cannot be presented to the public as an office.
Speaker 2
No, much more than that.
Speaker 1
It means absolutely zero client meetings allowed at an RSL. Why is that essential?
Speaker 2
It’s about preventing even the appearance of a full-fledged physical branch. If clients are coming and going, FINRA needs assurance that the space meets standards for privacy, security, and record handling.
Speaker 1
Right.
Speaker 2
So by banning client visits and also banning asset handling, that’s the third restriction. RSLs cannot handle customer funds or securities. FINRA walls off the RSL from direct retail interaction to minimize risk.
Speaker 1
And finally, the tech mandate. The supervisor must be assigned to a main branch and rely entirely on the firm’s tech for communications. No personal laptops and Gmail.
Speaker 2
Absolutely not. That reliance on firm systems is critical for compliance, data integrity, and record retention. Firms must implement technology and surveillance tools to mitigate remote risks.
Speaker 1
Like what kind of risks?
Speaker 2
Unauthorized file transfers, email spoofing, data leakage. The firm has to ensure the home office is a compliance extension of the main branch.
Speaker 1
Okay, so that sets the boundaries for the supervisor. But what if that supervisor needs to inspect other remote locations? That brings us to the second big update.
Speaker 2
Exactly.
Speaker 1
Let’s pivot to FINRA Rule 3110.18, effective July 1, 2024. This sets up the three-year Remote Inspections Pilot Program.
Speaker 2
Yes, it’s a direct response to the post-pandemic workplace. It provides an alternative to expensive in-person inspections for certain branch and non-branch locations, using technology.
Speaker 1
But the rules were stuck.
Speaker 2
Pretty much. So this pilot offers a path for modernization.
Speaker 1
But just like the RSL program, joining isn’t a free pass. It needs serious documentation and risk analysis.
Speaker 2
Definitely. Each location must be evaluated with a risk-based determination. Firms must consider products sold, history of complaints, data sensitivity, etc.
Speaker 1
And if they decide it is eligible?
Speaker 2
Then they must produce detailed Written Supervisory Plans (WSPs) outlining methods for remote inspection. And since this is a pilot, firms must rigorously report data back to FINRA so regulators can assess effectiveness.
Speaker 1
So what does it all mean for firms? Let’s start with the upside: cost efficiency.
Speaker 2
Yes. Firms could cut real estate and travel expenses, while hiring talent anywhere and supporting remote work.
Speaker 1
Big savings, potentially.
Speaker 2
Yes, but the tradeoff is higher costs for surveillance tech and regulatory maintenance.
Speaker 1
So the real challenge isn’t rent.
Speaker 2
Right. It’s technological investment. Firms need encrypted platforms, communication monitoring, and must handle BYOD and cybersecurity risks.
Speaker 1
That’s tough for compliance, especially tracking texts or unauthorized devices.
Speaker 2
Exactly. Firms must supervise all business communications and commit to enhanced procedures.
Speaker 1
Meaning updating manuals.
Speaker 2
Correct. WSPs must reflect these new risks. And opting in means heightened regulatory scrutiny.
Speaker 1
So what’s the compliance roadmap?
Speaker 2
Three steps: First, conduct risk assessments for people and locations. Second, update WSPs to address tech safeguards. Third, train staff so they fully understand their responsibilities.
Speaker 1
Okay, but what about the MAP filing issue?
Speaker 2
MAP means Material Change of Business Operations. If firms designate too many RSLs, they may exceed the “safe harbor” thresholds, triggering a MAP amendment. This requires careful calculation or a materiality consultation with FINRA.
Speaker 1
So it’s not just about following RSL rules—it’s about whether the scale changes the firm’s operational footprint.
Speaker 2
Exactly. Go over the threshold, you lose safe harbor and must file MAP.
Speaker 1
That sounds like a tightrope walk. But FINRA’s core message is clear: modernization does not mean less oversight.
Speaker 2
Right. The burden of proof shifts to firms to show remote supervision equals physical supervision.
Speaker 1
That’s the ultimate takeaway. Flexibility demands increased accountability, backed by technology.
Speaker 2
Yes. Firms must ensure remote supervision meets the exact same standards as traditional methods.
Speaker 1
That’s a high bar.
Speaker 2
It is. Which raises the question: What new forms of surveillance or monitoring might become the norm to meet these standards?
Speaker 1
Yeah, that digital leash. Definitely a lot to think about. Thanks for joining us for the Deep Dive.
New rules from the Financial Industry Regulatory Authority (FINRA) introducing pivotal changes that
reshape how firms supervise and inspect remote locations. Two major developments—FINRA Rule
3110.19, governing Residential Supervisory Locations (RSLs), and FINRA Rule 3110.18, initiating a
Remote Inspections Pilot Program—present both opportunities and challenges for firms. These
updates reflect FINRA’s efforts to modernize regulatory frameworks while preserving investor
protection.
This article explores these changes in depth, their implications, and actionable strategies for firms
to ensure compliance.
What is FINRA Rule 3110.19?
Effective June 1, 2024, FINRA Rule 3110.19 introduces the concept of Residential Supervisory Locations (RSLs), allowing firms to designate certain associated persons’ private residences as non-branch offices where supervisory activities occur. This designation provides flexibility in adapting to modern work arrangements but imposes conditions to ensure compliance and supervision standards are maintained.
Conditions for RSL Designation
To qualify as an RSL, a location must meet the following criteria:
- Exclusive Use: Only one associated person, or multiple individuals from the same immediate family, may conduct business from the residence.
- Non-Public Office: The residence cannot be presented as an office to the public, and no client meetings are allowed at the location.
- Prohibition on Handling Assets: The location must not handle customer funds or securities.
- Branch Office Association: The associated person must be assigned to a specific branch office, which should be disclosed on their business communications and materials.
- Supervised Communications: All correspondence and public communications must comply with FINRA’s supervisory and recordkeeping standards.
- Use of Firm Systems: The residence must rely on the firm’s technology for electronic communications to ensure compliance and record retention.
- Surveillance and Technology Requirements: Firms must implement technology and surveillance tools tailored to mitigate the risks associated with each RSL.
These criteria aim to create a balanced environment where flexibility in supervisory roles does not compromise oversight and investor protection.
What is FINRA Rule 3110.18?
FINRA Rule 3110.18, effective July 1, 2024, establishes a Remote Inspections Pilot Program, providing an alternative to traditional in-person inspections for certain branch and non-branch locations. This three-year program reflects FINRA’s recognition of evolving workplace dynamics and the increased feasibility of remote oversight due to advancements in technology.
Eligibility and Participation
Key aspects of the program include:
- Risk-Based Determination: Firms must evaluate the risk profiles of locations to determine their eligibility for remote inspection.
- Documentation Requirements: Written supervisory plans must outline the firm’s rationale for choosing remote inspections and detail the methodologies employed.
- Regulatory Reporting: Participating firms are required to report specific data to FINRA, allowing the regulator to monitor the program’s effectiveness and address any emerging risks.
The pilot program is a response to the industry’s shift towards remote work and aims to enable firms to adapt their compliance practices while maintaining rigorous supervisory standards.
How Does It Impact My Firm?
The introduction of these rules signifies a profound shift in supervisory practices. Firms now have more flexibility in supervising remote employees and conducting inspections, but this comes with increased regulatory scrutiny and operational complexity.
Opportunities
1. Cost Efficiency: The ability to designate RSLs and conduct remote inspections may reduce overhead costs associated with maintaining physical offices and travel.
2. Adaptability: These rules allow firms to accommodate remote work preferences while maintaining compliance standards.
3. Operational Modernization: Firms can leverage technology to streamline supervisory and inspection processes, aligning with modern business practices.
Challenges
1. Enhanced Supervisory Procedures: Firms must update their written supervisory procedures to address the specific risks and requirements of RSLs and remote inspections.
2. Technological Investments: Ensuring robust cybersecurity, communication, and surveillance systems are critical to supporting these initiatives.
3. Regulatory Scrutiny: Firms opting into these programs must prepare for heightened oversight from FINRA, necessitating meticulous adherence to the rules.
4. MAP filing: considerations should be given to whether an increase in remote office locations constitutes a material change of business operations requiring FINRA approval under MAP rules or to seek guidance through FINRA’s materiality consultation process.
What is FINRA Saying?
FINRA has emphasized that these rules are designed to support the industry’s transition toward a more flexible supervisory framework. By allowing RSLs and introducing remote inspections, FINRA acknowledges the necessity of evolving alongside technological and workplace advancements.
However, FINRA has made it clear that this flexibility does not equate to a reduction in oversight.
Firms are expected to:
- Implement rigorous supervisory controls.
- Ensure that remote supervisory activities and inspections meet the same standards as traditional methods.
- Maintain open communication with FINRA to address compliance challenges proactively.
What Does This All Mean?
For firms, these changes reflect a broader trend in regulatory modernization. FINRA is recognizing the realities of remote work while emphasizing the need to uphold investor protection. This evolution requires firms to rethink traditional compliance models and embrace innovation in supervisory practices.
At its core, these rules aim to strike a balance between flexibility and accountability. Firms that adapt effectively can gain operational efficiencies while maintaining high compliance standards.
What Does My Firm Need to Do?
Adapting to these regulatory changes requires deliberate action and strategic planning. Here’s a roadmap to help firms navigate these updates:
1. Conduct Risk Assessments
Evaluate the risk profiles of associated persons and locations to determine their suitability for RSL designation or inclusion in the Remote Inspections Pilot Program. Document these assessments to demonstrate compliance with FINRA’s requirements.
2. Update Supervisory Procedures
Revise written supervisory procedures to reflect the specific conditions and safeguards associated with RSLs and remote inspections. Ensure these updates address recordkeeping, communication oversight, and technological requirements.
3. Train and Educate Personnel
Provide comprehensive training for associated persons on the new rules and updated compliance procedures. This ensures that employees understand their roles and responsibilities within the new framework.
4. Determine MAP requirements
Calculate whether this will cause the firm to go over their Safe Harbor allotment of office locations. Firms may need to file an amendment to their membership agreement. Firms also have the option to request guidance through FINRA’s materiality consultation process.
5. Engage with FINRA
Maintain an open dialogue with FINRA to seek guidance, address compliance questions, and demonstrate your firm’s proactive approach to adhering to the new regulations.
How Can Red Oak Help?
Navigating the complexities of FINRA Rules 3110.19 and 3110.18 requires a partner with deep regulatory expertise and a tailored approach. With over 120 years of combined industry experience, Red Oak’s Consulting team stands ready to guide your firm through these transformative changes with confidence and precision.
Red Oak’s Consultants Expertise Includes:
- Risk Audits: Identifying and addressing current risks associated with Residential Supervisory Locations (RSLs).
- Policy and Procedure Updates: Crafting and implementing a comprehensive, reasonably designed compliance program for RSLs and remote inspections.
- Team Training: Delivering thorough training to ensure your staff understands and complies with the new requirements.
- Regulatory Support: Answering your questions and providing actionable guidance on the nuances of FINRA’s latest rules.
Red Oak’s solutions are designed to meet the unique needs of your firm, ensuring you stay ahead of compliance challenges while maintaining operational efficiency.
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